What Are the Best States for Retirees to Minimize Taxes?
Last reviewed: July 2026
The best states for retirees to minimize taxes are the nine with no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But income tax is only one piece. State taxes for retirees also include property taxes, sales taxes, and estate taxes, and a state that wins on one can lose badly on another. The right answer depends on where your income comes from and how much wealth you plan to pass on.
Key Takeaways
- Nine states levy no state income tax, but several offset it with higher property or sales taxes.
- Most states no longer tax Social Security benefits; only a handful still do as of 2026.
- State estate taxes can apply to estates as low as $1 million, far below the federal exemption.
- Maryland offers a pension exclusion of up to $40,600 for 2026, softening its income tax for retirees 65 and older.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate retirement tax planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff often reminds clients that the headline "no income tax" sticker can hide a property tax bill that quietly erases the savings within a few years.
Why Do State Taxes Matter So Much in Retirement?
State taxes matter in retirement because, for the first time, you control where you live. During your working years your job usually dictated your location. In retirement, that constraint disappears, and the financial difference between a high-tax and low-tax state can run into tens of thousands of dollars per year.
Here is where it gets real. A couple drawing $120,000 a year from pensions, retirement accounts, and investments could pay nothing in state income tax in Florida and roughly $7,000 to $11,000 in a high-rate state like California or New York. Over a 25- to 30-year retirement, that gap compounds into a six-figure number.
For business owners who built wealth inside a company, or professionals with seven-figure retirement accounts, the stakes climb higher once estate taxes enter the picture. A state estate tax with a low threshold can claim a meaningful slice of what you intended to leave your kids. This is exactly why tax-friendly states deserve a hard look before you relocate, not after.
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What Types of State Taxes Affect Retirees?
Four categories drive the total bill, and retirement tax planning means weighing all four together rather than fixating on one.
State income tax on retirement income. Most states tax withdrawals from traditional IRAs and 401(k)s, pension payments, and investment income as ordinary income. Social Security is the wildcard. As of 2026, only a small group of states still tax Social Security benefits, and the Social Security Administration confirms benefits are also subject to federal tax once provisional income crosses certain thresholds.
Property taxes. Even a state with zero income tax can drain your budget through property taxes. New Jersey and Illinois carry some of the highest effective rates in the country, often above 2% of home value annually, while states like Alabama and Hawaii sit far lower. For a retiree who owns a home outright, property tax frequently becomes the single largest recurring fixed cost.
Sales taxes. Combined state and local sales tax ranges from 0% in Oregon, New Hampshire, Delaware, and Montana to well over 9% in parts of Louisiana and Tennessee. Spend $75,000 a year and the gap between a 0% and a 9% rate approaches $6,750 annually.
Estate and inheritance taxes. The federal estate tax exemption is $15 million per person for 2026, but several states impose their own estate or inheritance taxes with thresholds as low as $1 million. You can owe state estate tax without owing a dollar federally.
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Which States Are Most Tax-Friendly for Retirees?
The most tax-friendly states cluster around three features: no income tax, no tax on Social Security, and a low overall burden once property and sales taxes are counted.
| Feature | States |
|---|---|
| No state income tax | Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming |
| Pension income largely exempt | Mississippi, Pennsylvania, Illinois |
| Low combined burden | Wyoming, South Dakota, Delaware |
Florida earns its reputation honestly: no income tax, no estate tax, and no tax on retirement distributions. Wyoming and South Dakota pair no income tax with relatively modest property and sales taxes, which is why they tend to rank near the top on a total-burden basis rather than a single-tax basis.
A word of caution from years of running these numbers with clients. Texas advertises no income tax but carries property taxes among the highest in the nation. For a retiree with a paid-off $600,000 home, those property taxes can rival the income tax bill they thought they escaped. Tax-friendly is a full-picture verdict, never a single headline.
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How Does Maryland Treat Retirees on State Taxes?
Maryland gives retirees a mixed scorecard. It does levy a state income tax plus county-level local income taxes ranging from roughly 2.25% to 3.20%, but it layers in several genuine retirement breaks.
- Social Security benefits are not subject to Maryland state income tax.
- A pension exclusion of up to $40,600 for 2026 is available to taxpayers 65 and older or totally disabled.
- Military retirement pay receives a substantial state income tax subtraction.
- The Maryland estate tax exemption sits at $5 million, well below the federal threshold, so wealthier estates can owe Maryland estate tax even when no federal tax is due.
That last point catches Harford County and Baltimore-metro families off guard more than any other. An estate of $6 million owes nothing federally but can owe Maryland estate tax on the amount above $5 million. For business owners who hold real estate or a closely held company, that threshold arrives faster than expected, which is where coordinated planning earns its keep. At Chesapeake Financial Planners we walk clients through this with the R.U.D.D.E.R. Method™, Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine.
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Frequently Asked Questions
Which states have no state income tax for retirees?
Nine states levy no state income tax as of 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Retirement account distributions, pensions, and investment income avoid state income tax in these states, though several offset the loss with higher property or sales taxes.
Do states tax Social Security benefits?
Most states do not tax Social Security benefits. As of 2026, only a small group still tax them, and many of those apply income-based exemptions that shield middle-income retirees. Federal tax can still apply to Social Security once your provisional income passes IRS thresholds, regardless of which state you live in.
Does Maryland tax retirement income?
Maryland taxes most retirement income but offers meaningful relief. Social Security is fully exempt, military retirement pay receives a large subtraction, and taxpayers 65 and older qualify for a pension exclusion of up to $40,600 for 2026. County-level local income taxes of 2.25% to 3.20% apply on top of the state rate.
What states have estate or inheritance taxes?
Roughly a dozen states plus the District of Columbia impose estate or inheritance taxes, including Maryland, Massachusetts, Oregon, Minnesota, New York, and Connecticut. Thresholds can start as low as $1 million, far below the federal exemption, so wealthier retirees can owe state estate tax without owing any federal estate tax.
Should I choose a retirement state based only on taxes?
No. Taxes are one factor, not the only factor. Healthcare access, proximity to family, cost of living, climate, and community all carry weight, and a low-tax state with a high overall cost of living can erase the tax savings. The goal is to balance tax efficiency against the lifestyle and security you actually want.
If you want a clear framework for weighing these moving parts, our retirement tax planning guide breaks down income, property, and estate tax considerations state by state. Download it at chesapeakefp.com.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
