6 Most Tax-Friendly States for Retirees

6 Most Tax-Friendly States for Retirees

If you're looking to relocate as you near retirement, you're in good company. Every year, millions of people pack up their belongings and move. Younger folks usually move for a chance at better careers. People on the other end of their working lives want to keep what they've made. That's understandable — you've worked hard to build your nest egg, so why not get the most out of it in one of the most tax-friendly states for retirees?

Money isn't everything, so factor climate, proximity to family, access to health services and hobbies into your decision. But if you're primarily looking to avoid high state taxes in retirement, you might find what you're looking for in the following tax-friendly states. The tax-friendliest state appears at the end of the list, and all tax information only shows state-level rates — county-level averages aren't included. Numbers and rates were sourced from state departments of revenue or taxation.

6. South Carolina

  • Income Tax: 0%–7%
  • Sales Tax: 6%
  • Property Tax: 0.55% effective rate
  • Estate Tax: None

The Palmetto State offers low tax rates for property owners and people with lower incomes. It also offers a homestead exemption of $50,000 to people 65 or older who've lived in the state for a full calendar year.

If you collect a military pension, that income isn't taxed in South Carolina. The state grants a full deduction for it and any Social Security income you receive.

5. Colorado

  • Income Tax: 4.55%
  • Sales Tax: 2.9%
  • Property Tax: 0.49% effective rate
  • Estate Tax: None

It should come as little surprise why so many retirees prefer Colorado: This tax-friendly state for retirees boasts the third-lowest median property tax rate in the United States. Qualified seniors can also find many tax exemptions, rebates and other programs to lower their tax bill.

Colorado also has a unique property tax work-off program that lets you work for city or county government in exchange for a portion of your property taxes. And it's one of the few states that applies a flat tax to every income level.

4. Nevada

  • Income Tax: None
  • Sales Tax: 6.85%
  • Property Tax: 0.53% effective rate
  • Estate Tax: None

Nevada is one of nine states that don't charge a state income tax, which could help retirees skirt a large income tax bill. (Yes, you will still need to pay your federal income taxes.) The state earns most of its funding through hotel and casino tax revenue, a high sales tax and taxes on alcohol and cigarettes.

3. Wyoming

  • Income Tax: None
  • Sales Tax: 4%
  • Property Tax: 0.57% effective rate
  • Estate Tax: None

Wyoming is another state that leaves your paychecks alone; the Equality State doesn't charge a state income tax. Wyoming's sales and property taxes are low, too, making for a low average annual tax burden.

2. Hawaii

  • Income Tax: 1.4%–11%
  • Sales Tax: Indirect
  • Property Tax: 0.28% effective rate
  • Estate Tax: Progressive

Hawaii offers several tax benefits to retirees. The state doesn't directly assess a sales tax (though businesses must pay a general excise tax that gets passed on to consumers), it doesn't tax Social Security benefits, and it has one of the country's lowest property tax rates. If you enjoy the island lifestyle and have some financial freedom, consider moving here.

1. Delaware

  • Income: 0%–6.6%
  • Sales: None
  • Property: 0.56% effective rate
  • Estate: None

Delaware wins the prize as the tax-friendliest state for retirees. It doesn't levy sales or estate taxes, and its property taxes are low, too.

Retirees can also exclude up to $12,500 of pension and other retirement income from their state tax returns. The state doesn't tax income from Social Security, either.

Which Tax-Friendly State Is Right for You?

You want the area you retire in to suit your lifestyle and health needs as well as your pocketbook. Zero state income taxes and low property tax burdens are great, but you must consider other important things, such as health care access, available lifestyle activities, and climate. Use these other factors to narrow down this list of tax-friendly states for retirees, and you'll be well on your way to a comfortable, enjoyable retirement.

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