Where you retire can significantly impact how far your money goes. When deciding where to settle in retirement, the cost of living and climate often top the list of considerations, but state tax rates and regulations can be a significant factor. Taxes on retirement income and everyday essentials vary considerably between states, and they can greatly affect your financial security over the long term. Minimizing taxes in retirement can help ensure you don't outlive your money.

Here’s a breakdown of the best states to retire for taxes and what sets them apart, to help you choose a place that aligns with your financial goals. Remember this applies to state taxes and not federal taxes. 

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Best states to retire for taxes

Depending on the state, tax policies can help stretch your savings or add to your financial burden. Here are some of the best states to retire tax-wise, particularly if your goal is to make your retirement savings last as long as possible.

New Hampshire

New Hampshire is one of the most tax-friendly states for retirees who don't mind paying more in property levies. In addition to not charging on income or retirement, New Hampshire doesn’t charge sales tax, so everyday purchases are more affordable, helping offset some of the higher housing-related costs.

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Potentially higher property taxes, though seniors may qualify for exemptions
• No estate or inheritance tax
• No sales tax

South Dakota

South Dakota has a relatively low cost of living and is another state that doesn't tax retirement income in any form. It has a competitive local and state sales tax totaling 6.1%, ranking 36th nationally. For those who don't mind colder winters, it's a top contender for retirees. 

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Modest property taxes
• No estate or inheritance tax
• Low sales tax

Tennessee

Tennessee phased out its tax on interest and dividends, meaning retirees can now enjoy entirely state tax-free income. It’s also among the states that do not tax Social Security. On the downside, Tennessee's local and state sales tax ranks second highest nationwide, with a combined rate of 9.5%. 

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Modest property taxes
• No estate or inheritance tax
• High combined sales tax

Texas

Although some areas have high property taxes, older homeowners may find ways to lower their annual burden. Like Tennessee, Texas has a relatively high combined local and state sales tax rate — around 8.2%, the 14th highest in the country.

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Potentially higher property taxes, but there are exemptions available for seniors
• No estate or inheritance tax
• High sales tax

Alaska

Alaska offers excellent tax advantages, including no state-level income or sales taxes. It even can pay residents an annual dividend from oil revenues. If you're comfortable with colder, more remote living, it may be one of the most tax-efficient states in the country.

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Low property taxes
• No estate or inheritance tax
• No state sales tax (local sales taxes apply)

Florida

Florida has long been a retirement magnet, thanks to its warm climate and lack of state income tax. As such, it's a consistently strong choice for retirees looking to protect their retirement savings.

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Moderate property taxes
• Low taxes on estates and inheritances
• Moderate sales tax

Nevada

While living costs vary depending on the area, the lack of a state income tax helps make Nevada financially appealing for retirees across the board.

• No state income tax, including on Social Security, pensions, and 401(k) withdrawals
• Average property taxes
• No estate or inheritance tax
• Average sales tax 

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What makes a state tax-friendly?

When planning for retirement, it's important to look beyond your savings balance. How long your money lasts depends not just on how much you’ve got saved, but also on how much you get to keep. A tax-friendly state can stretch your retirement income further. Here’s what defines a tax-friendly state and why it matters.

Lack of State income tax

States with no income tax can give retirees a significant advantage, especially if your retirement income comes from multiple sources like Social Security, pensions, and annuities. You could keep more of every dollar you withdraw in states such as Florida, Texas, and South Dakota. Even in states with income taxes, some offer full or partial exemptions for certain types of retirement income. Eliminating or reducing income tax can provide meaningful savings every year — an important benefit when your income is fixed.

Low property taxes 

Property taxes can be one of the largest ongoing expenses for retirees who own a home. States with low property tax rates — or those that offer senior-specific exemptions, credits, or freezes — can significantly reduce housing costs in retirement. Even modest savings here will add up over time, while high property taxes can strain your retirement budget.

Exemptions for retirees

Many tax-friendly states offer additional benefits for older adults and retirees. These can include:

• Exemptions for pensions, IRA and 401(k) withdrawals, or annuities
• No state tax on Social Security benefits
• Property tax relief for seniors
• Sales tax exemptions for groceries and medications
  

These breaks can help cover day-to-day expenses and delay the need to tap into long-term funds.

Best states to retire on a fixed income

The best states to retire on Social Security offer more than low taxes. They typically combine affordable housing, manageable healthcare expenses, and a lower overall cost of living, helping retirees stretch their income without sacrificing quality of life. Here are a few states that can work well for retirees on a fixed income:

• Mississippi consistently ranks among the most affordable states, with particularly low housing costs. It doesn’t tax Social Security, pensions, or withdrawals from retirement accounts.
• Alabama provides similar tax benefits, excluding more retirement income from taxation and offering some of the lowest home prices in the country. Seniors may also qualify for property tax exemptions, helping reduce annual housing costs even further. 
• Arkansas is another affordable option for retirees, as there’s no state tax on Social Security. Housing is relatively inexpensive, and seniors may be eligible for property tax relief, helping fixed incomes go further.

3 considerations when choosing states for retirement

While tax-friendliness plays a major role in choosing where to retire, a smart retirement plan considers the whole picture. Your ideal location should balance lifestyle efficiency with lifestyle goals. Even the most tax-friendly state won’t be the right fit if it doesn’t support how you want to live. Here are three key factors to weigh alongside taxes.

1. Healthcare quality

Access to reliable healthcare becomes increasingly important as you age. A state’s tax benefits can quickly lose their appeal if you struggle to find quality care close by. Look for states with strong hospital systems, good primary care access, and high-quality senior health services. Proximity to specialty care, like cardiology or orthopedics, can also make a big difference. 

2. Proximity to family and friends

Being near children, grandchildren, or other loved ones often outweighs financial considerations. Whether it’s having support close by when needed or simply staying connected to friends and family members, proximity to people is a deeply personal factor that can significantly improve quality of life in retirement. 

3. Lifestyle

Climate, pace of life, and community all shape your day-to-day experience. You might prefer warm winters over all four seasons or small towns over vibrant cities. Consider access to features like outdoor recreation, cultural amenities, and walkable neighborhoods, matching how you want to spend your time in retirement.

Build a predictable retirement wherever you land with Gainbridge

The right location can help protect your savings, but location alone isn’t a plan. You also need consistent, long-term income you can count on. Gainbridge annuities are a straightforward way to add stability to your retirement, giving you access to trusted annuity products that can deliver guaranteed growth with no hidden fees.

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Explore your annuity and retirement options and contact Gainbridge today.

‍This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.