33 States with No Estate Taxes or Inheritance Taxes

The Tax Cuts and Jobs Act raised the federal estate tax exemption considerably. Before the tax reform law, it was $5.49 million per person for 2017. It’s up to $11.7 million for 2021 ($23.4 million for a married couple). So, now, even fewer taxpayers have to worry about federal estate taxes when they die. However, if your goal is to leave as much as you can to your heirs, then you should also pay attention to the state you choose for retirement.

Twelve states and the District of Columbia levy their own estate taxes, sometimes called death taxes, and some have much lower thresholds than the federal government. In addition, six states have inheritance taxes. Maryland, whose nickname is the Free State, has both.

The good news for retirees focused on estate planning: There are 33 states that have neither estate taxes nor inheritance taxes. Take a look.

1 of 33

Alabama

A lone fisherman seen from above fly fishing in AlabamaA lone fisherman seen from above fly fishing in Alabama

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4% state levy. Localities can add as much as 7.5% to that, and the average combined rate is 9.22%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (2% state rate; additional local taxes may apply)
  • Prescription Drug: Exempt

Income Tax Range: Low: 2% (on up to $1,000 of taxable income for married joint filers and up to $500 for all others). High: 5% (on more than $6,000 of taxable income for married joint filers and more than $3,000 for all others).

Some Alabama municipalities also impose occupational taxes on salaries and wages.

Taxes on Social Security: Benefits are not taxed.

Property Taxes: In Alabama, the median property tax rate is $395 per $100,000 of assessed home value.

For more information on these and other Alabama state taxes, see the Alabama State Tax Guide for Retirees.

2 of 33

Alaska

A lake and mountains in Alaska at sunrise or sunsetA lake and mountains in Alaska at sunrise or sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can reach 7.5%. Higher rates are found in locations that lack a property tax. But, according to the Tax Foundation, the statewide average is only 1.76%.

Income Tax Range: No state income tax.

Taxes on Social Security: Benefits are not taxed.

Property Taxes: In Alaska, the median property tax rate is $1,182 per $100,000 of assessed home value.

For more information on these and other Alaska state taxes, see the Alaska State Tax Guide for Retirees.

3 of 33

Arizona

Dozens of cactus seen in an Arizona desert at sunsetDozens of cactus seen in an Arizona desert at sunset

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 5.6% state levy. Localities can add as much as 5.6% to that, but the average combined levy is 8.4%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2.59% (on up to $54,544 of taxable income for married filers and up to $27,272 for single filers). High: 4.5% (on $327,263 and over of taxable income for married joint filers and $163,632 and over for single filers).

Starting in 2021, Arizona imposes a 3.5% surtax on taxable income over $500,000 for joint filers and over $250,000 for single taxpayers. However, the surtax can’t increase the overall top rate above 4.5% (which effectively nullifies the surtax for the 2021 tax year). Also note that the surtax’s constitutionality is being challenged in the courts, so there’s a chance it ultimately won’t be applied.

Beginning in 2022, a two-bracket tax rate structure will be adopted. The rates will be 2.55% (on up to $54,544 of taxable income for joint filers and up to $27,272 for single filers) and 2.98% (on over $54,54 of taxable income for joint filers and on over $27,272 of taxable income for single filers). The rates will decrease to 2.53% and 2.75%, respectively, if certain state revenue amounts are reached. The state will then adopt a single flat rate of 2.5% if another state revenue amount is reached.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Arizona, the median property tax rate is $617 per $100,000 of assessed home value.

For more information on these and other Arizona’s state taxes, see the Arizona State Tax Guide for Retirees.

4 of 33

Arkansas

The Junction Bridge in Little Rock Arkansas at duskThe Junction Bridge in Little Rock Arkansas at dusk

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6.5% state levy. Localities can add as much as 5.125%, and the average combined rate is 9.48%, according to the Tax Foundation.

  • Groceries: Taxable (0.125% state rate; additional local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable (6.5% state rate, or 7% in Texarkana, on purchase price of $4,000 or greater; effective January 1, 2022, 3.5% state rate on used motor vehicles priced from $4,000 to $10,000)
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2% (on taxable income from $4,500 to $8,899 for taxpayers with net income less than $22,200), 0.75% (on first $4,499 of taxable income for taxpayers with net income from $22,200 to $79,300), or 2% (on first $4,000 of taxable income for taxpayers with net income over $79,300). High: 3.4% (on taxable income from $13,400 to $22,199 for taxpayers with net income less than $22,200), 5.9% (on taxable income from $37,200 to $79,300 for taxpayers with net income from $22,200 to $79,300), or 6.6% (on taxable income over $79,300 for taxpayers with net income over $79,300).

Beginning in 2021, the top rate for taxpayers with net income over $79,300 will be 5.9% (on taxable income over $8,000). A “bracket adjustment” of between $40 and $440 is subtracted from the amount of tax due for taxpayers with net income from $79,301 to $84,600.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Arkansas, the median property tax rate is $612 per $100,000 of assessed home value.

For more information on these and other state taxes, see the Arkansas State Tax Guide for Retirees.

5 of 33

California

A California beach and pier as seen at sunsetA California beach and pier as seen at sunset

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 7.25% state levy. Localities can add as much as 2.5%, and the average combined rate is 8.82%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on up to $17,864 of taxable income for married joint filers and up to $8,932 for those filing individually). High: 13.3% (on more than $1,198,024 for married joint filers and $1 million for those filing individually).

For 2021, the 1% rate applies to the first $18,650 of taxable income for joint filers and the first $9,325 of taxable income for single filers. The 13.3% rate applies to taxable income of $1,250,738 or more for joint filers and $1 million or more for single filers.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In California, the median property tax rate is $729 per $100,000 of assessed home value.

For more information on these and other California state taxes, see the California State Tax Guide for Retirees.

6 of 33

Colorado

A skier blast through snow powder skiing down a Colorado mountain with bright sunshine behind him on a Colorado mountainA skier blast through snow powder skiing down a Colorado mountain with bright sunshine behind him on a Colorado mountain

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 2.9% state levy. Localities can add as much as 8.3%, and the average combined rate is 7.72%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Colorado has a flat income tax rate of 4.55% (the approval of Proposition 116, which appeared on the November 2020 ballot, reduced the rate from 4.63% to 4.55%). The state also limits the how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high. For example, in 2019, this resulted in a rate reduction to 4.5%.

Denver and a few other cities in Colorado also impose a monthly payroll tax.

Taxes on Social Security: Up to $24,000 of Social Security benefits taxed by the federal government, along with other retirement income, can be excluded for Colorado income tax purposes ($20,000 for taxpayers 55 to 64 years old).

Beginning in 2022, the $24,000 cap is removed for federally taxable Social Security benefits, which effectively makes all federally taxed Social Security income deductible for taxpayers 65 and over.

Property Taxes: In Colorado, the median property tax rate is $494 per $100,000 of assessed home value.

For more information on these and other Colorado state taxes, see the Colorado State Tax Guide for Retirees.

7 of 33

Delaware

The twin spans of the Delaware Memorial Bridge as seen during the evening hoursThe twin spans of the Delaware Memorial Bridge as seen during the evening hours

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: No state or local sales tax.

Income Tax Range: Low: 2.2% (on taxable income from $2,001 to $5,000). High: 6.6% (on taxable income above $60,000).

Wilmington also imposes a city tax on wages.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Delaware, the median property tax rate is $562 per $100,000 of assessed home value.

For more information on these and other Delaware state taxes, see the Delaware State Tax Guide for Retirees.

8 of 33

Florida

Palm trees and grass circle a Florida lake in daylightPalm trees and grass circle a Florida lake in daylight

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 6% state levy. Localities can add as much as 2%, and the average combined rate is 7.01%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable (additional county tax on first $5,000 of purchase price may apply)
  • Prescription Drugs: Exempt

Income Tax Range: Florida has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Florida, the median property tax rate is $830 per $100,000 of assessed home value.

For more information on these and other Florida state taxes, see the Florida State Tax Guide for Retirees.

9 of 33

Georgia

A cityscape of Savannah, Georgia, at sunsetA cityscape of Savannah, Georgia, at sunset

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4% state levy. Localities can add as much as 4.9%, and the average combined rate is 7.33%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Exempt from state tax, but local taxes may apply
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately). High: 5.75% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Georgia, the median property tax rate is $875 per $100,000 of assessed home value.

For more information on these and other Georgia state taxes, see the Georgia State Tax Guide for Retirees.

10 of 33

Idaho

A lone senior hiker is seen in the mountains of IdahoA lone senior hiker is seen in the mountains of Idaho

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 6% state levy. Localities (typically resort communities) can add as much as 3%, but the average combined rate is just 6.02%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1% (on taxable income up to $3,136 for married joint filers and up to $1,568 for individual filers). High: 6.5% (on taxable income of $23,520 or more for married joint filers and $11,760 or more for individual filers). (Note: Dollar amounts may still need to be adjusted for inflation for 2021.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Idaho, the median property tax rate is $633 per $100,000 of assessed home value.

For more information on these and other Idaho state taxes, see the Idaho State Tax Guide for Retirees.

11 of 33

Indiana

An open Indiana barn at sunsetAn open Indiana barn at sunset

Overall Rating for Taxes on Retirees: Not tax-friendly.

State Sales Tax: 7% state levy. No local taxes.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Indiana has a flat rate of 3.23% of state adjusted gross income after modifications. Counties also levy income taxes.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Indiana, the median property tax rate is $810 per $100,000 of assessed home value.

For more information on these and other Indiana state taxes, see the Indiana State Tax Guide for Retirees.

12 of 33

Kansas

Combines at work at sunset during the wheat harvest, Shields & Sons Farming in Goodland, Kansas Combines at work at sunset during the wheat harvest, Shields & Sons Farming in Goodland, Kansas

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 6.5% state levy. Localities can add as much as 4%, and the average combined rate is 8.7%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Taxable

Income Tax Range: Low: 3.1% (on $2,501 to $15,000 of taxable income for single filers and $5,001 to $30,000 for joint filers). High: 5.7% (on more than $30,000 of taxable income for single filers and more than $60,000 for joint filers). Kansas also has an “intangibles tax” levied on unearned income by some localities.

Taxes on Social Security: Social Security benefits are exempt from Kansas income tax for residents with a federal adjusted gross income of $75,000 or less. For taxpayers with a federal AGI above $75,000, Social Security benefits are taxed by Kansas to the same extent they are taxed at the federal level.

Property Taxes: In Kansas, the median property tax rate is $1,369 per $100,000 of assessed home value.

For more information on these and other Kansas state taxes, see the Kansas State Tax Guide for Retirees.

13 of 33

Louisiana

Close up of a man playing trumpet on Bourbon Street in New Orleans, Louisianaon sunny day.Close up of a man playing trumpet on Bourbon Street in New Orleans, Louisianaon sunny day.

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 4.45% state levy. Localities can add as much as 7%, and the average combined rate is 9.55%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but local taxes may apply
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt from state tax, but local taxes may apply

Income Tax Range: Low: 2% (on $12,500 or less of taxable income for individuals, $25,000 for joint filers). High: 6% (on more than $50,000 of taxable income; $100,000 for joint filers).

(Note: On October 9, 2021, Louisiana voters will decide whether to cap the maximum rate at 4.75% starting in 2022. If that ballot initiative is approved, Louisiana’s lowest personal income tax rate will be 1.85% and it’s highest rate will be 4.75% beginning in 2022. In addition, each personal income tax rate will be reduced beginning February 1, 2024, and each February 1 thereafter through 2034, if the prior fiscal year’s actual individual income tax collections exceed the actual tax collections for the fiscal year ending June 30, 2019, adjusted annually by the growth factor provided for in the state constitution.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Louisiana, the median property tax rate is $534 per $100,000 of assessed home value.

For more information on these and other Louisiana state taxes, see the Louisiana State Tax Guide for Retirees.

14 of 33

Michigan

Lake Michigan waves crash over a pier at Muskegon Channel South Pier Lighthouse in Muskegon, MichiganLake Michigan waves crash over a pier at Muskegon Channel South Pier Lighthouse in Muskegon, Michigan

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 6% state levy. No local taxes.

  • Groceries: Exempt, but prepared food is taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Michigan has a flat tax rate of 4.25%. Cities can levy income taxes as well, on both residents and non-residents (who are taxed 1/2 the rate of residents).

Taxes on Social Security: Social Security benefits are not taxed by the state. Although taxpayers born after 1952 can claim a $20,000 deduction ($40,000 for joint filers) in lieu of the Social Security exemption and other tax breaks.

Property Taxes: In Michigan, the median property tax rate is $1,448 per $100,000 of assessed home value.

For more information on these and other Michigan state taxes, see the Michigan State Tax Guide for Retirees.

15 of 33

Mississippi

The early morning light shines through at the Noxubee Wildlife Refuge in MississippiThe early morning light shines through at the Noxubee Wildlife Refuge in Mississippi

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 7% state levy. Only two localities, Jackson (1%) and Tupelo (0.25%) add to that. According to the Tax Foundation, that makes for an average combined rate of 7.07%.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (5%)
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on taxable income from $3,001 to $5,000). High: 5% (on taxable income over $10,000).

Taxes on Social Security: Social Security benefits are not taxed for married couples with a federal adjusted gross income less than $100,000 and single taxpayers with an AGI of less than $85,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.

Property Taxes: In Mississippi, the median property tax rate is $787 per $100,000 of assessed home value.

For more information on these and other Mississippi state taxes, see the Mississippi State Tax Guide for Retirees.

16 of 33

Missouri

The Gateway Arch in St. Louis, Missouri as seen in a cityscape at sunsetThe Gateway Arch in St. Louis, Missouri as seen in a cityscape at sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.225% state levy. Localities can add as much as 5.763%, and the average combined rate is 8.25%, according to the Tax Foundation.

  • Groceries: Taxable (1.225% state rate; additional local taxes may apply)
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

 Income Tax Range: Low: 1.5% (on taxable of income of $107 or more). High: 5.4% (on more than $8,584 of taxable income).

Kansas City and St. Louis also impose an earnings tax.

Taxes on Social Security: Social Security benefits are not taxed for married couples with a federal adjusted gross income less than $100,000 and single taxpayers with an AGI of less than $85,000. Taxpayers who exceed those income limits may qualify for a partial exemption on their benefits.

Property Taxes: In Missouri, the median property tax rate is $930 per $100,000 of assessed home value.

For more information on these and other Missouri  state taxes, see the Missouri State Tax Guide for Retirees.

17 of 33

Montana

Two women fly-fishing in the Gallatin River beneath the mountains in Cameron, MontanaTwo women fly-fishing in the Gallatin River beneath the mountains in Cameron, Montana

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: No state sales tax. Resort areas such as Big Sky, Red Lodge and West Yellowstone have local sales taxes.

Income Tax Range: Low: 1% (on up to $3,100 of taxable income). High: 6.9% (on taxable income over $18,700). Starting in 2022, the top rate will be 6.75% on taxable income over $17,400. Then, beginning in 2024, the income tax rates and brackets will be substantially revised (there will only be two rates – 4.7% and 6.5%).

Taxes on Social Security: Social Security benefits are taxable. The method used to calculate the taxable amount for Montana income tax purposes is similar to the method used for federal returns. However, there are important differences. As a result, the Montana taxable amount may be different than the federal taxable amount. (Beginning in 2024, Social Security benefits will be taxed by Montana to the same extent they are taxed at the federal level.)

Property Taxes: In Montana, the median property tax rate is $831 per $100,000 of assessed home value.

For more information on these and other Montana state taxes, see the Montana State Tax Guide for Retirees.

18 of 33

Nevada

High angle view on the skyline of Reno, Nevada, at duskHigh angle view on the skyline of Reno, Nevada, at dusk

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6.85% state levy. Localities can add as much as 1.53%, and the average combined rate is 8.23%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Nevada has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Nevada, the median property tax rate is $533 per $100,000 of assessed home value.

For more information on these and other Nevada state taxes, see the Nevada State Tax Guide for Retirees.

19 of 33

New Hampshire

The historic fishing village of Portsmouth, New HampshireThe historic fishing village of Portsmouth, New Hampshire

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: No state or local sales tax.

Income Tax Range: New Hampshire doesn’t have an income tax. However, currently there’s a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers).

(Note: The tax on dividends and interest is being phased out. The rate will be 4% for 2023, 3% for 2024, 2% for 2025, and 1% for 2026. The tax will then be repealed on January 1, 2027.)

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In New Hampshire, the median property tax rate is $2,050 per $100,000 of assessed home value.

For more information on these and other New Hampshire state taxes, see the New Hampshire State Tax Guide for Retirees.

20 of 33

New Mexico

Heavy wooden gates open at the pilgrimage site of El Santuario de Chimayo, a National Historic Landmark in Chimayo, New MexicoHeavy wooden gates open at the pilgrimage site of El Santuario de Chimayo, a National Historic Landmark in Chimayo, New Mexico

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 5.125% state levy. Localities can add as much as 4.313%, and the average combined rate is 7.84%, according to the Tax Foundation. New Mexico’s tax is a gross receipts tax that covers most services.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers). High: 4.9% (on taxable income over $16,000 for single filers and over $24,000 for married couples filing jointly).

Beginning with the 2021 tax year, the top rate will be 5.9% on taxable income over $210,000 for single filers and over $315,000 for joint filers.

Taxes on Social Security: Social Security benefits are taxed to the same extent they are taxed at the federal level.

Property Taxes: In New Mexico, the median property tax rate is $776 per $100,000 of assessed home value.

For more information on these and other New Mexico state taxes, see the New Mexico State Tax Guide for Retirees.

21 of 33

North Carolina

A North Carolina lake with a lone boater seen at sunsetA North Carolina lake with a lone boater seen at sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.75% state levy. Localities can add as much as 2.75%, and the average combined rate is 6.98%, according to the Tax Foundation.

  • Groceries: Exempt from state tax, but 2% local tax may apply
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 3% highway-use tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.1% (on up to $40,125 of taxable income for singles and up to $67,050 for married couples filing jointly). High: 2.9% (on taxable income over $440,600).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In North Carolina, the median property tax rate is $773 per $100,000 of assessed home value.

For more information on these and other North Carolina state taxes, see the North Carolina State Tax Guide for Retirees.

22 of 33

North Dakota

American Bison grazing on the prairieAmerican Bison grazing on the prairie

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 5% state levy. Localities can add as much as 3.5%, and the average combined rate is 6.96%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 5% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: 1.1% (on up to $40,125 of taxable income for singles and up to $67,050 for married couples filing jointly). High: 2.9% (on taxable income over $440,600).

Taxes on Social Security: Social Security benefits are not taxed for joint filers with a federal adjusted gross income of $100,000 or less and other taxpayers with a federal AGI of $50,000 or less. For taxpayers exceeding these thresholds, Social Security benefits are taxed by North Dakota to the same extent they are taxed at the federal level.

Property Taxes: In North Dakota, the median property tax rate is $986 per $100,000 of assessed home value.

For more information on these and other North Dakota state taxes, see the North Dakota State Tax Guide for Retirees.

23 of 33

Ohio

A farm in Ohio as seen at sunsetA farm in Ohio as seen at sunset

Overall Rating for Taxes on Retirees: Not tax-friendly.

Sales Tax: 5.75% state levy. Localities can add as much as 2.25%, and the average combined rate is 7.22%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 2.765% (on taxable income from $25,001 to $44,250). High: 4.797% (on taxable income over $110,650).

Cities and school districts in Ohio can also impose local income taxes.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Ohio, the median property tax rate is $1,478 per $100,000 of assessed home value.

For more information on these and other Ohio state taxes, see the Ohio State Tax Guide for Retirees.

24 of 33

Oklahoma

Renovated building in downtown Guthrie, OklahomaRenovated building in downtown Guthrie, Oklahoma

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.5% state levy. Localities can add as much as 7%, and the average combined rate is 8.95%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Taxable (1.25%), and 3.25% excise tax applies
  • Prescription Drugs: Exempt

Income Tax Range: Low: 0.5% (on up to $1,000 of taxable income for single filers and up to $2,000 for married joint filers). High: 5% (on taxable income over $7,200 for single filers and over $12,200 for married joint filers).

Starting in 2022, the lowest rate will be 0.25% and the highest rate will be 4.75%.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Oklahoma, the median property tax rate is $869 per $100,000 of assessed home value.

For more information on these and other Oklahoma state taxes, see the Oklahoma State Tax Guide for Retirees.

25 of 33

South Carolina

The pineapple fountain in Charleston, South Carolina at historic Waterfront ParkThe pineapple fountain in Charleston, South Carolina at historic Waterfront Park

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 6% state levy. Localities can add as much as 3%, and the average combined rate is 7.47%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 5% (up to $500) infrastructure maintenance fee
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on taxable income over $3,070). High: 7% (on taxable income over $15,400).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In South Carolina, the median property tax rate is $545 per $100,000 of assessed home value.

For more information on these and other South Carolina state taxes, see the South Carolina State Tax Guide for Retirees.

26 of 33

South Dakota

The 19th century historic downtown of Deadwood, South DakotaThe 19th century historic downtown of Deadwood, South Dakota

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.4%, according to the Tax Foundation.

  • Groceries: Taxable
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
  • Prescription Drugs: Exempt

Taxes on Social Security: Social Security benefits are not taxed by the state.

Income Tax Range: South Dakota has no state income tax.

Property Taxes: In South Dakota, the median property tax rate is $1,219 per $100,000 of assessed home value.

For more information on these and other South Dakota state taxes, see the South Dakota State Tax Guide for Retirees.

27 of 33

Tennessee

Neon signs on Lower Broadway at night in vibrant downtown Nashville, TennesseeNeon signs on Lower Broadway at night in vibrant downtown Nashville, Tennessee

Overall Rating for Taxes on Retirees: Most tax-friendly.

Sales Tax: 7% state levy. There’s also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.547%, according to the Tax Foundation. Local taxes are limited, though: Only the first $1,600 of any single item is taxable.

  • Groceries: Taxable (4% state rate; additional local taxes may apply)
  • Clothing: Taxable
  • Motor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)
  • Prescription Drugs: Exempt

Income Tax Range: Tennessee has no state income tax. But dividends and some interest are subject to the Hall Tax at a 1% rate. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. 2020 is the last year for the tax, which is being phased out. Also, the tax is waived if you’re over 100.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Tennessee, the median property tax rate is $636 per $100,000 of assessed home value.

For more information on these and other Tennessee state taxes, see the Tennessee State Tax Guide for Retirees.

28 of 33

Texas

Cowboys and cowgirl in silhouette at sunrise in Weatherford, Texas.Cowboys and cowgirl in silhouette at sunrise in Weatherford, Texas.

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.19%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Texas has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Texas, the median property tax rate is $1,692 per $100,000 of assessed home value.

For more information on these and other Texas state taxes, see the Texas State Tax Guide for Retirees.

29 of 33

Utah

One person looks out over the canyon of Canyonlands National Park in Utah during sunsetOne person looks out over the canyon of Canyonlands National Park in Utah during sunset

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: State levy is 4.85%, but mandatory 1% local sales tax and 0.25% county option sales tax are added to the state tax (for a 6.1% total rate). Plus, localities can add up to an additional 2.95%, making the average combined state and local rate 7.19%, according to the Tax Foundation.

  • Groceries: Taxable (1.75% state tax, plus mandatory 1.25% in local and county taxes)
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Utah has a flat tax of 5%.

Taxes on Social Security: Social Security benefits are included in Utah taxable income to the same extent they’re taxed at the federal level. However, beginning in 2021, a nonrefundable tax credit is available for Social Security benefits. The credit is calculated by multiplying the Utah income tax rate (currently 4.95%) by the amount of Social Security benefits included in federal adjusted gross income (AGI). The total credit amount is reduced by $.025 for each dollar by which the taxpayer’s modified AGI exceeds $25,000 for a married person filing a separate tax return, $30,000 for a single filer, and $50,000 for a married couple filing a joint return or a head-of-household filer. Taxpayers can’t claim both the Social Security credit and the general $450 credit for retirees.

Property Taxes: In Utah, the median property tax rate is $575 per $100,000 of assessed home value.

For more information on these and other Utah state taxes, see the Utah State Tax Guide for Retirees.

30 of 33

Virginia

View from a residential street in Old Town Alexandria, Virginia, featuring early 1800s townhousesView from a residential street in Old Town Alexandria, Virginia, featuring early 1800s townhouses

Overall Rating for Taxes on Retirees: Tax-friendly.

Sales Tax: 5.3% state levy, which includes a 1% tax allocated to local governments. Some local governments also impose additional taxes of up to 1.7%, making the average combined state and local rate 5.75%, according to the Tax Foundation.

  • Groceries: Taxable (1.5% state rate, plus 1% local tax)
  • Clothing: Taxable
  • Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4.15% excise tax
  • Prescription Drugs: Exempt

Income Tax Range: Low: Low: 2% (on up to $3,000 of taxable income). High: 5.75% (on taxable income over $17,000).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Virginia, the median property tax rate is $804 per $100,000 of assessed home value.

For more information on these and other Virginia state taxes, see the Virginia State Tax Guide for Retirees.

31 of 33

West Virginia

Sunrise from high atop Dolly Sods Wilderness area in West Virginia with Sunbeams and reflectionsSunrise from high atop Dolly Sods Wilderness area in West Virginia with Sunbeams and reflections

Overall Rating for Taxes on Retirees: Mixed tax picture.

Sales Tax: 6% state levy. Municipalities can add up to 1% to that, with an average combined rate of 6.51%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3% (on up to $10,000 of taxable income). High: 6.5% (on taxable income of $60,000 or more).

West Virginia municipalities can also impose city service fees on people working in the city.

Taxes on Social Security: In 2020, 35% of Social Security benefits taxed by the federal government are excluded from taxable income for single taxpayers with federal adjusted gross income of $50,000 or less ($100,000 or less for joint filers). In 2021, 65% will be excluded for qualifying taxpayers. After 2021, qualifying taxpayers can exclude all Social Security benefits.

Property Taxes: In West Virginia, the median property tax rate is $571 per $100,000 of assessed home value.

For more information on these and other West Virginia state taxes, see the West Virginia State Tax Guide for Retirees.

32 of 33

Wisconsin

Red sandstone cliffs at the Apostle Islands National Lakeshore, Lake Superior, in winter. Lake is frozen and two small figures walking on the ice emphasize the height of the cliffs.Red sandstone cliffs at the Apostle Islands National Lakeshore, Lake Superior, in winter. Lake is frozen and two small figures walking on the ice emphasize the height of the cliffs.

Overall Rating for Taxes on Retirees: Least tax-friendly.

Sales Tax: 5% state levy. Municipalities can add up to 1.75% to that, with the average combined rate at 5.43%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Low: 3.54% (on up to $12,120 of taxable income for singles or up to $16,160 for married couples). High: 7.65% (on taxable income over $266,930 for singles or over $355,910 for married couples).

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Wisconsin, the median property tax rate is $1,684 per $100,000 of assessed home value..

For more information on these and other Wisconsin state taxes, see the Wisconsin State Tax Guide for Retirees.

33 of 33

Wyoming

Aspen grove in fall colors with snow covered mountains in the background, Grand Teton National Park, WyomingAspen grove in fall colors with snow covered mountains in the background, Grand Teton National Park, Wyoming

Overall Rating for Taxes on Retirees: Most tax-friendly.

State Sales Tax: 4% state levy. Municipalities can add up to 2% to that, with a combined rate of 5.39%, according to the Tax Foundation.

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Income Tax Range: Wyoming has no state income tax.

Taxes on Social Security: Social Security benefits are not taxed by the state.

Property Taxes: In Wyoming, the median property tax rate is $575 per $100,000 of assessed home value.

For more information on these and other Wyoming state taxes, see the Wyoming State Tax Guide for Retirees.

Source: kiplinger.com

Preserving 401(k) for Retirement Is Step in Right Direction

Here are some basics to consider when preserving 401(k) for retirement:
If you’ve walked through these steps and you don’t like what the numbers are telling you, don’t panic. It’s better to know now than be caught short when you need your investments the most. There’s no better time to adjust your retirement plans and perhaps work with a financial advisor on new retirement investment goals.
Planning is a continual exercise of asking “what if?” until you’ve found the right balance between achieving your most treasured goals and the risk of running out of money too early. But if you’re like most investors, you either haven’t written up a formal financial plan or, if you have, you haven’t updated it for quite a while. That time has come.
Your up-to-date plan will help you understand your next steps. For instance, you will need to:

1. Understand Your Retirement Money and Financial Life Stage

Remember, even in retirement you still won’t be done trying to grow at least some of your money. You’re going to be retired for a long time! Inflation will nibble away at your purchasing power, so preserving 401(k) for retirement is an important step.

  1. But don’t start kicking back just yet. As much as you’ve planned and worked to get to this point, there’s still much to do. After all, you will now have fewer years to fully recover from any missteps with investment choices or fluctuations in the stock market. So your decisions matter even more at this stage.
  2. The timing for pre-retirement will be different for everyone depending on your investments, not to mention market volatility and other factors. But a good rule of thumb is five years in advance of your actual retirement.
  3. The term you’ll hear is “preserving 401(k) for retirement,” which essentially means making sure you optimize the return on your 401(k) investments in this stage of your financial life. You’ll want to ratchet back risk so a few bear markets over the years won’t decimate your savings.
  4. Get the Penny Hoarder Daily
  5. You can save money by only hiring an advisor when you need one. Try to find a planner who works on an hourly basis or, if you have a large account balance, charges a fixed fee.

Prime earning years
Unfortunately, employers aren’t able to give specific advice about how to invest your 401(k) investments for pre-retirement. Since all these topics can be complex — and costly to get wrong — now is the time to get advice from a pro or schedule an appointment with your advisor if you haven’t had one in a while.
If retirement is changing from a distant goal to something more definite for you, welcome to stage 4: pre-retirement.
Congratulations! Many Americans don’t have nearly enough retirement money set aside. You should appreciate your success.
Good financial advisors tend to be expensive, but the wrong advice is even more costly. For example: withdrawing money from your retirement account too early can lead to costly penalties.

2. Update Your List of Financial “What Ifs?”

Once you have this information, you can reassess your financial goals to make sure that, first, they are still meaningful and, second, you can afford them.
Privacy Policy

  • Estimate the amount of income you can safely draw from your portfolio during retirement.
  • Calculate any effects of large purchases or sales you want to make when you retire.
  • Consider your new tax bracket once you are no longer working.
  • Plan how your estate should be transferred.

Early career

3. Consider Hiring a Professional to Look After Your Retirement Accounts

Ready to stop worrying about money?
Pre-retirement
Family/growing career
Even the most wonderful employers can have outdated retirement plans. Retirement-plan laws and investment products have evolved over the years. If your plan provider hasn’t updated its investment options in years, you might be better off having more control and options in an IRA.

4. Get Your 401(k) Ready for Retirement

At this phase, you’ll want to start thinking differently about your investment choices. Just like a sports team that’s way ahead at the end of the game, this phase focuses on avoiding mistakes instead of trying to run the score up.
Source: thepennyhoarder.com

  • You can reduce risk by diversifying more and shifting part of your portfolio to more predictable assets such as high-quality fixed income, dividend-paying stocks, preferred stock and cash or money market funds.
  • Unless you go entirely cash — that’s usually a bad idea — your portfolio’s value will still fluctuate after you’re retired. Bond and high-dividend-paying stock prices tend to move in the opposite direction as interest rates. One way to insulate against that is to have some money coming due every year so it can be invested at the current interest rate. That’s called “laddering” your bond portfolio.
  • Since stocks have historically grown faster than inflation, you should plan on holding at least some stocks.
  • Low-cost mutual funds can help you stay diversified when you have fewer dollars to put in the stock market.

Contributor Sam Levine holds Chartered Financial Analyst® and Chartered Market Technician® designations and has written on finance topics since 2003. He is an adjunct professor of finance at Wayne State University in Michigan.

5. Don’t Rush to Roll Over Your 401(k) Account

If you need to find a financial advisor for advice about your retirement funds, it’s a good idea to find someone holding the Certified Financial Planner® designation, which means they have established experience in planning, completed a rigorous course of study and are required to follow a code of ethics.

Why a 401(k) Rollover Might Be a Bad Idea

If a financial advisor recommends you roll your 401(k) account into an individual retirement account (IRA), first estimate the cost of investing into a whole new portfolio and then get a second opinion.
If your 401(k) has enough low-cost investment choices and you don’t have a complicated estate to leave behind, you may not automatically need to roll over the funds into an individual retirement account when you retire.

Why a 401(k) Rollover Might Be a Good Idea

A financial advisor will frequently divide clients’ financial lives into five stages. The names may vary, but here’s the gist:
There are times when rolling over your retirement money to an IRA makes sense.

6. Be Ready to Adjust Your Plans

Retirement
There can be a lot of paperwork and expense involved in a rollover in exchange for very little value. And if it’s done wrong, you could trigger costly tax consequences. <!–

–>




After years of systematically saving for what once looked like a faraway retirement, you’re beginning to look ahead. You’re reviewing your 401(k) and other retirement accounts, and you’re getting ready to live the dream.

Chapter Searches Every Medicare Option Nationwide to Find the Right Coverage for You

You’ve thought about retirement for years. But now that it’s approaching, you still have a lot of questions. A lot of them hinge on healthcare — and the prospect of having to part with an employer plan. And for those already on Medicare, too many wonder if they’re getting the best deal out of the government-sponsored coverage they invested so much in over their career.

Whether you’re enrolling in Medicare for the first time, shopping for a better deal or trying to improve your coverage or benefits, it can all be a bit overwhelming. Luckily, a free resource called Chapter will search every single Medicare option nationwide to match you with the right fit for your needs. It saves people an average $750 a year, plus it will help you find more benefits for less money.

Use This Service To Find the Right Medicare Plan for You

For most people who are turning 65 or retiring, enrolling in Medicare starts with a local broker. Unfortunately, those brokers usually only source from a fraction of the available plans in your area. They’re also often unable to search for all the benefits offered by these plans. That means you might not be getting the right plan for your needs.

Chapter offers the same service your local broker does, but what makes Chapter different is that their team of licensed advisors sources from every available plan nationwide to match you with the right one. The average person has upwards of 50 plans available in their area, so it should come as no surprise that the majority of plans have different benefits, drug costs, and of course, come with different price tags. Chapter’s free plan-finder consultation with a licensed Medicare expert saves older Americans an average of $750 a year. Chapter helps by finding plans with better benefits or by finding lower-priced versions of lookalike plans. If you’re already on Medicare, you could get your current or similar coverage for hundreds of dollars less by simply using this tool.

Here’s how it works:

Answer a few simple questions on Chapter’s website, including whether this is your first time enrolling, and some basic information about yourself, like your name and age, and Chapter will build a shortlist of recommendations for you. And don’t worry — the company won’t sell your responses to spammers.

Even easier? You can call 251-220-0839 to talk it over with an expert, who can walk you through the whole process. Whether you’re pretty much certain about a plan, stalled at a sticking point or haven’t even started searching, they’ll help. Chapter’s service is free, and its advisors’ compensation doesn’t vary based on the specific plan you choose.

Let Chapter Walk You Through the Process

When it comes to Medicare, wrapping your head around what you’re signing up for is the tough part. It can drive months of procrastination and possibly even cause you to miss a key enrollment period. About 700,000 people are hit with late enrollment fees every year for failing to enroll in Medicare on time, according to 2019 figures from the Centers for Medicare and Medicaid Services.

Luckily, Chapter Medicare will walk you through the whole process. Not familiar with all the insurance terms that thicken Medicare’s alphabet soup? Want to understand the difference between Original Medicare, Medicare Advantage and Medigap? Not sure how your prescription drugs will be impacted? Let Chapter help.

It takes just a few minutes to enter your information and get started. Chapter will take into consideration factors like your lifestyle, health and finances, then search every available plan to match you with the right fit for you — at the most cost-effective price.

Even better?  Each year, Chapter’s team helps you re-confirm or improve your coverage to make sure you’re always getting the right plan for you. So whether you’re shopping for a new plan or enrolling for the first time, get started here to see how much you could save, or call 251-220-0839 to talk it over with an expert.

<!–

–>

Source: thepennyhoarder.com

10 Most Tax-Friendly States for Retirees

If you’re thinking of moving to a different state in retirement, you’ll want to consider climate, proximity to family and friends, access to quality health care, and a host of other important factors before picking a new location. But make sure you add taxes in the new state to the list of considerations. The total state and local tax burden in one place can be thousands of dollars more per year than in another. That can make a huge difference when you’re trying to stretch out your retirement savings.

To do a head-to-head, multistate comparison of state taxes on retirees, you can use Kiplinger’s State-by-State Guide to Taxes on Retirees. But if you’re just looking for the 10 states that impose the lowest taxes on retirees, check out the list below. Our results are based on the estimated state and local tax burden in each state for two hypothetical retired couples with a mixture of income from wages, Social Security, traditional and Roth IRAs, private pensions, 401(k) plans, interest, dividends, and capital gains. One couple had $50,000 in total income and a $250,000 home, while the other had $100,000 of income and a $350,000 home.

All but one of the states on our “most tax-friendly” list completely exempt Social Security benefits from state income taxes. Most also allowed an exemption for at least a portion of our hypothetical couples’ other retirement income, such as private pensions or IRA withdrawals. They tend to have low property tax rates and/or reasonable sales tax rates, too. Take a look and see for yourself. We list the most tax-friendly state for retirees last.

See the final slide for a complete description of our ranking methodology and sources of information.

1 of 11

10. Tennessee

picture of Tennessee map with pin in itpicture of Tennessee map with pin in it
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 9.547%
  • Median Property Tax Rate: $636 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Residents of the Volunteer State pay no taxes on Social Security benefits, pensions or distributions from their retirement plans. That’s because Tennessee is one of a handful of states with no income tax. (There was a tax on interest and dividend income before 2021.)

There are also no estate or inheritance taxes in Tennessee. That will put your heirs at ease.

Property taxes in Tennessee aren’t too bad, either. For instance, our hypothetical couple with a $250,000 home in the state would pay about $1,590 per year in property taxes ($2,226 for the couple with a $350,000 home). That’s well below the national average. There are also property tax relief programs in the state offering property tax reimbursements to income-eligible senior citizens. Tennessee also has a property tax freeze program for homeowners age 65 and older.

Watch out for Tennessee’s sales tax, though. The state’s 9.547% average combined state and local sales tax rate is the second-highest in the country. Tennessee is also one of the few states where groceries are subject to sales tax — they’re taxed at a 4% rate by the state (additional local taxes may also apply).

For more information, see the Tennessee State Tax Guide for Retirees.

2 of 11

9. Arkansas

picture of Arkansas map with pin in itpicture of Arkansas map with pin in it
  • State Income Tax Range: 0.75% (on taxable income up to $4,499 for taxpayers with net income from $22,200 to $79,300) to 6.6% (on taxable income over $79,300 for taxpayers with net income above $79,300)
  • Average Combined State and Local Sales Tax Rate: 9.48%
  • Median Property Tax Rate: $612 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Arkansas usually isn’t one of the places you automatically think of as a retirement destination…but maybe it should be. At least from a tax standpoint, the Natural State has a lot to offer retirees. Let’s start with the state’s income tax rates — which are structured in a way that favors retirees with lower incomes (and the top rate for top earners is going down to from 6.6% to 5.9% in 2021). Social Security benefits are tax-free, and the state allows a broad-based exemption of up to $6,000 for other types of retirement income.

Another plus: Low property taxes. At only $612 per year, Arkansas’ median property tax rate is well below the national average ($250,000 home = $1,530 in tax; $350,000 home = $2,142 in tax). Plus, seniors in the state can have their property taxes “frozen” and annual increases are limited. There are no estate or inheritance taxes in Arkansas, either.

The state’s Achilles heel is its sales tax. The statewide sales tax is 6.5%, and local jurisdictions can add up to 6.125% of their own taxes. When you add it all up, Arkansas has the third-highest average combined state and local tax rate in the country.

For more information, see the Arkansas State Tax Guide for Retirees.

3 of 11

8. Arizona

picture of Arizona map with pin in itpicture of Arizona map with pin in it
  • State Income Tax Range: 2.59% (on taxable income up to $27,272 for single filers; up to $54,544 for joint filers) to 4.5% (on taxable income over $163,632 for single filers; over $327,263 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 8.4%
  • Median Property Tax Rate: $617 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Grand Canyon State exempts Social Security benefits from state income taxes, plus up to $2,500 of income from federal and Arizona government retirement plans. Military retirement income is tax-free in Arizona, too. Income tax rates are also relatively low for most retirees. In 2020, state voters approved a 3.5% surtax on taxable income over $500,000 for joint filers and over $250,000 for single taxpayers, but the surtax can’t increase the overall top rate above 4.5% (which effectively nullifies the surtax for the 2021 tax year). Also note that the surtax is being challenged in the courts, so it eventually might not be applied at all. 

The estimated property tax on our first hypothetical retired couple’s $250,000 home in Arizona is only $1,543 per year. For our second couple’s $350,000 residence, the estimated annual tax is only $2,160. Both those amounts are significantly below the national average. In addition, homeowners age 65 and older can “freeze” the value of their property for real estate tax purposes for three years if they lived in the home for at least two years and their annual income is below $37,584 (one owner) or $46,980 (multiple owners). Other property tax breaks are available for seniors, too.

Sales taxes in Arizona are above average, though. The average combined (state and local) rate is 8.4%, which is the 11th-highest in the nation. However, Arizona does not have an estate or inheritance tax, which makes it a more attractive retirement destination for wealthier seniors.

For more information, see the Arizona State Tax Guide for Retirees.

4 of 11

7. South Carolina

picture of South Carolina map with pin in itpicture of South Carolina map with pin in it
  • State Income Tax Range: 3% (on taxable income from $3,070 to $6,150) to 7% (on taxable income over $15,400)
  • Average Combined State and Local Sales Tax Rate: 7.47%
  • Median Property Tax Rate: $545 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Palmetto State extends some real southern hospitality to retirees by offering a charming collection of income tax breaks. To start, Social Security benefits are completely exempt. In addition, taxpayers age 65 or older can exclude up to $10,000 of retirement income (up to $3,000 for taxpayers under 65). Seniors can also deduct $15,000 of other taxable income ($30,000 for joint filers). Plus, veterans who are at least 65 years old can exclude up to $30,000 of income from a military retirement plan (up to $17,500 for veterans under 65).

Low property tax rates in South Carolina help retirees, too. The statewide average property tax on a $250,000 home in the state is only $1,363. It’s only $1,908 for a $350,000 residence. Those amounts are the sixth-lowest in the country for houses at those price points. Seniors can also claim a homestead exemption for the first $50,000 of their property’s fair market value. To qualify, you must have been at least 65 years old and a legal resident of South Carolina for one year, as of July 15 the year the exemption is claimed.

The lack of an estate or inheritance tax also makes South Carolina a desirable location for wealthy seniors.

There is some bad news, though. Sales taxes are on the high end in South Carolina. There’s a 6% statewide levy, and local governments can add as much as 3%. The average combined rate is 7.47%, which is well above average. Counties also impose an annual tax on your motor vehicle’s value.

For more information, see the South Carolina State Tax Guide for Retirees.

5 of 11

6. Colorado

picture of Colorado map with pin in itpicture of Colorado map with pin in it
  • State Income Tax Range: 4.55% (flat rate)
  • Average Combined State and Local Sales Tax Rate: 7.72%
  • Median Property Tax Rate: $494 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Many retirees in Colorado feel a Rocky Mountain high when they see their low property tax bill. The state’s median property tax rate is the third-lowest in the nation. For our hypothetical retired couple with a $250,000 house, that comes to an estimated $1,235 annual property tax bill. It’s only $1,729 per year for our other couple’s $350,000 residence. Property tax exemptions, rebates and deferrals are also available for qualified seniors. Residents age 60 and older can also take advantage of a unique property tax “work-off” program, which lets them work for the city or county government to pay off a portion of their property taxes.

Income taxes are reasonable in the Centennial State, too. Colorado voters approved a measure on the November 2020 ballot that reduces the state’s flat income tax rate from 4.63% to 4.55%. The state also limits the how much its revenue can grow from year-to-year by lowering the tax rate if revenue growth is too high.

Wealthier retirees will also appreciate the fact that Colorado doesn’t impose an estate or inheritance tax. So, more of your money can be passed on to your family when you die.

Sales taxes will bring retirees back down to earth, though. Although the state sales tax rate is low — only 2.9% — local governments can tack on as much as 8.3%. As a result, the combined state and local sales tax rate is above the national average.

For more information, see the Colorado State Tax Guide for Retirees.

6 of 11

5. Nevada

picture of Nevada map with pin in itpicture of Nevada map with pin in it
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 8.23%
  • Median Property Tax Rate: $533 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Nevada is a good place to spend your golden years if you don’t want to gamble with your retirement savings. That’s because the Silver State offers retirees a jackpot of tax savings. There is no state income tax, so you can cash in your retirement plans and collect your Social Security checks without worrying about a big state tax bill. There are no estate or inheritance taxes in Nevada, either.

Nevada also has the fourth-lowest median property tax rate in the U.S. So, if our first make-believe couple retired to Nevada and bought a $250,000 home, they should expect to pay around $1,333 per year in property taxes on the residence. For our second imaginary couple, they would only pay about $1,866 annually on their $350,000 home. Unfortunately, however, Nevada doesn’t offer any special property tax breaks for seniors.

Sales tax is one area where Nevada could do better. The state imposes a 6.85% tax, and counties may tack on up to 1.53% more. As a result, the average combined state and local sales tax rate is 8.23% (that’s the 13th-highest combined rate in the country).

For more information, see the Nevada State Tax Guide for Retirees.

7 of 11

4. Wyoming

picture of Wyoming map with pin in itpicture of Wyoming map with pin in it
  • State Income Tax Range: None
  • Average Combined State and Local Sales Tax Rate: 5.39%
  • Median Property Tax Rate: $575 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

The Equality State is #1 in our rankings for the most tax-friendly state for middle-class families. So it should be no surprise that Wyoming is a tax-friendly place for retirees, too. The favorable tax climate for seniors starts with zero income, estate or inheritance taxes.

Sales taxes are low in Wyoming, too. The average combined state and local sales tax rate is only 5.39%, which is the eighth-lowest combined sales tax rate in the country.

You won’t pay high property taxes to own a home on the range, either. For a $250,000 home in Wyoming, the statewide average annual property tax bill comes to just $1,438. It’s only $2,013 for a $350,000 home. Those amounts are tied for the 10th-lowest tax totals in the nation for each price point. Plus, in tough times like these, it’s also good to know that eligible seniors in Wyoming can delay payment of up to 50% of their property taxes if money gets tight in retirement.

For more information, see the Wyoming State Tax Guide for Retirees.

8 of 11

3. District of Columbia

picture of Washington, D.C., map with pin in itpicture of Washington, D.C., map with pin in it
  • State Income Tax Range: 4% (on taxable income up to $10,000) to 8.95% (on taxable income over $1 million)
  • Average Combined State and Local Sales Tax Rate: 6%
  • Median Property Tax Rate: $564 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: Estate tax

Although the general cost of living in Washington, D.C., is high, the average tax burden for retirees isn’t. When it comes to income taxes, there are two keys to a lower tax bill. First, how much of your income is from Social Security benefits is an important factor. That’s because the city doesn’t tax Social Security payments, but it does tax most other common forms of retirement income, such as pensions, 401(k) funds, and IRA withdrawals. Second, qualifying for the city’s income tax credit for property taxes paid can make a huge difference in the amount of tax you owe. The refundable credit is worth up to $1,200 (as a “refundable” credit, if it’s worth more than the tax you owe, the city will send you a refund check for the difference). Plus, certain seniors have a higher income threshold for claiming the credit. For 2020, residents age 70 and older are eligible for the credit if their federal adjusted gross income is $75,900 or less, while the threshold is $55,700 or less for younger residents. Income taxes can be high on wealthier retirees, though. For example, the top rate is a whopping 8.95% on taxable income over $1 million…and that rate is going up to 10.75% in 2022!

Shoppers don’t get hit too hard with sales taxes in the District of Columbia. The city imposes a 6% tax on purchases…but that’s it. There are no extra “local” taxes to worry about. As a result, the overall sales tax rate in D.C. is well below the national average when both state and local taxes are considered.

Property taxes are low in D.C., too. The District’s median property tax rate is the eighth-lowest when compared with comparable data from all 50 states. For our hypothetical retired couples, their estimated annual property tax bills in D.C. would be $1,410 ($250,000 home) and $1,974 ($350,000 home). Plus, homeowners 65 and older may qualify for a 50% property tax reduction or deferral of property tax payments.

Here’s one important downside for wealthier retirees: For 2021, Washington, D.C., estates worth $4 million or more are subject to a city estate tax.

For more information, see the District of Columbia State Tax Guide for Retirees.

9 of 11

2. Hawaii

picture of Hawaii map with pin in itpicture of Hawaii map with pin in it
  • State Income Tax Range: 1.4% (on taxable income up to $2,400 for single filers; up to $4,800 for joint filers) to 11% (on taxable income over $200,000 for single filers; over $400,000 for joint filers)
  • Average Combined State and Local Sales Tax Rate: 4.44%
  • Median Property Tax Rate: $280 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: Estate tax

If your dream is to retire to a tropical island paradise, don’t let taxes get in the way. Hawaii has one of the lowest average state and local tax burdens in the U.S. Higher-income seniors may get caught in the Aloha State’s lofty income tax rates (the top rate is a whopping 11%), but most retirees won’t pay nearly that much. (Hawaii actually has 11 income tax rates below 11%.) Social Security benefits are completely tax-free. Employer contributions to other forms of retirement income are also exempt (e.g., traditional pensions and employer contributions to 401(k) plans).

Although housing prices are high in Hawaii, property tax rates are really low. In fact, the statewide median property tax rate is the lowest in the whole country (and by a pretty good margin). If our hypothetical retire couples moved to Hawaii, their estimated annual property tax bills would be only $700 ($250,000 home) and $980 ($350,000 home). Depending on where in Hawaii they live, senior could also qualify for some additional property tax relief.

Sales tax rates are low, too. The state imposes a 4% tax, but localities can add as much as 0.5%. The average combined state and local rate is only 4.44%, which is the seventh-lowest rate in the nation. Most things are taxable in Hawaii — including groceries and clothing — so residents typically end up paying more than the low rate suggests.

Hawaii also imposes an estate tax on estates worth $5.49 million or more. Tax rates range from 10% to 20%.

For more information, see the Hawaii State Tax Guide for Retirees.

10 of 11

1. Delaware

picture of Delaware map with pin in itpicture of Delaware map with pin in it
  • State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income over $60,000)
  • Average Combined State and Local Sales Tax Rate: 0%
  • Median Property Tax Rate: $562 per $100,000 of assessed home value
  • Estate Tax or Inheritance Tax: None

Congratulations, Delaware – you’re the most tax-friendly state for retirees! With no sales tax, low property taxes, and no death taxes, it’s easy to see why Delaware is a tax haven for retirees. For beginners, you’ll have more disposable income in your golden years if you live in the First State, because you’ll pay zero state or local sales tax on your in-state purchases (Delaware is one of only a handful of states with no sales tax).

You’ll also have more money to spend on the grandkids because property taxes are so low. The estimated annual property tax bill in Delaware for our first make-believe retired couple is just $1,405 on their $250,000 home. It’s just $1,967 for our second imaginary couple’s $350,000 home in the state. Those property tax totals are the seventh-lowest amounts in the nation for homes at those prices. So, our make-believe retired couples will be quite happy in the state. Plus, some Delaware seniors qualify for a school property tax credit of up to $400 (you might have to live in the state for 10 years to get it, though).

Since there are no estate or inheritance taxes in Delaware, you can pass along more of your wealth to the grandkids, too (or to other family, friends or charities).

The only downside — and it really isn’t that bad — are middle-of-the-road income taxes. The rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.). Social Security benefits are also exempt. But, in the end, income taxes don’t add enough to a retiree’s overall tax burden to keep the state out of the top spot on our list.

For more information, see the Delaware State Tax Guide for Retirees.

11 of 11

About Our Methodology

picture of laptop with spreadsheet on screenpicture of laptop with spreadsheet on screen

Our tax maps and related tax content include data from a wide range of sources. To generate our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.

Data sources

Income tax – Our income tax information comes from each state’s tax agency. Income tax forms and instructions were also used. See more about how we calculated the income tax for our hypothetical retired couples below under “Ranking method.”

Property tax – The median property tax rate is based on the median property taxes paid and the median home value in each state for 2019 (the most recent year available). The data comes from the U.S. Census Bureau.

Sales tax – State sales tax rates are from each state’s tax agency. We also cite the Tax Foundation’s figure for average combined sales tax, which is a population-weighted average of state and local sales taxes. In states that let local governments add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.

Ranking method

The “tax-friendliness” of a state depends on the sum of income, sales and property tax paid by our two hypothetical retired couples.

To determine income taxes due, we prepared returns for both couples. The first couple had $15,000 of earned income (wages), $20,500 of Social Security benefits, $4,500 of 401(k) plan distributions, $4,000 of traditional IRA withdrawals, $3,000 of Roth IRA withdrawals, $200 of taxable interest, $1,000 of dividend income, and $1,800 of long-term capital gains for a total income of $50,000 for the year. They also had $10,000 of medical expenses, paid $2,500 in real estate taxes, paid $1,200 in mortgage interest, and donated $1,900 (cash and property) to charity.

The second couple had $37,500 of Social Security benefits, $26,100 of 401(k) plan distributions, $18,200 of private pension money, $4,000 of traditional IRA withdrawals, $2,000 of Roth IRA withdrawals, $2,000 of tax-exempt municipal bond interest (from the state of residence), $2,000 of taxable interest, $4,000 of dividend income, and $4,200 of long-term capital gains for a total income of $100,000 for the year. They also had $10,000 of medical expenses, paid $3,200 in real estate taxes, paid $1,500 in mortgage interest, and donated $4,300 (cash and property) to charity.

Since some states have local income taxes, we domiciled both our couples in each state’s capital, from Juneau to Cheyenne. We calculated their 2019 income tax returns using software from eFile.com.

How much they paid in sales taxes was calculated using the IRS’ Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.

How much each hypothetical family paid (and deducted on their income tax return, if allowed) in property taxes was calculated by assuming a residence with a $250,000 assessed value for the first couple and a $350,000 assessed value for the second couple. We then applied each state’s median property tax rate to that appropriate amount.

Source: kiplinger.com