The Best States for Retirement Taxes in 2026

Where you live in retirement can matter as much as how much you have saved. State tax policies vary enormously — some states impose no income tax at all, while others tax pensions, Social Security, and investment income at rates exceeding 10%. The difference in total taxes paid over a 25-year retirement can easily reach six figures.

But choosing a state based solely on income tax rates is a mistake. Property taxes, sales taxes, estate taxes, and even ACA marketplace pricing all factor into the equation. This guide breaks down the full picture for 2026.

How States Tax Retirement Income

States take widely different approaches to taxing the income sources retirees rely on. Understanding these categories is the first step in evaluating any state:[1]

• No income tax: The state imposes no tax on any type of income, including wages, pensions, investment returns, and Social Security.
• Broad-based income tax: The state taxes most or all income types, typically using a graduated bracket structure similar to the federal system.
• Flat income tax: The state taxes income at a single rate regardless of amount. Examples include Illinois (4.95%), Pennsylvania (3.07%), and Indiana (3.05%).
• Retirement-friendly exemptions:Some states with an income tax exempt specific retirement income types — pensions, Social Security, or military retirement pay — through deductions or exclusions.

The 9 States With No Income Tax

As of 2026, nine states impose no individual income tax:[1]

1. Alaska — No income tax; residents receive an annual Permanent Fund Dividend
2. Florida — No income tax; constitutionally prohibited
3. Nevada — No income tax; revenue from gaming and sales taxes
4. New Hampshire — No income tax (interest & dividend tax fully phased out as of 2025)
5. South Dakota — No income tax; no corporate income tax either
6. Tennessee — No income tax (Hall tax on investment income repealed in 2021)
7. Texas — No income tax; constitutionally prohibited
8. Washington — No broad income tax, but imposes a 7% capital gains tax on gains above $270,000
9. Wyoming — No income tax; no corporate income tax

A key caveat: Washington's 7% capital gains tax means retirees with large taxable investment accounts or plans to sell appreciated property may face a meaningful state tax despite the absence of a traditional income tax. For retirees with significant capital gains, states like Florida, Nevada, or Wyoming offer more complete tax protection.

States That Don't Tax Social Security

Social Security taxation at the state level has been declining steadily. As of 2026, the vast majority of states — over 40 — do not tax Social Security benefits at all.[2]

The states that still tax Social Security to some extent include: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, most of these states provide significant exemptions:

• Colorado— Full deduction for taxpayers 65+; partial deduction for ages 55–64
• Connecticut— Exempts benefits for AGI below $75,000 (single) or $100,000 (MFJ); phases out above
• Montana— Taxes benefits similarly to federal rules but allows a partial deduction
• New Mexico— Exempts benefits for taxpayers with income below $100,000 (single) or $150,000 (MFJ)
• Utah— Provides a retirement tax credit that offsets the tax for most middle-income retirees
• Vermont— Exempts benefits up to income thresholds similar to Connecticut
• West Virginia— Phasing out Social Security taxation entirely by 2026

For most retirees with moderate income, even these states effectively exempt Social Security. The tax primarily affects higher-income retirees in these states who have substantial income beyond Social Security.

States With Flat Income Taxes

Several states use a flat tax rate, which simplifies planning and can be advantageous for retirees with higher incomes:[1]

• Pennsylvania (3.07%) — Notably, PA does not tax distributions from IRAs, 401(k)s, pensions, or Social Security. This makes it one of the most retirement-friendly states despite having an income tax.
• Indiana (3.05%) — Low flat rate with a $6,000 deduction for certain retirement income
• Michigan (4.25%) — Offers pension and retirement income deductions for eligible retirees
• Illinois (4.95%) — Does not tax retirement income from pensions, IRAs, or 401(k)s
• Colorado (4.40%) — Offers generous retirement income exclusions, especially for those 65+

Pennsylvania and Illinois deserve special attention. Despite having income taxes, both states exempt most retirement income — making them functionally equivalent to no-income-tax states for retirees living primarily on pensions and retirement account distributions.

State Estate and Inheritance Taxes

For retirees concerned about wealth transfer, state estate taxes can be a significant factor. While the federal estate tax exemption sits at $13.99 million per person for 2026 (scheduled to drop to approximately $7 million in 2027 if TCJA sunsets), many states impose estate taxes at much lower thresholds:[3]

• Oregon — $1 million exemption (lowest in the nation)
• Massachusetts — $2 million exemption
• New York — $6.94 million exemption with a “cliff” (exceed it by more than 5% and the entire estate is taxable)
• Washington — $2.193 million exemption; top rate of 20% (highest state estate tax rate)
• Hawaii — $5.49 million exemption

In total, 12 states and the District of Columbia impose estate taxes, and 6 states impose inheritance taxes (Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania). Maryland is the only state with both. States with no income tax andno estate tax — such as Florida, Texas, Wyoming, and Nevada — offer the most complete tax protection for retirees focused on wealth preservation.

Property Tax Considerations

Property taxes are often the largest ongoing tax expense for retirees, and they vary dramatically by state. States with no income tax frequently compensate with higher property taxes:[4]

• New Hampshire— Effective rate of approximately 1.86%, one of the highest in the nation. On a $400,000 home, that is roughly $7,440/year.
• Texas— Effective rate of approximately 1.60%. On a $400,000 home, roughly $6,400/year. Some counties exceed 2%.
• Florida— Effective rate of approximately 0.80%, more moderate than other no-income-tax states, plus a homestead exemption that caps annual assessment increases.

Contrast these with low-property-tax states like Hawaii (0.27%), Alabama (0.37%), and Louisiana (0.51%). For a retiree whose home represents a large share of their net worth, property taxes can easily outweigh income tax savings from relocating to a no-income-tax state.

Many states also offer property tax relief programs for seniors, including homestead exemptions, assessment freezes, and circuit-breaker credits that cap property taxes as a percentage of income. These programs can significantly reduce the effective property tax burden for retirees with modest incomes.

ACA Marketplace Variation by State

For early retirees under 65 who rely on ACA marketplace coverage, the state you live in directly affects your healthcare costs. Marketplace premiums, plan availability, and the benchmark Silver plan price (which determines your subsidy amount) vary significantly by state and county.[5]

Key differences include:

• State-run vs. federal exchanges: Some states operate their own marketplaces (e.g., California, New York, Colorado) with different plan offerings and enrollment processes.
• Insurer competition: States with more participating insurers tend to have lower premiums. Rural areas in many states have only one or two insurers, driving prices up.
• Benchmark plan pricing:The second-lowest-cost Silver plan sets the subsidy amount. In states with expensive benchmarks, retirees receive larger subsidies — but out-of-pocket costs for non-Silver plans may be higher.
• Medicaid expansion: States that expanded Medicaid provide coverage for very-low-income retirees who might otherwise fall into a coverage gap.

With the ACA subsidy cliff returning in 2026, state marketplace pricing becomes even more critical. A couple managing their income to stay below 400% FPL needs to know exactly what subsidy they will receive in their specific state. Use the state-by-state ACA calculator to compare subsidy amounts across locations.

Overall Rankings: The Full Picture

No single ranking can capture the “best” state for every retiree — it depends on your income mix, asset level, health insurance needs, and estate planning goals. However, several states consistently rank well across multiple dimensions:

• Florida— No income tax, no estate tax, moderate property taxes with homestead protections, and a competitive ACA marketplace. The combination makes it a perennial top choice.
• Wyoming— No income tax, no estate tax, very low property taxes (0.56% effective rate), and low cost of living. The tradeoff: limited healthcare infrastructure in rural areas.
• Nevada— No income tax, no estate tax, moderate property taxes, and proximity to major healthcare systems in Las Vegas and Reno. Higher sales tax (8.23% in Clark County).
• South Dakota— No income tax, no estate tax, low property taxes, and favorable trust laws for estate planning.
• Tennessee— No income tax (since 2021), no estate tax, moderate property taxes, and a relatively low cost of living.

For retirees with high pension income, states like Pennsylvania and Illinoisdeserve consideration — both exempt retirement income from state tax despite having a broad income tax.

Look Beyond Income Tax

The biggest mistake retirees make when evaluating states is focusing exclusively on income tax. A holistic evaluation should include:

• Total tax burden: Income tax + property tax + sales tax + estate tax. A state with no income tax but 2% property taxes may cost more than a state with 3% income tax and 0.5% property taxes.
• Healthcare costs: ACA marketplace pricing, Medicare supplement plan costs, and proximity to quality healthcare. These costs often dwarf tax differences.
• Cost of living: Housing, food, utilities, and transportation costs vary enormously. A lower tax bill means little if everyday expenses are 30% higher.
• Quality of life: Climate, proximity to family, cultural amenities, and outdoor recreation all factor into retirement satisfaction. A tax-optimal move that makes you miserable is no optimization at all.
• Residency rules:States have varying rules for establishing and maintaining tax residency. Snowbirds who split time between states must understand which state will claim them as a resident — and the potential for both states to assert jurisdiction.

For retirees considering relocation, the state-by-state widow's tax calculator can help you model how filing status changes (from MFJ to single after a spouse's death) interact with state taxes — an often-overlooked dimension of the relocation decision.

The Bottom Line

State taxes are a meaningful but incomplete piece of the retirement puzzle. The best state for your retirement depends on the specific mix of income sources, assets, healthcare needs, and personal priorities unique to your household. Before making a move, model the full tax impact — including federal interactions like the ACA cliff, IRMAA, and the Social Security torpedo — across your current state and any prospective destinations.

Use the calculators on this site to run your specific numbers state-by-state, and consult with a tax professional who understands both the origin and destination state's rules before committing to a relocation.