After doing a 50 video marathon of how each state taxes retirees, I had to do a wrap of the best states for retirees to consider, at least when it comes to the taxes they pay.
How I decided these were the top 8 states were based on their income, sales and property taxes.
Be advised, I favor LOW property tax, even at the expense of a higher income tax. Why? Because income tax can be manipulated with good tax planning, i.e, maximizing your Social Security benefits and converting to Roth IRAs when your tax brackets are low.
Unfortunately, there is not much you can do when it comes to property tax. Hopefully, your state or county has a decent homestead exemption to reduce the property tax burden.
Sales tax is second tax I want to see low. Again,, I’d rather have a low sales tax than a low income tax if I had to choose between the two. Unfortunately there are only 4 states in the US with no sales tax and none of them appear on this list.
New Hampshire doesn’t have a sales or income tax but its property tax is so high, it can’t rank in the top in terms of tax favorability.
Also, when it comes to sales tax, I want to find states that don’t tax groceries. This may be my bias with a family of 6 but we spend a HUGE amount on groceries. So, to avoid that, is a huge tax cut and it will be for many retirees too.
Lastly, comes the income tax. But I didn’t want to simply say “Texas has no income tax thus it’s tax favorable. Georgia HAS an income tax thus it’s not.” There is so much more to the picture than just whether or not a state has an income tax.
Did you GA allows you to exempt $130k in income if you’re married filing jointly and over 65? That means if you have income of say $100k, you have no state income tax. Yet, you wouldn’t have known that if you just looked at the states with no stated income tax.
So, let’s dive into the top 8 in alphabetical order.
1. Alaska – No sales tax(at the state level) no income tax, large homestead exemptions for homeowners over 65 years old.
2. Delaware – (This may be my #1 state actually from a tax perspective.) No sales tax, top 5 lowest property tax in the nation and huge deductions on retirement income for retirees plus Delaware doesn’t tax Social Security.
3. Georgia – No sales tax on groceries, basically no income tax for most retirees and relatively low property tax too with homestead exemptions
4. Hawaii – stunned when I saw this. Lowest property tax with a huge homestead exemptions. Top 5 lowest sales tax. No tax on Social Security or pensions.
5. Kentucky – Bottom 10 sales tax, groceries are exempt. Huge retirement income exemptions. Social Security not taxed. Low property tax with a decent homestead exemption too. Low cost of living.
6. Mississippi – Exempts ALL retirement income from tax. Social Security not taxed. Incredibly low property tax with huge homestead exemption. Moderate sales tax. Low cost of living.
7. Tennessee – No income tax. Low property tax. High sales tax but groceries are exempt. Large homestead exemption. Cost of living pretty low.
8. Wyoming – No state income tax. Low property tax rate. Low sales tax too. Groceries are exempt from sales tax. Lowe cost of living.
Of course, this list is always subject to change. Kentucky just reduced their retirement income exemption from a HUGE $41k per taxpayer to a still HUGE $31k per taxpayer.
You’ve got to keep your eyes open for changes. And some states have done good work in the past few years to make their states more receptive, New Jersey and Rhode Island come to mind.
Of course, you may disagree with my assessments or think I missed a state. Put it in the comments notes and tell me why.
See the video here.