You’ve worked hard to build a nest egg for retirement, and if you’re like most people, you want to ensure you won’t outlive your savings while enjoying this time of your life and maximizing the value of assets left to your heirs. Not every U.S. state is a great place to attain these goals, however, especially when you factor taxes and housing expenses into the equation.

With that in mind, the most expensive states to retire in vary based on your specific financial circumstances—to an extent. The calculation involves several variables, such as the sources and dollar amount of your retirement income and the value of assets you want to leave to your heirs.

Note that most states currently don’t tax Social Security income. Those that do (to varying degrees) include Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. Consequently, if Social Security will likely represent your primary source of income during retirement, you may want to avoid these states based on taxes alone.

States that tax your retirement income

Unfortunately, all but seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—tax your retirement income.

Therefore, if you’re retired in one of these states and take a distribution from your IRA or 401(k) or receive Social Security benefits/a pension or even generate investment income, the state tax collector won’t take a single penny (though federal taxes still apply). Thus, for many retirees, these locations shine through as the most tax-friendly for their needs.

Another commonality between these states is that they don’t charge state tax on any other income, an essential consideration for those looking to work during retirement. All but Washington don’t levy any estate or inheritance taxes, allowing you to leave more to your heirs.

Speaking of Washington, The Evergreen State will levy a 7% capital gains tax on some capital assets (stocks and bonds); but the tax only applies to gains exceeding $250,000 annually.

When researching states that don’t charge retirement income, we’d be remiss not to mention a few other states that present varying circumstances including Illinois, Iowa, Mississippi, and Pennsylvania.

While Illinois doesn’t tax retirement income, the state does have a flat 4.95% tax on earnings from other sources such as investment income. Most retirement income is tax-exempt in Iowa for retirees age 55 and older, but other types of income (wages and investment income) are in fact taxed—with the state moving to a flat tax rate of 3.9% in 2026. Social Security benefits, 401(k) and IRA distributions, and pensions are exempt from Mississippi’s 5% flat tax, which is scheduled to drop to 4% by 2026; however, residents will still pay taxes on any other income exceeding $10,000. As with Mississippi, Pennsylvania doesn’t tax distributions from Social Security benefits, 401(k) and IRA distributions, and pensions. All other types of income, however, are taxed at a flat rate of 3.07%.

The most unfriendly (retirement income tax) states for retirees

States vary widely with respect to taxing retirement income. Some of the least tax-friendly states include:

New York, which taxes anything over $20,000 from a private retirement plan (including 401(k) plans and IRAs) or pension. Social Security & Railroad Retirement benefits are exempt, and tax rates range from 4% to 10.9%.

New Jersey, where taxpayers age 62 or older can receive exclusions for some of their income from pensions, annuities, IRAs, and other retirement plans if their adjusted gross income (AGI) falls under $150,000. Maximum exclusion amounts are based on filing status, and the Garden State does not tax Social Security benefits.

Connecticut, which taxes retirement income but allows for the deduction of a percentage based on adjusted gross income. For example, those with an AGI falling below $75,000 ($100,000 for married joint filers) can deduct 100% of this income—with deductions decreasing significantly as income increases and dropping to 55% for those earning between $80,000 and $82,499 (single filers) or $110,000 and $114,999 (married filing jointly). As for Social Security benefits, residents are fully exempt based on the same thresholds—with no more than 25% of Social Security benefits subject to taxation.

Vermont, which taxes Social Security benefits (though joint filers with a FAGI of $65,000 or less and all other taxpayers with a FAGI below $45,000 are exempt). Most other retirement income is also taxable in Vermont depending on the amount, with taxes ranging from 3.35% to 8.75%.

Wisconsin, which excludes Social Security benefits from taxation yet income from other retirement sources is generally taxable—excluding that from federal, state, or local retirement plans. Retirees aged 65 and older can subtract up to $5,000 of retirement income from their taxable income if their FAGI falls below $15,000 ($30,000 for married couples filing jointly).

Nebraska, which just phased out Social Security taxes in 2024; but all other retirement account income is fully taxed unless you’re a military veteran, in which case you’d receive additional tax breaks (rates range from 2.46% to 6.84%).

Kansas, where Social Security is partially taxable if your adjusted gross income exceeds $75,000 and tax amounts mirror federal levels. Retirement plan income is fully taxed with the exemption of federal, designated state/local government, and military retirement accounts.

Inheritance and estate taxes

The terms “inheritance” and “estate” taxes are often used interchangeably, but these are in fact different types of taxes. The biggest difference involves who is responsible for paying them. While we won’t get into the details of each type here, know that these taxes can play a significant role for retirees wishing to maximize the value of assets left to heirs.

According to Tax Foundation data, 17 states currently levy estate and/or inheritance taxes (Maryland is the only state that charges both). Here’s a basic overview of each state:

Connecticut only charges an estate tax with an exemption of up to $12.92 million (meaning anything below this value is not subject to tax). Estate tax rates are 12%, and the tax due is capped at $15 million. This is also the only state to charge a gift tax on assets residents give away while still alive (the same rates and thresholds apply).

Hawaii imposes a progressive tax starting at 10% and rising to 20% on estates worth at least $5.49 million. The state has no inheritance tax.

Illinois has only an estate tax, with rates ranging from 0.8% to 16% and a $4 million exemption.

Iowa and Kentucky don’t charge an estate tax but currently levy an inheritance tax based on the amount of the inheritance and relationship to the decedent (up to 6% and 16%, respectively). The former state is eliminating its inheritance tax as of January 1, 2025.

Maine estate tax rates vary between 8 to 12%, with an exemption of $6.41 million and no inheritance tax in this state.

Maryland charges both an inheritance and estate tax with a tax exemption of $5 million (plus any predeceased spouse’s unused exclusion amount), starting at 0.8% and topping out at 16%. Inheritance tax is a flat rate of 10%, but this is sometimes waived based on the relationship to the deceased (e.g., if the inheritor is the deceased’s child or direct descendent, the spouse of a child or direct descendent, a spouse, parent, grandparent, sibling, stepchild, or stepparent).

Massachusetts has no inheritance tax, and the state’s estate tax kicks in for those valued at over $2 million. Tax rates range from 0.8% to 16%.

Minnesota has no inheritance tax and an estate tax exemption of $3 million, with rates ranging from 13% to 16%.

Nebraska doesn’t charge estate tax but does have an inheritance tax that can rise as high as 15%, based on the amount of the inheritance and relationship to the decedent.

New Jersey does not charge taxes on the estates of decedents who died on or after January 1, 2018. However, the state does charge an inheritance tax of up to 16% based on the amount received and the relationship between the decedent and beneficiary or transferee.

New York doesn’t charge inheritance tax but does levy estate taxes for values exceeding $6.58 million. Tax rates range from 3.06% to 16%. What’s more, if the value of one’s estate is more than 5% of the current exemption at the time of his/her death, the entire estate is subject to tax. This portion of the law is referred to as a “cliff tax.”

Pennsylvania charges only an inheritance tax—up to 15%—based on the relationship to the decedent. However, this doesn’t apply to the decedent’s spouse, parents (if the decedent is younger than 22), or children below age 22. In addition, a discount of 5% applies on the tax paid or due—whichever is less—when the payment is made within three months of the decedent’s death.

Oregon’s estate taxes start at 10% and can rise to 16%, applied to estates above $1 million. The state has no inheritance tax.

Rhode Island’s estate tax currently ranges from 0.8% to 16%, with an exemption amount of up to $1,733,264. Rhode Island has no inheritance tax.

Vermont doesn’t charge an inheritance tax but does have a flat estate tax of 16% with an exemption of up to $5 million. The state allows you to make deductions to reduce the value of your estate when you file based on your marital status, debts and administration expenses, and charitable deductions.

Washington has no inheritance tax; however, the state imposes an estate tax (between 10% and 20%) on those exceeding $2.193 million. An additional deduction of up to $2.5 million is available for family-owned businesses valued at $6 million or less.

Median home prices and property taxes

Because housing costs (which include mortgage, rent, property taxes, insurance, maintenance, and repairs) are the largest expense for retirees, we’d be remiss to omit the topic.

The average retiree household pays an average of $20,362 annually ($1,697 per month) on housing expenses: representing over 35% of annual expenditures. You’ll therefore want to consider and plan for these types of expenses during retirement, especially if faced with a limited income.

Property taxes are often the primary driver of such expenses outside of mortgage payments. New Jersey is the most expensive state in this respect, with Wallethub.com reporting an average annual NJ property tax bill of $8,797. Trailing behind are Connecticut ($6,153), New Hampshire ($6,036), New York ($5,844), and Massachusetts ($5,091).

State sales taxes

Every dollar counts for those of you who are (or will be) on a fixed income. That’s precisely why you may also want to review sales tax rates, as you’ll likely spend a significant portion of your income on taxable items. The five states that charge the highest combined (state and local) rates are Tennessee (9.548%), Louisiana (9.547%), Arkansas (9.44%), Washington (9.40%), and Alabama (9.24%) (per the most recent Tax Foundation data).

In sum: the most expensive states to retire in

While the decision about where to live in retirement isn’t only a financial one, finances do play a significant role. This is one reason why knowing potential tax implications before finalizing your decision can help save you a lot of money in the process.

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Retiring in These States Will Cost You More Money