Best States for Retirees to Avoid Taxes (2026)

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Nine states charge zero income tax, and several others exempt Social Security and pension income entirely. Where you retire can save you tens of thousands of dollars per year. Here are the states that actually deliver on the tax-friendly promise in 2026.

Nine states charge zero state income tax, and the gap between retiring in Florida versus California can exceed $40,000 per year in after-tax income for a household drawing $120,000 from retirement accounts. Where you plant your flag in retirement is one of the highest-leverage financial decisions you will ever make.

The No-Income-Tax States Still Lead the Pack

Florida, Texas, Nevada, Wyoming, South Dakota, Washington, Tennessee, New Hampshire, and Alaska all impose zero state income tax. For retirees, that means Social Security, IRA distributions, pension checks, and investment income are all untouched at the state level.

Florida and Texas draw the most retiree migration in 2026, and for good reason. Florida has no estate tax, no inheritance tax, and its homestead exemption caps annual property tax assessment increases at 3 percent for primary residents. Texas carries heavier property taxes, with an average effective rate around 1.60 percent statewide, but the absence of income tax still puts most retirees ahead.

Wyoming and South Dakota are the sleeper picks. Both have no income tax, no estate tax, and low overall cost of living. South Dakota's average effective property tax rate sits near 1.01 percent. Wyoming's is even lower at roughly 0.55 percent. Neither state taxes investment income, capital gains, or retirement distributions at the state level.

States That Tax Income but Exempt Retirement Money

Some states technically have an income tax but carve out so much retirement income that the practical burden is minimal.

Pennsylvania exempts all Social Security income, all pension income from public and private employers, and all IRA and 401(k) distributions from state income tax entirely. The flat income tax rate is 3.07 percent, but most retirees drawing primarily from retirement accounts pay close to zero in state income tax. Property taxes vary by county but the statewide average effective rate is around 1.36 percent.

Mississippi exempts all retirement income including Social Security, pensions, and qualified retirement account distributions. The state's top income tax rate is being phased down toward 4 percent, and the cost of living index ranks among the lowest in the country. For retirees on fixed incomes, Mississippi punches well above its weight.

Illinois also exempts all retirement income from its flat 4.95 percent income tax, including Social Security, pensions, and 401(k) distributions. The catch is property taxes. Illinois carries one of the highest average effective property tax rates in the country at approximately 1.73 percent, which erodes the retirement income advantage significantly for homeowners.

For more on which states leave Social Security alone, see our full breakdown at States That Don't Tax Social Security.

The States Retirees Are Fleeing in 2026

California taxes all retirement income, including Social Security, at rates up to 13.3 percent. A retiree drawing $100,000 per year from a traditional IRA faces a state tax bill that can exceed $9,000 depending on deductions. Add property taxes, capital gains taxes on investment portfolios, and a cost of living index that sits roughly 38 percent above the national average, and the math gets ugly fast.

New York, Minnesota, Vermont, and Connecticut all tax Social Security benefits at the state level, though Minnesota and Connecticut have partial exemptions based on income thresholds. New Jersey has no tax on Social Security income but applies its income tax to pensions and retirement distributions above certain thresholds, and its average effective property tax rate of 2.13 percent is the highest in the nation.

For a side-by-side look at what high-tax states actually cost retirees over a 20-year retirement, read The True Cost of Living in High-Tax States.

Capital Gains and Estate Taxes Matter Too

Retirees with investment portfolios or significant assets need to factor in capital gains taxes and estate taxes, not just income tax. Twelve states plus the District of Columbia impose their own estate taxes as of 2026, with Massachusetts and Oregon taxing estates above $1 million. Washington state taxes estates above $2.193 million at rates reaching 20 percent.

If you plan to pass wealth to heirs, states like Florida, Texas, Nevada, and Wyoming offer a clean sweep: no income tax, no estate tax, no inheritance tax. That combination is hard to beat. See Estate Tax by State: Where Your Heirs Pay Most for the full picture.

For retirees with appreciated assets, capital gains tax treatment also varies significantly by state. Use our retirement tax calculator to model your specific income sources across multiple states before committing to a move.

Key Takeaways

Wyoming and South Dakota combine zero income tax with property tax rates under 1.01 percent, the lowest total tax burden of any retirement destination in 2026.
Pennsylvania and Mississippi are the strongest picks among income-tax states, exempting virtually all retirement income and keeping effective rates near zero for most retirees.
Twelve states plus D.C. still levy their own estate taxes in 2026, which means income tax rates alone do not tell the full story for retirees with assets above $1 million.

Compare your retirement income, your home value, and your asset base across every state at liveordiehere.com to find the number that actually matters: what you keep.

Sources

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