Retirement Taxes by State: Income, Social Security & Estate Tax

Retirement rearranges which taxes matter to you. The income tax that dominated your working life may become close to irrelevant; the property tax you barely noticed becomes your largest recurring state cost; and a tax you have probably never thought about — your state's estate or inheritance tax — becomes the one your family is most likely to actually pay.

Choosing a state on the strength of its income-tax headline is how retirees end up worse off. This guide covers what actually moves the number: retirement-income exemptions, Social Security taxation, the property and sales taxes that undercut them, and the state death taxes that begin at a small fraction of the federal threshold.

The short version

• 13 states don't tax retirement income — the 9 no-income-tax states plus Illinois, Iowa, Mississippi, and Pennsylvania.
• Only 8 states still tax Social Security in 2026, most with deductions or income limits.
• 17 states plus DC levy an estate or inheritance tax; several start far below the federal ~$14M line.
• Oregon taxes estates from $1M and Massachusetts from $2M — an ordinary home plus savings can trigger it.
• Property and sales taxes routinely outweigh income-tax savings for retirees.

Estate tax

Paid by the estate before anything is distributed, based on the total value left behind.

Inheritance tax

Paid by each heir on what they personally receive, usually at a rate that rises with distance of relation.

Exemption

The amount that can pass untaxed before an estate tax applies. Far more important than the headline rate.

Retirement-income exemption

A provision in a state with an income tax that nonetheless excludes pensions, Social Security, and retirement-account withdrawals.

The three taxes that decide a retirement state

Retirees draw income differently from workers — mostly Social Security, pensions, and retirement-account withdrawals — so the ranking of what matters changes:

1. Income tax on retirement income. Are Social Security, pension, and 401(k)/IRA withdrawals taxed at all?
2. Property tax. Usually a retiree's largest ongoing state-level cost, paid every year regardless of income.
3. Sales tax. It quietly taxes everyday spending, which matters more on a fixed income than on a rising one.

A genuinely good retirement-tax state keeps all three modest. Optimising for any one of them in isolation is how people end up moving to a no-income-tax state and paying more.

States that don't tax retirement income

Thirteen states will not touch retirement income. Nine have no income tax of any kind; four more keep an income tax but specifically exempt retirement income:

Illinois and Pennsylvania deserve particular attention, because they are almost never on anyone's shortlist. Both tax wages like ordinary states, and both exempt Social Security, pensions, and 401(k)/IRA withdrawals. For someone whose income is entirely retirement income, they are functionally no-income-tax states — while carrying none of the property-tax penalty that usually accompanies that status in the more famous destinations.

States that still tax Social Security

This list keeps shrinking. Eight states tax Social Security in 2026, most with substantial deductions or income thresholds:

The taxes that undo the savings

This is where "best states to retire" lists go wrong. A no-income-tax state can be a poor deal for a retiree precisely because of how it replaces that revenue.

A retiree who owns a home should weigh property tax most heavily. It is charged annually on the value of the house regardless of income, which makes it the tax most capable of becoming unaffordable — your home can appreciate while your income does not. Texas and New Hampshire are the standing examples: no income tax to save on, and effective property rates around double the national median.

A retiree who spends most of their income feels sales tax more than income tax, because nearly every dollar that comes in goes back out through a register.

There is also a cost that is not a tax at all and therefore appears in no tax comparison: homeowner's insurance. In Florida and parts of Texas it has risen enough in recent years to erase a meaningful share of the income-tax saving that drew people there. Any honest comparison has to sit outside the tax code.

State death taxes: the ones that actually apply

The federal estate tax reaches only estates of roughly $14 million or more, so most families correctly ignore it. But 17 states plus DC levy their own estate or inheritance tax, and several begin at a small fraction of the federal threshold. For almost everyone who pays a death tax at all, it is a state one.

The two kinds work differently, and the difference matters for planning:

• Estate tax is paid by the estate, before distribution, on the total value left behind.
• Inheritance tax is paid by each heir on what they personally receive, usually at rates that rise the more distantly related the heir is.

Which states have an estate tax?

Twelve states, plus DC. The number that matters is the exemption — how much can pass before the tax applies:

The District of Columbia's exemption is around $4.9M. Note how far below the federal line some of these sit: Oregon's $1 million and Massachusetts's $2 million mean an ordinary home plus retirement savings can be enough to trigger the tax. That is the single most overlooked fact in this entire guide — a household that would never dream of owing federal estate tax can straightforwardly owe Oregon's.

Which states have an inheritance tax?

Five:

Iowa phased its inheritance tax out and fully repealed it effective 1 January 2025, so estates of people who die in 2025 or later owe nothing there. Maryland is the only state imposing both an estate tax and an inheritance tax.

How states rank on economic freedom

The economic-freedom score captures total tax load — income, sales, and property — plus regulatory climate, which makes it a reasonable way to narrow a shortlist before running your own numbers:

1. 1. New Hampshire —
   10.0/10 (A+).
2. 2. Tennessee —
   9.8/10 (A+).
3. 3. South Dakota —
   9.6/10 (A+).
4. 4. Texas —
   9.4/10 (A+).
5. 5. Idaho —
   9.2/10 (A+).
6. 6. Florida —
   9.0/10 (A+).
7. 7. North Carolina —
   8.8/10 (A).
8. 8. Georgia —
   8.6/10 (A).
9. 9. North Dakota —
   8.4/10 (A-).
10. 10. Indiana —
    8.2/10 (A-).

See all 50 states ranked on Economic Freedom

See the full tax-burden & economic-freedom ranking

All 50 states ranked on total tax load, regulation, and business climate — with a color-coded map.

Choosing, in order

1. Check the retirement-income exemption first, not the income-tax rate. Illinois and Pennsylvania beat several no-income-tax states for someone drawing a pension.
2. Then the property tax, on a house you would actually buy. This is usually the largest recurring cost and the one most likely to grow.
3. Then the estate exemption, not the estate-tax headline. Connecticut has an estate tax with a roughly $13M exemption and will never touch most families. Oregon has one at $1M and might touch yours.
4. Then everything that is not a tax — insurance, healthcare access, cost of living, and how far you will be from the people you want to see.

For most families the state estate tax, not the federal one, is the realistic concern, and it is entirely a function of where you choose to live. That is exactly the kind of trade-off worth deciding deliberately rather than discovering later.