Should You Move to a No-Income-Tax State in Retirement?

Should you move to one of the states that don't tax retirement income? Sometimes yes, but not because a state skips income tax. Two different groups of states answer that question: nine levy no broad personal income tax at all, and four more do levy one but exempt most retirement income. The real question is whether your total cost of living and taxes, plus the life you actually want, come out ahead after the move. A no-income-tax state can shift the burden onto property tax, sales tax, or higher insurance and healthcare costs, and those numbers matter just as much as the income tax line.

Which states don't tax retirement income?

Two different groups of states get folded into that one question, and mixing them together is why published lists disagree. Nine states levy no broad personal income tax at all, which means Social Security, pension payments, and withdrawals from an IRA or 401(k) are not taxed at the state level: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Four more states do levy an income tax but exempt most retirement income outright: Illinois, Iowa, Mississippi, and Pennsylvania. Beyond those, many states offer narrower breaks tied to your age, your income level, or the type of plan the money came from. So the honest answer is nine or thirteen depending on which question you are actually asking, and your current state may already treat your specific income mix better than you think.

Two of the nine carry caveats worth knowing before you plan around them. New Hampshire only recently became a true no-income-tax state, because its tax on interest and dividends was repealed for taxable periods beginning after December 31, 2024. And Washington, which has no individual income tax today, already applies a separate 7 percent excise to some long-term capital gains, and its legislature has enacted a 9.9 percent tax on adjusted gross income above $1 million that takes effect January 1, 2028. If a business sale or a large Roth conversion could push you over that line, Washington is a different calculation than the list suggests.

A state without an income tax is not automatically a cheaper state. It is a state that collects its money differently.

Because state rules change and vary by income type, confirm the current treatment with a tax professional before you build a plan around it. Anchor coordinates strategy; your CPA handles the filing.

Why "no income tax" doesn't mean "low tax"

Every state has to fund roads, schools, and services. A state that skips income tax usually raises the money another way. The three big substitutes are property tax, sales tax, and various fees or excise taxes.

For a retiree who owns a home, property tax can be a large recurring cost. For a retiree who spends heavily on goods, a high sales tax adds up. The point is simple: you have to compare the total tax burden, not one category.

Effective total tax burden

The sum of all state and local taxes you would actually pay (income, property, sales, and excise) as a share of your income or spending.

Domicile

Your true, fixed, permanent home. States use it to decide who has the right to tax your income.

Statutory residency

A rule under which a state can tax you as a resident if you spend enough days there, even if you claim domicile elsewhere.

A simple comparison frame

How should you run the numbers before moving?

Treat this like a business decision, because it is one. Here is a framework built around your actual retirement income, not a headline.

1. Map your income sources. Social Security, pensions, IRA and 401(k) withdrawals, taxable brokerage income, and any business or rental income. Each may be taxed differently by state.
2. Estimate income tax in both states. Apply your current state's rules and the destination state's rules to that same income. Some states already exempt much of what you receive.
3. Add property and sales tax. Use your expected home value and your real spending, not averages.
4. Layer in the non-tax costs. Home insurance, healthcare, travel to see family, and the one-time cost of moving.
5. Compare the totals. The winner is the lower combined number, not the lower income tax line.

A move that saves you on income tax but adds it back through property tax, insurance, and airfare to visit grandchildren is not a savings. It is a trade.

This is also where a coordinated plan earns its keep. Your withdrawal order across pre-tax, Roth, and taxable accounts interacts with where you live. Deciding those together, rather than in silos, is the point of the strategy for reducing taxes on IRA and 401(k) withdrawals. State residency is one input into that larger plan, not the plan itself.

What non-tax factors should weigh into the decision?

Taxes are measurable, so they get the attention. But the factors that most affect how a retirement actually feels are often not on the tax return.

• Family and support network. Distance from children and grandchildren, and who would help if your health changed.
• Healthcare access. Quality of nearby hospitals and specialists, and the cost and availability of supplemental coverage.
• Housing and insurance risk. Some lower-tax regions carry higher home insurance costs due to weather or fire risk.
• Climate and lifestyle. The reason many people move, and a legitimate one, but it should be named honestly rather than hidden behind a tax argument.
• Estate and legacy structure. A move can affect how your estate documents function. Coordinate with your attorney before you relocate.

How do state residency rules affect the plan?

This is the part that trips people up. To stop being taxed by your old state, you generally have to establish a new domicile and break ties with the old one. States that lose tax revenue when residents leave sometimes audit those departures closely.

Common evidence of a genuine move includes your driver's license, voter registration, vehicle registration, where you spend most of your days, and where your primary home is. A part-time move where you keep spending large chunks of the year in your old state can leave you taxed by both.

The tax benefit of a new state only holds if the move is real and documented. A half-move can produce a double tax bill.

Because these rules are technical and vary by state, treat residency planning as a coordinated effort between you, your CPA, and your attorney. Anchor's role is to keep the tax, income, and estate pieces working together, not to file your return or draft your documents.

When a move often makes sense, and when it usually doesn't

The honest answer for many retirees is that the tax savings are real but smaller than expected once every cost is counted. For others, especially those with substantial taxable withdrawals, the difference can be meaningful. The only way to know is to run your own numbers. This decision also connects to managing your capital gains rate in retirement and to how and when you claim Social Security, because state treatment interacts with your broader income timing.

Frequently asked questions

How many states don't tax retirement income?

It depends on which question you are asking. Nine states have no broad personal income tax at all, so they do not tax retirement withdrawals, pensions, or Social Security at the state level: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Four more states do levy an income tax but exempt most retirement income: Illinois, Iowa, Mississippi, and Pennsylvania. So the answer is nine or thirteen depending on the definition, and other states offer narrower breaks tied to age, income level, or plan type. Confirm current rules with a tax professional.

Is a no-income-tax state always cheaper for retirees?

No. States without income tax typically raise revenue through higher property tax, sales tax, or fees. The right comparison is your total combined tax and cost of living, not the income tax line alone.

Is my Social Security taxed at the state level?

It depends on the state. Most states do not tax Social Security benefits, and the states with no income tax do not tax them either. A handful of states do tax a portion. Federal taxation is separate and follows its own rules.

What do I have to do to change my tax state?

You generally need to establish a new domicile and break ties with your old state: things like your driver's license, voter registration, and where you actually spend most of the year. States can audit departures, so document the move and work with your CPA and attorney.

Can two states tax me at once?

Yes, if you keep strong ties or spend enough days in your old state to trigger statutory residency while also claiming a new home. A clean, well-documented move helps avoid being taxed by both.

Should the tax decision come before the lifestyle decision?

Usually not. For most retirees, family, healthcare, and lifestyle carry more weight than the tax savings. Let taxes inform the decision, not drive it, and run the full numbers before you commit.

Sources

1. IRS, tax residency status guidance: how residency is determined for tax purposes.
2. Social Security Administration, taxes and your benefits: how Social Security benefits may be taxed.
3. IRS, required minimum distributions: how retirement account withdrawals are treated for federal tax.
4. Alaska Statutes, Title 43 Chapter 20 (Alaska Net Income Tax Act): the tax on individuals is repealed and the net income tax applies to corporations.
5. Florida Department of Revenue, Tax Information for New Residents: Florida does not impose personal income tax.
6. Nevada Constitution, Article 10, Section 1: no income tax on the wages or personal income of natural persons.
7. New Hampshire Department of Revenue Administration, Interest and Dividends Tax: the tax is repealed for taxable periods beginning after December 31, 2024.
8. South Dakota Department of Revenue, taxes for individuals: South Dakota does not impose a state income tax.
9. Tennessee Department of Revenue, Hall Income Tax: repealed for tax periods beginning January 1, 2021.
10. Texas Constitution, Article 8, Section 24-a: individual income tax prohibited, added November 5, 2019.
11. Washington Department of Revenue, income tax: no current individual income tax, and a 9.9 percent tax on adjusted gross income above $1 million beginning January 1, 2028.
12. Washington Department of Revenue, capital gains tax: the 7 percent excise on long-term capital gains and its exemption for assets held in certain retirement accounts.
13. State of Wyoming, about Wyoming: Wyoming does not have an individual or corporate income tax.
14. Illinois Department of Revenue, pension and retirement income: which retirement income is subtracted from Illinois taxable income.
15. Iowa Department of Revenue, retirement income tax guidance: the exclusion and who qualifies for it.
16. Mississippi Department of Revenue, individual income tax FAQs: treatment of retirement income, pensions, annuities, and Social Security.
17. Pennsylvania Department of Revenue, PA Personal Income Tax Guide, Gross Compensation: retirement income never taxable as Pennsylvania compensation.