Kate Schubel
If a primary concern as you consider your retirement destination is saving money on taxes, the places on this list are the worst states to retire in. That's because high property taxes and taxes on traditional types of retirement income, like Social Security, pensions, and distributions from a 401(k) or IRA, make these states more expensive than most for many retirees.
Worst states to retire in for taxes
To determine the worst states to retire in, we considered state taxes on traditional types of retirement income. Then, we factored in states with the highest median property tax bills. (States that don’t tax retirement income were excluded from consideration.)
[Note: Median property tax bill amounts were gathered from US Census Bureau data and reported on by PropertyShark. The states on this list place a generally high tax burden on most retirees. However, living in other states may cause a higher tax burden for some people (such as renters and retirees with non-traditional retirement income). The states below are listed in alphabetical order.]
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
California
Types of retirement income taxed: Military retirement benefits, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $4,926
You might not be surprised to see California on this list, especially given that median property tax bills can exceed $9,000 in some parts of the state. However, the median tax bill for homeowners across the Golden State is $4,926. This is largely because some areas of the state have median property tax bills around $2,000.
As far as income taxes in retirement go, whether you’ll pay a lot or a little depends on the type of income you receive. For example, California won’t tax your Social Security benefits, regardless of your AGI. But most other types of retirement income are fair game in the state, including military benefits. In fact, California is the only U.S. state that fully taxes military retirement pay.
Connecticut
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $6,575
Connecticut exempts Social Security retirement benefits from state income tax for single filers with an AGI below $75,000 (below $100,000 for joint filers). Taxpayers with incomes below those thresholds also qualify for the following tax breaks.
- All pension income is tax-exempt for eligible taxpayers.
- 75% of IRA distributions are tax-exempt for eligible taxpayers in 2025.
- All income from IRA distributions will be exempt for eligible taxpayers in 2026.
However, homeowners in Connecticut pay some of the highest property tax bills in the U.S., with a median tax bill of $6,575. So, even retirees with lower incomes might find the Constitution State an expensive place to live.
Massachusetts
Types of retirement income taxed: Pensions and distributions from 401(k)s and IRAs
Median Property Tax Bill: $5,813
With a median tax bill of more than $5,000, Massachusetts can be an expensive place for homeowners. Millionaires might find the Bay State costly, too, due to a Massachusetts millionaire tax that went into effect in recent years.
However, some retirees might find that the tax burden in Massachusetts isn’t so bad. For example, if you rent, you may avoid the Commonwealth’s generally high property taxes. And some types of retirement income are tax-exempt.
- Social Security and Railroad retirement benefits are tax-exempt.
- Income from the federal government, Massachusetts state, and Massachusetts local government retirement plans is tax-exempt.
- Military retirement pensions are tax-exempt.
Montana
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $2,535
Property taxes are reasonable in Montana, with a median tax bill of $2,535. But the state taxes Social Security benefits, and low-income thresholds for Social Security tax exemptions still land Montana a spot on this list.
- Single filers with an AGI of more than $25,000 are subject to state income tax on Social Security benefits.
- Joint filers with an AGI of more than $32,000 are subject to Montana income tax on Social Security benefits.
Additionally, Montana repealed several tax deductions last year, including the partial interest income deduction for taxpayers aged 65 or older and the partial pension, annuity, and IRA deduction. Instead, taxpayers 65 and over receive a $5,500 state subtraction from federal taxable income.
New Jersey
Types of retirement income taxed: Pensions and distributions from 401(k)s and IRAs
Median Property Tax Bill: $9,541
New Jersey won’t tax your Social Security retirement income, but median property tax bills of more than $9,500 earn it a place on this list. And income taxed by New Jersey (such as wages, investment income, and some pensions), is subject to a state tax rate between 1.4% and 10.75%. However, there is some good news.
- Taxpayers 62 and older (or those who have a disability) who meet income requirements ($150,000 or less) may exclude all or part of their retirement income from state taxation.
- Military retirement income and Railroad retirement benefits are tax-exempt.
Related: What's Going on With New Jersey Property Tax Programs?
New York
Types of retirement income taxed: Pensions and distributions from 401(k)s and IRAs
Median Property Tax Bill: $6,450
New York doesn’t tax Social Security, and some types of pensions are also exempt from state taxation. However, New York State taxes other types of retirement income, and since there are nine income tax brackets in the Empire State, tax burdens can vary greatly from one taxpayer to another.
- New York’s lowest income tax bracket of 4% applies to single filers with an AGI of $8,500 or less ($17,150 or less for joint filers).
- The highest tax bracket of 10.9% applies to all filers with an AGI of more than $25,000,000.
If you’re a resident of New York City, you might pay even more in income taxes. Meanwhile, median property tax bills in the state are more than $6,000.
Rhode Island
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $4,854
While Rhode Island taxes Social Security benefits, many retirees won’t pay a dime. That’s because income thresholds for the state’s exemption on this type of income are generous (at least compared to the other states that still tax Social Security).
- For joint filers, only those with a federal AGI less than $130,250 are subject to state tax on Social Security benefits.
- For all other filing statuses, only retirees with a federal AGI less than $104,200 pay state taxes on Social Security benefits.
So, if the income thresholds are so generous, why is Rhode Island one of the worst states to retire in? It might not be so bad for renters, but homeowners in the state could face a higher tax burden. The high median property tax bill of $4,854 earned the Ocean State a place on this list.
Utah
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $2,412
Median property tax bills are lower in Utah than in most states, but the Beehive State taxes Social Security retirement benefits to the same extent they are taxed at the federal level. Most other types of retirement income are taxable income, too.
On the bright side, you won’t have to worry about which tax bracket you fall into since Utah taxes income at a flat 4.55% rate. And the state does offer eligible retirees a retirement credit of up to $450.
Vermont
Types of retirement income taxed: Military retirement benefits, Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $4,956
Some Vermont retirees won’t pay state income tax on Social Security benefits, but income thresholds apply, and they are less generous than in many states.
- Married filing jointly retirees with an AGI of more than $65,000 are subject to state tax on Social Security retirement income.
- Single and married filing separate filers with an AGI greater than $50,000 are subject to tax on Social Security.
- Single filers qualify for a partial exemption with an AGI up to $59,999 ($74,999 for joint filers).
Vermont homeowners also face some of the highest property tax bills in the U.S. The median property tax bill of $4,956 in Vermont is even higher than the median tax bill for California homeowners.
Related Content
-
The 'Concerning Trends' in Retirement NowAmericans are less satisfied with their life in retirement and cite inflation and higher healthcare costs as just two of the problems they're facing.
-
What Trump Has Done With Social Security So FarSince President Trump was sworn into office on January 20, he has proposed or initiated changes impacting how Social Security functions, including closing offices and offering buyouts. Here's a roundup.
-
Tax-Deductible Home Improvements for Retirement in 2025Retirement Taxes Your aging-in-place plan could benefit from the medical expense tax deduction. But watch out for capital gains and property taxes.
-
Don’t Make These Five Mistakes on Your Tax ReturnTax Filing The IRS warns taxpayers to watch out for these common errors as they prepare to file.
-
You Don’t Want to Retire in Portugal: Here Are Three Tax Reasons WhyRetirement Taxes With the NHR benefit retiring and pension taxes increasing, you might rethink your retirement plans in Portugal.
-
Why Abolishing Florida Property Taxes is ProblematicProperty Taxes A bold proposal that aims to eliminate property taxes in the Sunshine State has roused concerns from economists, and rightly so.
-
First-Time Filing Taxes? Key Tax Tips to Know for 2025Tax Filing Preparing your IRS taxes for the first time may seem daunting, but here are some return preparation and filing tips to start.
-
Mail Theft Crisis: Why Your IRS Tax Refund Is At RiskTax Refunds Millions of dollars in tax refunds were stolen in the mail last year. Here's what you should know.
-
Ten IRS Audit Red Flags for Retirees in 2025Retirement Taxes Retirees who think they can escape the IRS audit machine should think again.
-
States with Emergency and Energy Sales Tax Holidays in 2025Sales Taxes Save on appliances with a state emergency preparedness or energy-efficient tax-free weekend in February.
