Retirement often brings the opportunity to relocate, whether for warmer weather, proximity to family, or a lower cost of living. However, one critical factor that can significantly impact your financial security is state taxes. Moving to a new state means navigating differences in how income, estates, and property are taxed, which can either stretch your retirement savings further or lead to unexpected bills. In 2026, with ongoing tax reforms and inflation adjustments, these considerations are more important than ever. Let’s explore the key tax implications in three main areas: income taxes, estate taxes, and property taxes that should be considered in the decision-making process.
Income Taxes: Protecting Your Retirement Income
Income taxes can take a sizable bite out of retirement funds, especially from sources like pensions, 401(k) withdrawals, IRAs, and Social Security benefits. Not all states tax these the same way, and choosing a tax-friendly state can preserve more of your nest egg.
Nine states impose no state income tax at all in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states can be particularly appealing for retirees, as they don’t tax most forms of retirement income, including Social Security, pensions, or investment earnings. For example, if you’re drawing from a 401(k) or IRA, you could avoid state-level taxes entirely in these locations, potentially saving thousands annually compared to high-tax states like California or New York.
In some cases, you may have a state tax exemption on pension benefits if you worked for the state, but those same benefits could be taxed in another state. As an example, a New York state teacher or police officer has no state income tax on their pension income in the state of New York. But if they were to move to South Carolina, they would have to pay on that pension benefit. As a result, sometimes moving to a state that typically has much lower tax burden could actually mean a higher tax burden.
Even in states with income taxes, treatment of retirement income varies. Thirteen states won’t tax 401(k) withdrawals in 2026, including the nine no-income-tax states plus Illinois, Iowa, Mississippi, and Pennsylvania, where retirement income is often exempt or partially exempt. Iowa, for instance, exempts retirement income for those 55 and older or who meet specific criteria like disability. Social Security benefits are fully exempt from state taxes in 41 states, but nine states (Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont) may tax them depending on income levels. West Virginia has been phasing out its tax on Social Security, with full elimination in 2026.
Additionally, several states are cutting income tax rates in 2026, which could benefit retirees. Georgia, Indiana, Kentucky, Mississippi, Montana, Nebraska, North Carolina, Ohio, and Oklahoma are among those reducing rates, with Ohio transitioning to a flat 2.75% rate. Mississippi’s rate drops to 4% in 2026 as part of a phase-out plan. If you’re moving from a high-tax state, factor in how your new state’s rules apply to your specific income sources, and consulting a tax advisor is essential to avoid surprises.
Estate Taxes: Planning for Your Legacy
Estate and inheritance taxes can erode what you leave behind for heirs, making them a key consideration for retirees with significant assets. While the federal estate tax exemption rises to $15 million per individual ($30 million for married couples) in 2026, state-level taxes often kick in at much lower thresholds.
Twelve states and the District of Columbia impose estate taxes in 2026: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. Estate tax rates vary widely from state to state. Washington has the highest top rate at 35% on estates over $9 million, while Hawaii tops out at 20% over $10 million. Connecticut applies a flat 12% rate with a $13.99 million exemption, making it less burdensome for smaller estates. Exemptions range from $2.193 million in some states to aligning with the federal level in others.
Five states levy inheritance taxes, which are paid by beneficiaries rather than the estate: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. These rates depend on the heir’s relationship to the deceased. Closer relatives often face lower rates or exemptions. Kentucky and New Jersey have top rates of 16%, while Maryland’s is a flat 10% (paired with its estate tax). Maryland is unique, as it is the only state that imposes both an estate and inheritance tax simultaneously.
If your estate exceeds state thresholds, moving to a state without these taxes (like Florida or Texas) could save heirs substantial amounts. However, some states allow deductions for federal estate taxes paid, and planning tools such as certain types of trusts can mitigate impacts. State taxes don’t typically sunset like some federal provisions, so long-term residency matters.
Property Taxes: The Ongoing Cost of Homeownership
Property taxes fund local services like schools and infrastructure, but they can vary dramatically by state, affecting your monthly budget in retirement. These taxes are based on your home’s assessed value multiplied by the local rate, and states with higher rates can add hundreds or thousands to annual expenses.
In 2026, New Jersey has the highest effective property tax rate at 2.23%, followed by Illinois at 2.07%, Connecticut at 1.92%, New Hampshire at 1.77%, and Vermont at 1.71%. For a median U.S. home valued at around $430,848, this translates to over $9,500 annually in New Jersey versus under $1,200 in Hawaii, which has the lowest rate at 0.27%. Other low-rate states include Alabama (0.36%-0.41%), Arizona (0.41%-0.44%), Louisiana (around 0.57%), and South Carolina (below 0.57%).
Rates aren’t uniform within states as counties and cities set their own, so research local variations. States like Hawaii benefit from high home values generating revenue at low rates, but this can mean higher absolute taxes if property prices are elevated. Many states offer senior exemptions or homestead deductions, reducing the effective rate for retirees. It’s important to check what programs are available in your target state.
Remember, low property taxes might coincide with higher sales or income taxes to compensate for revenue shortfalls. For example, no-income-tax states like Texas or Tennessee often rely more on property and sales taxes.
Final Thoughts: Balancing Taxes with Lifestyle
When relocating in retirement, taxes on income, estates, and property can profoundly influence your financial well-being. States like Florida or Texas often rank high for retirees due to no income or estate taxes and moderate property rates, but consider the full picture, including sales taxes, cost of living, healthcare, and quality of life. A move solely for tax savings might not pay off if other costs rise or if you’re far from loved ones.
Federal changes in 2026, like higher standard deductions and a new $6,000 tax break for those 65+ to offset Social Security taxes add another layer of consideration. Pair these with state rules for optimal planning. Always consult a financial advisor or tax professional to model scenarios based on your assets and income. With careful planning, your retirement move can enhance both your lifestyle and your legacy.
About the Author
Joseph M. Favorito, CFP® is a Certified Financial Planner® as well as the founder and managing partner at Landmark Wealth Management, LLC, a fee-only SEC registered investment advisory firm. He specializes in helping individuals and families develop comprehensive financial strategies to achieve their long-term goals.