If you\u2019re planning for retirement, you\u2019re probably focused on a handful of key variables, including the size of your nest egg, withdrawal rate, asset allocations and taxes.<\/p>\n
But one critical factor that\u2019s often overlooked \u2014 and can have outsized consequences in retirement \u2014 is where you choose to live.<\/p>\n
Your location helps determine your cost of living, access to healthcare and overall quality of life. It also carries important tax implications that extend well beyond a state\u2019s headline income tax rate. If you\u2019re not factoring all of this in, you may be leaving significant money on the table.<\/p>\n
With that in mind, here are the five most commonly overlooked state tax issues to consider before you retire.<\/p>\n
A state\u2019s headline income tax rate typically applies to wages and earned income, but many states treat retirement income differently. If you rely on pensions, Social Security or retirement account withdrawals, your actual tax bill may be lower than expected.<\/p>\n
States such as Illinois, Iowa, Mississippi, Nevada and New Hampshire do not tax pension income, according to Empower. (1) Illinois also excludes 401(k) and IRA withdrawals \u2014 including Roth conversions \u2014 from state taxable income. (2)<\/p>\n
In short, a state doesn\u2019t need to be completely \u201ctax-free\u201d for much or all of your retirement income to be shielded from state taxes.<\/p>\n
Read More: The average net worth of Americans is a surprising $620,654. But it almost means nothing. Here\u2019s the number that counts (and how to make it skyrocket)<\/a><\/p>\n Social Security benefits are taxable at the federal level, but nine states also tax them at the local level.<\/p>\n According to Empower, the states that tax Social Security benefits include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia. (1)<\/p>\n If a significant portion of your retirement income comes from Social Security, it\u2019s important to check whether your state imposes additional taxes on these benefits.<\/p>\n States that don\u2019t levy an income tax often make up for it with higher property taxes. Texas, for example, has no state income tax, but its effective property tax rate of 1.4% is higher than California\u2019s 0.7%, according to the Tax Foundation. (3)<\/p>\n Story Continues <\/p>\n For many retirees, property taxes are their largest tax expense. If you\u2019re planning to move to a new state, overlooking this part of the tax code could be costly.<\/p>\n It\u2019s worth mentioning that the property tax rate shouldn\u2019t be considered isolation. Property prices are another important factor to consider.<\/p>\n Property tax rates shouldn\u2019t be considered in isolation. Property values also matter: while California\u2019s rate is lower than Texas, homes in California are generally much more expensive.<\/p>\n As of 2025, the median home in California is $788,920, compared to just $303,321 in Texas, per Experian. (4)<\/p>\n Ultimately, your property tax bill depends on both the local tax rate and value of your retirement home.<\/p>\n Although estate planning often follows retirement planning, the two are closely connected.<\/p>\n Planning retirement without accounting for state estate tax rules could leave your loved ones facing a large bill after your death.<\/p>\n According to the Tax Foundation, 12 states and the District of Columbia impose estate taxes, including New York, Vermont, Maine, Oregon and Washington. (5)<\/p>\n Five states levy an inheritance tax, which is paid by beneficiaries rather than the deceased\u2019s estate, including Nebraska, Kentucky, Pennsylvania and New Jersey.<\/p>\n Maryland is the only state that imposes both an estate and an inheritance tax.<\/p>\n In short, ignoring estate or inheritance taxes when planning a retirement move could be costly.<\/p>\n Perhaps the most easily overlooked tax is the sales tax. Nearly all states levy some form of sales tax, with the exception of Alaska, Delaware, Montana, New Hampshire and Oregon. (1)<\/p>\n In some states, sales taxes can significantly reduce your retirement spending without you noticing. California, for example, has a 7.25% rate, while Tennessee\u2019s rate is 7%. (1)<\/p>\n If you plan to relocate in retirement, factor in the state\u2019s sales tax rate and build a margin of safety \u2014 perhaps 5-10% \u2014 into your annual budget.<\/p>\n Join 200,000+ readers and get Moneywise\u2019s best stories and exclusive interviews first \u2014 clear insights curated and delivered weekly. Subscribe now.<\/a><\/p>\n Article sources<\/p>\n We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.](https:\/\/moneywise.com\/editorial-ethics-and-guidelines).*)<\/p>\n Empower (1<\/a>; Illinois.gov<\/a> (2<\/a>); Tax Foundation (3<\/a>); Experian (4<\/a>); Tax Foundation (5<\/a>).<\/p>\n This article provides information only and should not be construed as advice. 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