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 states that still tax Social Security retirement benefits for single filers with an adjusted gross income (AGI) below $75,000. 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.]
California
Types of retirement income taxed: Military retirement benefits, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $4,298
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 $4,298. This is largely because some of the cheapest places to live in California come with median property tax bills below $2,000.
As far as income taxes 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.
Connecticut
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $6,153
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.
- 25% of IRA distributions are tax-exempt for eligible taxpayers in 2023.
- 50% of IRA distributions are tax-exempt for eligible taxpayers in 2024.
- 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 $6,153. 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: $5,091
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 recently went into effect.
However, some retirees might find that the tax burden in Massachusetts isn’t so bad. For example, if you rent, you can 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: $2,189
Property taxes are reasonable in Montana, with a median tax bill of $2,189. But 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.
Montana also imposes a 6.75% tax rate on taxable income over $19,800. But, beginning next year (2024), this tax rate will be reduced to 6.5% and apply to income over $41,000 for joint filers ($20,500 for single filers).
Nebraska
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $1,967
Nebraska might not stay on this list for long, considering property taxes are lower than in many states. That’s because the state won’t tax Social Security retirement benefits, beginning in 2025. But for now, Nebraska taxes Social Security income to the same extent it’s taxed by the federal government. And that’s not great tax news for many retirees, especially considering Nebraska’s top income tax brackets.
- The top tax rate of 6.84% applies to income greater than $31,160 for single filers.
- Joint filers are subject to the 6.84% tax rate if their incomes exceed $62,320.
New Jersey
Types of retirement income taxed: Pensions and distributions from 401(k)s and IRAs
Median Property Tax Bill: $8,797
New Jersey won’t tax your Social Security retirement income, but median property tax bills of more than $8,700 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 for 2023) may exclude all or part of their retirement income from state taxation.
- Military retirement income and Railroad retirement benefits are tax-exempt.
New York
Types of retirement income taxed: Pensions and distributions from 401(k)s and IRAs
Median Property Tax Bill: $5,884
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 just below $5,900.
Rhode Island
Types of retirement income taxed: Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $4,483
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 greater than $119,750 are subject to state tax on Social Security benefits.
- For all other filing statuses, only retirees with a federal AGI greater than $95,800 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 $4,483 earned the Ocean State a place on this list.
Utah
Types of retirement income taxed: Military retirement benefits, Social Security, pensions, and distributions from 401(k)s and IRAs
Median Property Tax Bill: $1,967
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 4.65% 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: $4,570
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 $4,570 in Vermont is even higher than the median tax bill for California homeowners.
