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10 Most Tax-Friendly States for Retirement

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Where you retire can have a great deal to do with how comfortable you are in retirement, for lots of reasons.

One factor that always looms large in any would-be retiree’s mind is money, and a big part of the money picture in retirees’ budgets are taxes.

Kiplinger ran the numbers on all 50 states and the District of Columbia, to see which ones were friendliest—or unfriendliest—to retirees in their tax structure.

Tax breaks, low rates, or even nonexistent taxes in certain categories all played a part in determining just how advantageous—or detrimental—a given state is to a retiree’s budget. And there’s a substantial range to choose from.

(Related: 10 Best States for Retirement: 2015)

Of course, with variation comes the need to decide whether a particular state’s advantages or disadvantages work to your own.

A state with low gas tax, for instance, may not present a particular benefit to someone who doesn’t drive, while a retiree with a family and a good-sized estate might be looking for a place to live where there are low or no estate and inheritance taxes.

Below we’ve listed the 10 most tax-friendly states Kiplinger came up with, along with what makes them such great opportunities.

 Paragliding near Juneau, Alaska (photo: AP)

1. Alaska

Okay, so maybe you hadn’t envisioned moving to the northernmost part of the country to spend your retirement years.

But before you move on to the next candidate, you might like to know that Alaska has no state income tax, no state sales tax, and no estate or inheritance tax. Pretty nice, huh?

Not only that, if you stick it out past a year, you’ll get an annual dividend check from the state’s oil profits—which will make your retirement funds go even farther.

In addition, that aforementioned gas tax is the lowest in the country—something that will come in handy if you like to get out on that ATV to see the wilderness.

Property taxes are on the high side, but homeowners 65 and older, or surviving spouses 60 and over, get an exemption from municipal taxes on the first $150,000 of their property’s assessed valuation. Along a state highway in Wyoming (photo: AP)

2. Wyoming

Here’s something to make a retiree’s heart sing, if he’s fond of brew: Wyoming has the lowest beer tax in the U.S.

Of course, that’s not its only advantage, or it wouldn’t be No. 2.

No state income tax, a state sales tax of 4 percent, no estate or inheritance tax and low property taxes all add up to an easy touch on the bankbook.

Seniors whose income meets state guidelines can also get a refund of up to $800 (singles) or $900 (married) on property, utility and sales/use taxes.

On the Las Vegas strip in Nevada (photo: AP)

3. Nevada

No income tax, coupled with affordable property taxes, make this a place to gamble on during retirement.

The state sales tax is no bargain at 6.85 percent, but food and drugs are exempt. However, municipalities may tack on as much as another 1.3 percent.

Then there’s the “government services tax” on your car—so maybe stick with an aging vehicle, since the tax is based on its age and value.

Boats near Biloxi, Mississippi (photo: AP)

4. Mississippi

Social Security is exempt from income tax here, as are IRA/401(k) withdrawals, public and private pensions, and other qualified retirement income.

In addition, there’s no estate or inheritance tax here.

You’ll pay a hefty 7 percent sales tax, even on food, but not for prescription drugs, the newspaper, utilities, and motor fuel.

Vehicle sales get a 2 percent cut from the state rate, and since personal property gets taxed on age and value, this is another place where it pays to drive an old clunker.

A ship passes Savannah, Georgia (photo: AP)

5. Georgia

No estate or inheritance tax provides reason enough to have Georgia on your mind as a potential retirement spot.

In addition, state income tax ranges between 1–6 percent.

Not that you’ll be paying taxes on Social Security income, or up to $35,000 in other retirement income.

That’s until you hit age 65, when the amount exempted rises to $65,000 per person. Seniors can qualify for property tax deductions, and full-time residents get a homestead exemption even before they retire.

Snow and wind at Rehoboth Beach, Delaware (photo: AP)

6. Delaware

No state sales or inheritance tax, coupled with the fourth lowest property taxes in the country, make Delaware a chummy destination for retirees.

Add to that the fact that you can exclude quite a bit more of your retirement income from state taxes—$12,500 of IRA, 401(k) and pension income, if you’re 60 or older—and you have a pretty retirement picture.

Delaware does have an estate tax, though—but a surviving spouse won’t have to pay taxes, and in 2015 $5.43 million is exempt from it anyway. Just how large an estate do you plan on leaving?

Saguaro National Park , Tucson, AZ (photo: AP)

7. Arizona

No estate or inheritance tax means that whatever you have left when it’s time to go to the Big Retirement Home in the Sky will go to your heirs unencumbered.

And that might be quite a bit, since Social Security, Railroad Retirement, and up to $2,500 from military, civil service, and Arizona state and local government pensions is exempt.

Income tax isn’t all that high anyway, and property taxes aren’t very high either—in fact, they’re the 16th lowest in the country. And you won’t be paying state sales tax on prescription drugs and food—although you might pay some local sales tax on the latter.

Man asleep in New Orleans (photo: AP)

8. Louisiana

No estate or inheritance tax and a low state sales tax are just the start of tax benefits for retirees living down by the bayou, since Social Security, military, civil service, and state and local government pensions are all exempt from state income taxes.

Then there’s the third lowest property tax rate in the country, which isn’t bad either.

But watch out for local sales taxes, which can bump the total up from the 4 percent state level all the way to 11 percent. So keep an eye on your spending.

 Bison in Custer State Park, South Dakota (photo: AP)

9. South Dakota

Okay, let’s say it all together: No State Income Tax. There. Wasn’t that fun?

State sales taxes aren’t terribly high, although you will notice them—probably not as much as you would an income tax, though.

And although property taxes aren’t all that low, older homeowners can qualify for breaks depending on how much they make and how much the home is worth.

 Painting in Florida (photo: AP)

10. Florida

Of course, Florida is known far and wide for having no state income tax—and it also has no inheritance or estate tax.

Sales taxes can add up, between state and local, so check in the particular area you’re considering to see what that will total.

And while property taxes will take some of your retirement assets, residents can get a homestead exemption of up to $50,000 and seniors may qualify for up to an additional $50,000 in some cities or counties.

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