1. Alabama
- State’s ranking: Most tax-friendly 🙂
- State income tax: between 2 percent (on up to $1,000 of taxable income for U.S. citizens who are married and file taxes jointly and up to $500 for all others) and 5 percent (on more than $6,000 of taxable income for citizens who are married and file taxes jointly and more than $3,000 for all others)
- The average property tax: $432 in taxes per $100,000 of assessed home value
- The average state and local sales tax: 9.16 percent
- Estate tax/inheritance tax: No/No
Based on our ranking, the Yellowhammer State is the friendliest U.S. state when it comes to taxation. Its low taxes for seniors make it the best retirement state, where you should definitely move to, especially if you’re living in Connecticut, for example.
And even if most Alabama residents have to pay the highest income tax rate (5 percent), it is not that much when compared to other U.S. states. Besides, Alabama treats its retired residents with respect as Social Security benefits, and other types of retirement income are exempt.
Wait! There’s more: In Alabama, you will find virtually no tax on income from both federal and local government or military retirement plans. Speaking of the military… here are the worst states for military retirees!
2. Alaska
- State’s ranking: Most tax-friendly 🙂
- State income tax: None
- The average property tax: $1,234 in taxes per $100,000 of assessed home value
- The average sales tax (local only): 1.76 percent
- Estate tax/inheritance tax: No/No
Living in Alaska as a retiree is most definitely a heaven on earth! How so? Well… the Last Frontier residents pay NO state income tax. Also, permanent residents receive an annual dividend check from the state’s oil wealth savings account; NO, WE ARE NOT JOKING! For the last year, the payout is $1,606.
When it comes to real estate, Alaska has a pretty clear tax rule: those who are 65 or older and own a home, as well as surviving spouses (aged 60 or older) and exempt from certain taxes (municipal) on the first $150,000 of the assessed value of that particular property.
3. Arizona
- State’s ranking: Most tax-friendly 🙂
- State income tax: between 2.59 percent (on up to $21,202 of taxable income for those married citizens who file jointly and up to $10,602 for all others) and 4.54 percent (on more than$317,990 of taxable income for those who file jointly and are married and more than $158,996 for all others)
- The average property tax: $754 in taxes per $100,000 of assessed home value
- The average state and local sales tax: 8.39 percent
- Estate tax/inheritance tax: No/No
The Grand Canyon State offers low taxes for its residents. Plus, Arizona has an exemption on Social Security benefits, where you can add an exemption on up to $2,500 of income from both federal and the state’s government retirement plans.
Here, retired veterans enjoy a tax-free military retirement income (we are referring to up to $3,500 of military retirement income). Indeed, the Grand Canyon State has the average state and local sales tax pretty high (8.39 percent). Still, it doesn’t have an inheritance or estate tax, which is a solid live-in-Arizona reason for wealthy retirees.
4. Arkansas
- State’s ranking: Tax-friendly 🙂
- State income tax: between 0.9 percent (on up to $4,499 of taxable income) and 6.9 percent (on more than seventy-nine thousand three hundred one dollars)
- The average property tax: $658 in taxes per $100,000 of assessed home value
- The average state and local sales tax: 9.47 percent
- Estate tax/inheritance tax: No/No
Arkansas exempts up to six thousand dollars of retirement income from its income tax; Social Security benefits are exempt too, as well as military pension income. And while the Natural State’s property taxes are actually low when compared to other U.S. states, Arkansas’ sale taxes are really high.
5. California
- State’s ranking: Tax-friendly 🙂
- State income tax: between 1 percent (on income less than $8,544 per individual, $17,088 per joint) and 13.3 percent (on income more than $1 million per individual, $1,145,960 per joint)
- The average property tax: $841 in taxes per $100,000 of assessed home value
- The average state and local sales tax: 8.66 percent
- Estate tax/inheritance tax: No/No
The Golden State is famous for its high tax rate; it’s actually the one state that has the highest tax rate in the U.S. The tax rate for millionaires is 13.3 percent. And even if California doesn’t tax Railroad Retirement benefits and Social Security income, all other income sources related to retirement are taxed.
However, those who are aged 65 and older can get an extra $118 exemption.
