Are you searching for the most tax-friendly state to retire in?
The ideal location largely depends on your sources of retirement income, net worth, and other tax-related considerations.
Some states offer better advantages if most of your income comes from Social Security benefits. In contrast, others may favor those relying on retirement account withdrawals, pensions, or investment income.
Related: Tony Robbins makes major statement on 401(k)s, IRAs
“These are nuances that retirees genuinely need and often don’t think about,” says Ben Loughery, certified financial planner with Locke Wealth Management. “This is what separates retirement financial planning from good to great.”
In this multi-part series, we’ll explore which states offer the best and worst tax advantages depending on sources of retirement income. In part one, we’ll focus on which states offer the least tax advantages for retirees whose income comes mostly from Social Security benefits.
In reality, roughly 40% of men and women receive 50% or more of their income from Social Security, making Social Security taxation a critical consideration when deciding where to live your golden years.
Retired couple on hike.
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Good news: Most states don’t tax Social Security
If the bulk of your retirement income comes from Social Security, there’s good news: 41 states don’t tax Social Security benefits at all. And this widespread exemption reflects a common policy decision across the country not to tax this crucial income source for seniors, which on average equals roughly 40% of income for all Social Security beneficiaries.
Bad news: 9 states tax Social Security
As of 2025, nine states impose some form of taxation on Social Security benefits, making them potentially the worst states to retire in if you’re collecting Social Security income.
That said, most have exemptions based on age, income thresholds, or other factors. For example, you’ll wind up with a tax bill in these states if you don’t meet the requirement for a tax break.
Related: Social Security’s COLA change will impact payments in 2025
Colorado: It is fully deductible for those 65+. Beginning in 2025, residents age 55-64 are exempt from taxation of Social Security benefits if their adjusted gross income (AGI) is below $75,000 (single) or $95,000 (joint), with a smaller $20,000 deduction for those exceeding these limits.
Earn more than that, and you’ll have to pay.
Connecticut: Benefits are exempt if AGI is below $75,000 (single/married filing separately) or $100,000 (joint/head of household). Above these thresholds, up to 25% of benefits may be taxed.
Minnesota: Taxes federally taxable benefits but offers a subtraction that fully exempts benefits for many, with exemption phasing out above specific AGI thresholds ($108,320 married filing jointly; $84,490 single/head of household, and $54,160 married filing separately).
The Minnesota House of Representatives is trying to pass bill HF5. This bill exempts all Social Security benefits from the state’s income tax. Read also Unlimited Social Security subtraction permission.
Montana: Taxes federally taxable benefits with a small $5,500 subtraction from federal taxable income for those 65+ ($11,000 for joint filers), introduced in 2024 and indexed for inflation starting in 2025.
Montana has a bill in the state legislature, specifically House Bill 148, that aims to repeal the state tax on Social Security benefits, according to BillTrack50.
The bill would remove Social Security benefits from the definition of “Montana source income,” effectively exempting them from state income tax, as reported by BillTrack50. Also, the Montana age 65 and older deduction is $5,660 in 2025 (double if married filing jointly).
New Mexico: Benefits are exempt for single filers with AGI up to $100,000 and joint filers with AGI up to $150,000, with AGI limits not adjusted for inflation.
Rhode Island: Benefits are exempt for those at full retirement age whose AGI in 2024 is below $104,200 (most filers) or $130,250 (joint).
Utah: Benefits not taxable if AGI is $90,000 or less, recently increased from $75,000 in 2025 for married taxpayers filing jointly).
The Social Security Benefits Tax Credit was expanded with increased income thresholds for credit phaseout: $45,000 for married filing separately (previously $37,500), $54,000 for single filers (previously $45,000), and $90,000 for head of household and joint filers (previously $75,000).
Governor Cox has proposed completely eliminating state taxation of benefits in the FY2026 budget.
Vermont: Benefits are fully exempt below AGI thresholds ($50,000 single/MFS, $65,000 joint) with partial exemption phasing out above those levels up to $60,000 (single) or $75,000 (joint).
The governor’s FY2026 budget proposes increased eligibility for Social Security income tax exemption, among other tax relief measures.
West Virginia: Currently phasing out taxation with 65% of benefits deductible in 2025. Complete elimination (100% deduction) is scheduled for 2026 regardless of income level.
Beyond Income Tax: Other Important Tax Considerations
When evaluating where to live in retirement, focusing solely on state income tax is tempting. However, as Lisa Featherngill, national director of wealth planning at Comerica Wealth Management, emphasizes, other tax factors can significantly impact a retiree’s financial well-being, especially those relying primarily on Social Security.
“If the individuals are relying primarily on Social Security income for retirement, most likely they are going to be below the AGI thresholds of the states that tax Social Security income, except in Montana,” she explains. “So, for those individuals, state income taxation of Social Security income should not be a primary factor.”
Property Taxes: Featherngill recommends paying close attention to how states handle property taxes, especially since these can be a major cost for retirees. “Some states offer a real estate tax deferral program, which reduces the real estate tax payments during lifetime and collects the deferred tax at death,” she notes. Property tax rates and senior exemptions also vary widely from state to state, so it’s important to do your homework. The Tax Foundation’s Property Taxes by State and County, 2025 is a helpful resource for comparing rates and policies.
Sales Taxes: In states that don’t tax income, higher sales taxes are often used to generate revenue. While not mentioning specific rates, Featherngill includes sales tax among the key tax issues retirees should consider. The impact will vary depending on your personal spending habits. For a current comparison, see the Tax Foundation’s 2025 State and Local Sales Tax Rates.
Retirement Income Taxation: While income from Social Security may not be heavily taxed for many retirees, other forms of retirement income often are. “Approximately 20 states offer reduced tax on retirement income, such as pension income, IRA distributions and retirement plan distributions,” says Featherngill.
“Some states, like Pennsylvania and Mississippi, do not tax retirement income. Others offer an exclusion/deduction to offset a portion of an individual’s retirement taxable income. Some states exempt pensions or government pensions from income tax. Some states qualify the exclusion based on age or AGI. Thus, it requires some research to determine how the state you are considering will tax your type of retirement income.”
Estate and Inheritance Taxes: Featherngill advises retirees to investigate whether a state imposes inheritance, estate, or gift taxes that differ from federal rules. “And if you’re married, it’s worth knowing whether both spouses are entitled to retirement income exemptions when filing jointly—rules that differ by state,” she says.
Additional Considerations: Besides tax-related considerations, Featherngill encourages retirees to assess the overall cost of living, climate, access to healthcare, and quality of life.
For his part, Tim Bjur, a senior content management analyst at Wolters Kluwer, has also observed several notable state tax policy trends in recent years:
Reducing or eliminating taxes on retirement income and Social Security benefits—or increasing income thresholds before taxes apply—particularly in Northeastern states aiming to discourage retirees from relocating to no-income-tax states like Florida and Texas.Expanding deductions for military retirement income.Reducing or eliminating sales taxes on groceries to counter inflation-related cost pressures.
For retirees who rely heavily on Social Security, Bjur says it may make sense to consider relocating to a state with a more favorable tax environment. “They can consider a state that does not tax income – such as Florida or Texas – or one that specifically exempts Social Security benefits,” he notes.
While Kentucky and Mississippi are not yet among the nine states with no personal income tax, Bjur says they are part of a growing group using revenue-based triggers to gradually lower rates, signaling a broader shift toward potential tax elimination. Kansas, meanwhile, recently enacted a law – overriding the governor’s veto – to flatten its income tax into a single 4% rate once certain revenue and budget conditions are met, underscoring ongoing efforts to reduce or eventually phase out the state’s income tax.
Final considerations on the best states for retirees on Social Security
On the question of whether Social Security taxation should be a primary factor in choosing a retirement location, Featherngill had this to say: “If the individuals are relying primarily on Social Security income for retirement, most likely they are going to be below the adjusted gross income thresholds of the states that tax Social Security income, except in Montana,” she says. “So, for those individuals, state income taxation of Social Security income should not be a primary factor.”
In future articles in this series, we’ll examine the best states to retire to based on other sources of income as well as net worth.
For more retirement-related news and analysis, check out Retirement Daily on TheStreet.
