Tax-Friendly States for Retirees: Best Options for High-Income Households

Executive Summary: Where you live in retirement can quietly add or subtract six figures from your lifetime tax bill. This guide highlights the most tax-friendly states for retirees, flags common “gotchas” for high earners (capital gains, estate and inheritance taxes, and property-tax rules), and gives you simple checklists and scenarios so you can compare options with confidence.

Why State Choice Matters for High-Income Retirees

Federal taxes get the headlines. Yet your state can be the difference between easy cash flow and constant drag. If your income comes from investments, business interests, or occasional large gains, the wrong domicile makes every year more expensive.

Conversely, the right state lowers your effective rate and protects more of your legacy. Move once, benefit every year. For high earners, the math compounds fast, especially when a liquidity event bumps you into a higher bracket.

What Makes a State “Tax-Friendly” for Retirees?

For higher-income households, seven levers matter most. When you compare states, weigh each one against your plan.

1. State income tax on wages and investment income (interest, dividends).
2. Rules for Social Security and retirement distributions.
3. Capital gains treatment, including any stand-alone state tax.
4. Estate and inheritance taxes that reduce what heirs receive.
5. Property tax levels plus homestead protections and assessment caps.
6. Sales and use taxes on big-ticket spending and services.
7. Local quirks (county add-ons, surcharges, unique exemptions or credits).

Focus on the levers that touch your actual income streams. That’s where the savings show up.

Most Tax-Friendly States for Retirees (High-Income Edition)

These seven states are frequent winners for high-income retirees because they combine no broad state income tax with predictable property-tax rules and no state-level “death taxes.” Always check county-level differences before you buy; local math still matters.

Why These Seven Stand Out

No broad state income tax is the main driver for high-income retirees with portfolio income. Just as important, these states also do not impose separate estate or inheritance taxes, which preserves more for your heirs. The trade-off to watch is property taxes. Some states keep them moderate, while others rely on property taxes to fund schools and services.

Because county rules vary, run the numbers for your exact neighborhood. Precision here pays off.

States Often Considered, But Know the “Gotchas”

Washington: No Wage Tax, but Capital Gains Apply

Washington has no personal income tax, but it levies a capital gains excise tax on many long-term gains: 7% on the first $1 million of taxable Washington capital gains and 9.9% above that, after an inflation-adjusted standard deduction (e.g., $270,000 for 2024). If you plan to sell a business, concentrated stock, or real estate, model this carefully before relocating. One big year can shift the entire calculus.

In short, the sale year could be costly. Plan ahead and compare.

Estate and Inheritance Tax States

Examples include estate taxes in WA, OR, MN, NY, MA and CT, and inheritance taxes in PA, NE, KY and MD; Iowa’s inheritance tax is repealed for deaths on or after Jan. 1, 2025. For high-net-worth families, these state-level “death taxes” can materially reduce what heirs receive, even if your annual income tax is modest. If leaving a large estate is a core goal, scrutinize these states or avoid them altogether. You can mitigate exposure with thoughtful titling, trusts, gifting cadence, and clear domicile documentation.

Bottom line: legacy plans and state tax rules must work together. A coordinated plan prevents surprises for heirs.

Social Security: Where Benefits Are Taxed (and Where They Aren’t)

As of 2025, nine states tax some Social Security benefits (e.g., CO, CT, MN, MT, NM, RI, UT, VT and WV), often with income-based exemptions; West Virginia’s phase-out completes after 2025. For high-income retirees, Social Security is a smaller share of total cash flow, yet it still pays to confirm rules in your target state. A surprise state tax on benefits is an easy frustration to avoid.

Check this early. It’s a quick win for peace of mind.

Property Taxes and Homestead Rules: The “Other” Big Bill

Property taxes vary widely by state, county, and city. Some states cap annual increases for primary residences or offer generous homestead protections. Others lean on property taxes because they lack income-tax revenue. Before you buy, run a realistic five- to ten-year projection based on the exact neighborhood you prefer.

• Assessment caps: Annual limits on assessed-value growth can stabilize your budget as markets rise.
• Homestead protections: Some states add creditor protection and tax benefits for primary residences.
• Senior exemptions: Many jurisdictions provide extra offsets for older homeowners; worth the paperwork.
• County variation: Two homes a few miles apart can carry very different tax bills because of school and city levies.

Because this bill arrives every year, predictability matters as much as the headline rate. That stability helps you budget confidently.

How to Compare Tax-Friendly States for Retirees

Step 1: Map Your Income Streams

List the sources and amounts: wages (if any), pensions, 401(k)/IRA withdrawals, interest, dividends, real-estate income, and potential capital gains. High-income households often face “spiky” years when they sell assets or rebalance portfolios. The right state softens those spikes.

Step 2: Model a “Big Gain” Year

Many moves are triggered by a liquidity event e.g. selling a business, trimming a concentrated stock, or disposing of investment property. Run side-by-side pro formas across your shortlist. Include any stand-alone state capital-gains taxes, local add-ons, and surtaxes that could apply at large amounts.

Step 3: Check Estate and Inheritance Exposure

If legacy planning is a priority, favor states with no estate or inheritance tax. If you will keep or buy property in a state that has one, coordinate with your planner on titling, entity structure, and trust design. Domicile clarity is essential when your life spans multiple states.

Step 4: Run the Property Tax Math

Property taxes are predictable cash-flow items. Estimate the five- and ten-year outlay for the specific neighborhoods you’re considering. In states with caps, confirm how they work, what happens when you remodel, and how portability or “reset” rules apply if you move across town.

Step 5: Look Beyond Taxes (Healthcare, Airports, and Family)

Low taxes can’t replace top-tier healthcare, direct flight options, or Sunday dinners with your grandkids. Rank the non-tax essentials and give them explicit weight in your decision. The best tax-friendly states for retirees still need to fit your daily life.

When the tie is close, lifestyle usually decides it. Write down your top three non-tax priorities and rank states accordingly.

Mini-Profiles: How the Top Seven Stack Up

Florida

No broad state income tax and no estate or inheritance tax. The homestead system and assessment caps provide long-term predictability for primary residences. Major metros offer excellent hospitals and nonstop flights. Sales taxes are average-to-high, but many retirees find the trade-off compelling.

Texas

No state income tax and no “death taxes.” Property taxes tend to be higher, so budgeting and homestead exemptions matter. The state’s large economy, airports, and business culture appeal to retirees who still consult or invest actively.

Tennessee

No tax on wages and investment income and no estate or inheritance tax. Property taxes are generally moderate, and the overall cost of living is competitive. Growth around Nashville and other metros brings more amenities and more housing demand.

Nevada

No income tax and no estate or inheritance tax. Lifestyle perks include abundant sunshine, outdoor recreation, and easy flights. Expect higher sales taxes in some areas and rising home prices near Las Vegas and Reno; run county-level comparisons before committing.

Wyoming

No income tax and no estate or inheritance tax, with typically low property taxes. Planning is straightforward. However, rural distances and winters can be real factors. Match the location to your preferences and travel patterns.

South Dakota

No income tax and no estate or inheritance tax. The statewide framework is simple and predictable. Property taxes are manageable in many counties, which helps long-range cash-flow planning.

New Hampshire

No state income tax on wages and no estate or inheritance tax. There is also no state sales tax. However, property taxes are higher than average in many towns, so compare specific municipal rates before you buy; the town you choose matters as much as the state.

Two Quick Scenarios (Numbers You Can Feel)

Scenario 1: The Business Sale

Profile: A couple sells a closely held business, realizing a large long-term gain. They also expect ongoing portfolio income. Their goal is to minimize taxes in the sale year and beyond.

• Florida, Texas, Tennessee, Nevada, Wyoming, South Dakota, New Hampshire: In Florida, Texas, Tennessee, Nevada, Wyoming, South Dakota and New Hampshire, there is no state personal income or stand-alone state capital gains tax, so state income-tax owed on a business-interest sale is typically $0 (federal taxes and any transfer/recording taxes may still apply).
• Washington (caution): Despite no wage tax, Washington imposes a capital gains excise tax on many long-term gains: 7% up to $1 million of taxable WA capital gains and 9.9% above that, after an inflation-adjusted standard deduction. That can materially alter net proceeds when selling appreciated stock or a business interest.

For a one-time sale, these differences can be decisive. Run models for both your current and target states before you sign.

Scenario 2: The Portfolio Rebalance

Profile: A retiree with a sizeable brokerage account wants to trim a concentrated position and shift toward income-oriented funds. They expect six-figure gains this year, then steady dividends and interest thereafter.

• No-income-tax states listed above: Rebalancing creates no state tax drag, and ongoing investment income isn’t taxed at the state level. Your effective rate stays lower, and your spending power stays higher.
• Estate/inheritance tax states: Even if annual income taxes are manageable, state “death taxes” may reduce what heirs receive. If legacy is central, domicile and real-property location deserve very careful planning.

Run the side-by-side. The answer often jumps off the page.

Common Questions About Tax-Friendly States for Retirees

“If I spend winters in a low-tax state, do I get the tax benefits?”

Only if you establish and maintain domicile based on that state’s rules e.g. time in state, driver’s license, voter registration, primary home ownership, and other ties. Simply snowbirding without true domicile won’t deliver full benefits.

Follow the checklist and keep clean records. It’s worth it.

“Do sales taxes wipe out my savings?”

It depends on how you spend. Many retirees purchase fewer taxable goods and more services and healthcare. Build a realistic budget for your household and compare state and county totals instead of relying on averages.

Because spending patterns differ, your own cart tells the truth. Build a simple 12-month spending forecast to see the impact.

“What about property taxes?”

They can be a swing factor. Look up the exact county and city where you plan to buy, confirm homestead exemptions and senior credits, and model a ten-year holding period. Caps on assessed-value growth can be especially valuable for full-time residents.

When in doubt, model the bill forward. Surprises are preventable.

Action Checklist Before You Pick a State

• Build a two-column tax pro forma (current state vs. target state) for the next ten years.
• Model a liquidity event year if you expect a business sale, RSU vest, or significant stock sale.
• Confirm estate/inheritance rules anywhere you will own real property or keep major assets.
• Verify domicile steps (residency days, license, voter registration, mailing, physicians, and advisors).
• Price property taxes at the county level and confirm homestead/senior benefits and assessment caps.
• Weigh non-tax essentials: healthcare access, airport proximity, climate, and family.

Do these in order, and your decision gets clearer and faster. You’ll avoid rework and keep your advisors aligned.

Bottom Line: Choosing Among Tax-Friendly States for Retirees

For high-income retirees, the most tax-friendly states for retirees typically combine no broad state income tax, no state-level “death taxes,” and predictable property-tax rules. Florida, Texas, Tennessee, Nevada, Wyoming, South Dakota, and New Hampshire fit that pattern for many households.

If you expect a large capital gain, recognize that Washington’s stand-alone capital-gains tax can change the math. And if you plan to leave a significant legacy, avoid states with estate or inheritance taxes, or get precise about how and where you hold property and real estate.

Choose deliberately. The right move can pay you back every single year of retirement while preserving more for your heirs in the end.

Key Takeaways

• Seven consistently strong options for higher earners: Florida, Texas, Tennessee, Nevada, Wyoming, South Dakota, and New Hampshire.
• Washington has no wage tax but does tax many long-term capital gains at 7% up to $1 million of taxable gains and 9.9% above that (after an inflation-adjusted standard deduction).
• Estate and inheritance taxes still exist in several states; avoiding them can preserve more for your heirs.
• Property taxes and homestead rules vary widely; run county-level numbers before you buy.
• Confirm domicile properly to secure the intended benefits in the most tax-friendly states for retirees.