Does Moving to a No-Income-Tax State Actually Save You Money in Retirement?

The Nine No-Income-Tax States — and the Catch

The states with no individual income tax as of 2026: Alaska, Florida, Nevada, New Hampshire (dividends/interest only), South Dakota, Tennessee, Texas, Washington, Wyoming.

The appeal is obvious. A retiree in California withdrawing $80,000/year from a traditional IRA pays California's top rate on retirement income — up to 9.3% on that amount, potentially $6,000-$7,000/year in state income tax. Moving to Nevada or Texas eliminates that completely.

But the full picture requires looking at: 1. Property taxes: Texas has some of the highest property tax rates in the country — 1.6% to 2.5% effective rates. A $350,000 home costs $5,600-$8,750/year in property taxes. California's Proposition 13 often caps long-term homeowners below 1%. 2. Sales tax: Tennessee has no income tax but an average combined sales tax of 9.5%. Washington state: 10.4%. 3. Cost of living: Florida and Texas have seen housing appreciation of 40-60% since 2020. The cost savings may be less significant than they were five years ago.

States That Exempt Retirement Income — Without Requiring You to Move Far

Fourteen states fully exempt Social Security from state income tax and also have favorable treatment of pension and IRA income. These are often overlooked in the no-tax-state conversation:

**Mississippi:** No state tax on retirement income (pensions, IRA withdrawals, 401k distributions). Social Security is exempt. Property taxes are among the lowest in the country — effective rates around 0.7%.

**Pennsylvania:** Exempts all retirement income — pensions, IRA distributions, 401k withdrawals, Social Security. For a retiree pulling $70,000/year from retirement accounts, this can mean $2,000-$3,500/year in savings versus a state that taxes retirement income.

**Illinois:** Exempt from state tax: Social Security, pension income, and retirement account distributions. Flat rate of 4.95% applies only to non-retirement income.

For retirees with high pension or IRA income but who prefer to remain in the Midwest or Southeast, these states can be competitive with the no-tax states — especially factoring in cost of living and property tax differences.

Running the Actual Numbers for a Typical Retiree

Scenario: married couple, ages 67 and 65. Combined income: $82,000 (Social Security $34,000, IRA distributions $48,000). Currently in Minnesota (flat 6.8% on most retirement income).

Minnesota tax on $48,000 IRA distributions: approximately $3,264/year. Social Security partially taxable at state level. Total state income tax: approximately $3,800/year.

Moving to Florida: - State income tax savings: $3,800/year - Property taxes on equivalent $350,000 home: Florida averages 0.9%, Minnesota averages 1.02% — minimal difference - Health insurance: Medicare Advantage plan availability is generally good in Florida; rural areas can be more limited - Net savings: approximately $3,500-$4,000/year after accounting for moving costs amortized over expected retirement duration

Moving to Mississippi: - Same income tax savings - Property taxes on equivalent home: Mississippi effective rate ~0.7% — saves $700-$1,000/year versus Minnesota on a $350,000 home - Net savings: approximately $4,500/year - Trade-off: Mississippi has the lowest median household income in the U.S. and lowest healthcare outcomes — relevant for quality-of-life analysis

The analysis should reflect 20-year present value of savings versus the move cost ($15,000-$40,000 for a long-distance relocation) to determine break-even.

What Moving Does to Your Medicare Coverage

Medicare Parts A and B (Original Medicare) work nationwide — you can see any doctor who accepts Medicare, regardless of where you live. Moving states has no effect on this coverage.

Medicare Advantage (Part C) plans are entirely different. They are regional — tied to specific service areas. If you move to a new county or state, your existing Advantage plan likely no longer covers you. You'll need to enroll in a new plan during a Special Enrollment Period triggered by the move.

In rural retirement destinations (parts of Montana, Wyoming, northern Florida), Medicare Advantage plan availability can be limited — fewer plans, smaller networks, more expensive supplemental coverage. Before relocating, research the Medicare plan options at your destination using Medicare.gov's plan finder tool.

Medicare Supplement (Medigap) plans are generally portable — the coverage travels with you. If you're on a Supplement, relocation is simpler from a coverage standpoint, though premiums may differ by state.