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The state you retire in is a financial decision worth $100,000–$300,000 over a typical retirement. Here's how to model it.
Most retirement planning tools show you federal tax projections. They often ignore the state tax layer entirely — which can be a significant oversight.
Consider a retiree drawing $60,000/year from a traditional 401(k) in California. At the state level, that withdrawal is taxed as ordinary income. Depending on their total income, they might pay $3,000–$6,000/year in California state income tax — on top of federal taxes. Meanwhile, the same retiree in Nevada pays exactly $0 in state income tax on that same withdrawal.
$3,000
Annual savings
Moving CA → NV on $60K income
$203K+
25-year impact
At 7% annual reinvestment rate
+5%
Effective income boost
Equivalent to a 5% raise in retirement
Illustrative example. Actual savings depend on income level, filing status, and deductions.
Not all retirement income is treated equally. States vary significantly in what they tax.
37 states fully exempt Social Security. 13 states tax it to varying degrees, usually with income-based thresholds.
Most states tax these as ordinary income. A few states (PA, IL, MS) exempt retirement account distributions entirely.
Qualified Roth distributions are federal-tax-free and are also exempt from state tax in most states — including those that tax Traditional withdrawals.
Most states tax capital gains as ordinary income. A few states (WA, NH) have no income tax but have recently enacted capital gains taxes on high earners.
These 9 states impose zero state income tax on retirement distributions, Social Security, wages, or investment income (with minor exceptions noted).
Nevada
No income tax
Florida
No income tax
Texas
No income tax
Wyoming
No income tax
Washington
No income tax (some cap gains)
South Dakota
No income tax
Alaska
No income tax + PFD dividend
Tennessee
No income tax on wages/distributions
New Hampshire
No tax on wages/distributions
Note: No income tax doesn't mean no taxes at all. Property taxes, sales taxes, and cost of living vary significantly among these states. Use the Geographic Arbitrage Calculator to model total cost differences, not just income tax.
Some states have income taxes but exempt significant portions of retirement income — making them better than their headline rate suggests.
Pennsylvania
Exempts 401(k) and IRA distributions
Illinois
Exempts retirement income and Social Security
Mississippi
Exempts qualified retirement income
Alabama
Exempts Social Security + most pension income
Tax savings are only part of the equation. Cost of living, housing, healthcare access, proximity to family, and climate all factor into the true value of relocating. Here's how to run a complete analysis:
Use the Geographic Arbitrage Calculator to compare income tax, cost of living, and housing costs between your current and target state.
Check your Roth vs. Traditional balance. Moving to a no-tax state eliminates state tax on Traditional withdrawals — but you may already have significant Roth assets that are tax-free anywhere.
Factor in healthcare. If you retire before Medicare (age 65), your state's ACA marketplace options and Medicaid expansion status can significantly affect healthcare costs.
Model the one-time move cost against the annual savings. A $20K move to save $5K/year pays off in 4 years — long before the compounding benefits compound.
Do states tax Social Security benefits?
37 states exempt Social Security from state income tax entirely. The remaining 13 tax it to varying degrees, usually with income-based thresholds. States with no income tax never tax Social Security.
Should I factor in property tax when comparing states?
Absolutely. Some no-income-tax states (like Texas) have high property taxes that can offset income tax savings for homeowners. Our Geographic Arbitrage Calculator includes property tax and COL adjustments in the comparison.
Does Sagery model my specific state tax rate?
Yes. The retirement calculator uses your selected state to apply the appropriate marginal income tax rate to Traditional IRA/401(k) withdrawals. Social Security exemptions and retirement income exclusions are modeled based on your state's current rules.
See how much your state tax rate costs you — and what moving could save.