May 26, 2026
Americans nearing retirement may find themselves eyeing so-called “tax-friendly” states in hopes of stretching their savings further. That often means relocating to one of the states with no income tax (including Florida, Texas and Tennessee) or to states that exempt retirement income like pensions, IRAs or Social Security benefits from taxation.
On paper, the strategy can look compelling. Fidelity estimates that a married couple withdrawing $100,000 from IRAs could pay about $5,300 less annually in taxes in a lower-tax state like Iowa than in a higher-tax state like Oregon. For someone spending decades in retirement, those differences can add up to six figures if they’re invested wisely.
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But financial planners say many retirees focus too narrowly on income taxes while overlooking the broader cost-of-living picture, including property taxes, sales taxes, and insurance costs. In some cases, moving to a no-income-tax state may not actually lower your total expenses at all.
“Don’t let the tax tail wag the lifestyle dog,” Florida-based certified financial planner Matt Chancey told MarketWatch. “The people who move purely for taxes are solving the wrong problem.”
Here’s what retirees should know before packing up for a “tax-friendly” move.
No income tax doesn’t necessarily mean low taxes
Let’s take Texas as an example. The state has no personal income tax, making it attractive for retirees drawing heavily from traditional IRAs or 401(k)s. But Texas relies heavily on local property taxes to fund government services. The Texas Comptroller notes that property taxes are administered locally and can vary significantly by county and taxing district.
While homeowners can qualify for homestead exemptions that reduce taxable home values, retirees with expensive homes may still face substantial annual tax bills.
Florida presents a similar trade-off. The state has no income tax, but it generates significant revenue through sales taxes, tourism taxes and property taxes. Florida’s statewide sales tax rate is 6%, with many counties layering additional local taxes on top.
That means retirees who spend heavily on travel, dining, home maintenance or large purchases may still pay more in taxes than expected, even without state income taxes.
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Meanwhile, some states with income taxes are surprisingly retirement-friendly. Illinois, Pennsylvania and Iowa all exempt many forms of retirement income from taxes, including pensions, IRA withdrawals and Social Security benefits.
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Your retirement accounts matter more than you realize
Whether a move actually saves you money depends heavily on how your retirement income is structured.
Traditional IRAs and 401(k)s are taxed as ordinary income when withdrawals begin, making retirees more sensitive to state income tax rates. That’s why higher-income retirees drawing large required minimum distributions may benefit more from relocating to lower-tax states.
But retirees relying primarily on Roth IRAs may see little benefit from moving solely for tax reasons, because qualified Roth withdrawals are already tax-free under federal law.
Overlooking federal taxes can hurt your plan, too. Federal taxes usually represent the largest tax burden in retirement regardless of where you live. State taxes may feel more visible, but they’re often secondary compared with federal income taxes, Medicare premiums and health care costs.
And ultimately, taxes are only one piece of retirement planning. Access to health care, proximity to family, housing affordability and lifestyle preferences may matter far more over a 20- or 30-year retirement than shaving a few percentage points off a tax bill.
As several advisers told MarketWatch, the best retirement move is often the one that balances both financial efficiency and quality of life, not simply the one with the lowest income-tax rate.
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Clay Halton is an associate editor at Money.ca, covering a wide range of consumer-focused financial stories. He has over eight years of experience in digital publishing and has written and edited for outlets including PCMag and Investopedia.
