How can you save money on taxes?

There are several ways to lower your tax bill, but the most effective one is to simply live in a state that doesn’t tax you heavily. This being said, if you’re considering relocating in your retirement and you hate paying taxes (who doesn’t?), there are some states that you’ll want to avoid.

That’s because high property taxes and taxes on different types of retirement income, like pensions, Social Security, and distributions from an IRA or 401(k), make these states more expensive than others for many retirees.

To determine the worst states to retire in if you want to save money on taxes, we’ve rounded up those that still tax Social Security benefits for individuals with an adjusted gross income below $75,000. Then, we considered states with the highest median property tax bill. Let’s see the result!

1. Connecticut

If you want to move to Connecticut and save money on taxes in your golden years, you should know that the state taxes most types of retirement income, including pensions, Social Security, and distributions from IRAs and 401(k)s. Moreover, the median property tax bill here is $6,153, which is on the higher side compared to other states.

However, single filers with an adjusted gross income below $75,000 (below $100,000 for joint filers) don’t have to pay the state income tax.

They also qualify for the following tax breaks: all pension income is tax-exempt for qualifying taxpayers; 25% of IRA distributions are tax-exempt for qualifying taxpayers in 2023; 50% of IRA distributions are tax-exempt for qualifying taxpayers in 2024; 75% of IRA distributions are tax-exempt for qualifying taxpayers in 2025; and all income from IRA distributions will be exempt for qualifying taxpayers in 2026.

This may sound great, but chances are you’ll still struggle to save money on taxes while living in Connecticut. Homeowners in this state pay some of the highest property tax bills in the country, with a median bill of $6,153. In other words, even seniors with lower incomes may find the Constitution State an expensive place to spend their golden years.

2. California

If you want to save money on taxes in your retirement years, don’t move to California. The Golden State taxes several types of retirement income, including pensions, military retirement benefits, and distributions from IRAs and 401(k)s. The median property tax bill here is $4,298.

Seeing California on this list might not surprise most people, especially given that median property tax bills can go over $9,000 in some parts of the state. Nevertheless, the median tax bill for homeowners across the state is below $5,000. This is mainly because some of the most affordable places to live in the Golden State come with median property tax bills below $2,000.

When it comes to income taxes, whether you’ll pay a little or a lot depends on the type of income you earn. For instance, California won’t tax your Social Security retirement benefits, regardless of your adjusted gross income. But most other types of retirement income are the state’s target, including military benefits.

By the way, here’s a book that can help you prepare for your retirement!

3. Montana

You won’t be able to save money on taxes in retirement in Montana either. The Treasure State taxes most types of retirement income, including pensions, Social Security, and distributions from IRAs and 401(k)s. The median property tax bill is $2,189, which is reasonable.

However, low-income thresholds for Social Security tax exemptions still earn Montana a spot on this list. As far as single filers go, those with an adjusted gross income above $25,000 are subject to Montana income tax on Social Security retirement benefits.

When it comes to joint filers, if they have an adjusted gross income of more than $32,000, they have to pay state income tax on Social Security benefits.

The state also imposes a tax rate of 6.75% on taxable income over $19,800, which makes it hard to save money on taxes. However, starting in 2024, this tax rate will be reduced to 6.5% and apply to income over $20,500 for single filers ($41,000 for joint filers).

4. Massachusetts

Another state you should avoid if you want to save money on taxes in your golden years is Massachusetts. While the state only taxes pensions and distributions from IRAs and 401(k)s, the median property tax bill here is $5,000, which is quite a lot.

Considering this, it’s safe to say that Massachusetts is an expensive place for homeowners. Even millionaires might find living here costly, too, due to a state millionaire tax that recently went into effect.

However, some seniors may be able to save money on taxes while living in the Bay State. For instance, if you rent, you can ward off the Commonwealth’s typically high property taxes. And some types of retirement are also tax-exempt.

For example, Social Security and Railoard benefits are tax-exempt. The same thing applies for income from the Massachusetts state, federal government, and Massachusetts local government retirement plants. Military retirement pensions are also tax-exempt.

5. New Jersey

Similar to Massachusetts, New Jersey only taxes pensions and distributions from IRAs and 401(k)s. Yet, some retirees may find that it’s pretty hard to save money on taxes while living in New Jersey.

The state won’t tax your Social Security retirement benefits, but median property tax bills of $8,797 land New Jersey a spot on this list. But that’s not all; income taxed by the states (such as wages, some pensions, and investment income) is subject to a New Jersey tax rate between 1.4% and 10.75%. There’s some good news, though.

Taxpayers 62 and older (or those with a disability) who meet certain income requirements ($150,000 or less for 2023) may exclude part or all of their retirement income from New Jersey taxation. Also, military retirement income and Railroad benefits are tax-exempt.

Keep reading to discover other US states you should avoid if you want to save money on taxes!

6. Nebraska

Nebraska taxes most types of retirement income, including Social Security, pensions, and distributions from IRAs and 401(k)s. The median property tax bill here is $1,967.

However, the state may not remain on this list for long because property taxes here are lower than in many states. That’s because Nebraska won’t tax Social Security benefits starting in 2025. But for now, the state taxes Social Security retirement income to the same extent it is taxed by the federal government.

This being said, Nebraska doesn’t seem like the best place to live if you want to save money on taxes, at least not at the moment, especially considering the state’s top income tax brackets.

For single filers, the 6.84% top tax rate applies to income that exceeds $31,160. As far as joint filers go, they are subject to a 6.84% tax rate if their income is greater than $62,320.

7. New York

If you consider relocating in your golden years and want to save money on taxes, New York may not be the best place to retire. The Empire State taxes pensions and distributions from IRAs and 401(k)s, and its median property tax bill is $5,884.

The good news is that New York doesn’t tax Social Security retirement benefits, and some types of pensions are also exempt from state taxation. However, other types of retirement income are taxed, and since there are nine income tax brackets in New York State, tax burdens can vary significantly from one taxpayer to another.

For example, the state’s lowest income tax bracket of 4% applies to single filers with an adjusted gross income of $8,500 or less (for joint filers, the threshold is $17,150). Also, the highest tax bracket of 10.9% applies to all filers with an adjusted gross income of more than $25,000,000.

If you’re a resident of the state, you might pay even more in income taxes. In the meantime, the median property tax bill here is just below $5,900.

8. Utah

If you choose to retire in Utah, it’s likely you won’t be able to save money on taxes here either. The Beehive State taxes most types of retirement income, including Social Security, pensions, military retirement benefits, and distributions from IRAs and 401(k)s.

The median property tax bill here is $1,967, which is lower than in most states, but Utah taxes Social Security benefits to the same extent they’re taxed at the federal level. The fact that other types of retirement income are taxable income too doesn’t make this state a very good choice when it comes to relocating in retirement.

On the bright side, especially for those who want to save money on taxes, they won’t have to worry about which tax bracket they fall into since Utah taxes income at a flat rate of 4.65%. Moreover, the state offers eligible seniors a retirement credit of up to $450.

9. Rhode Island

If you want to save money on taxes in your golden years, Rhode Island is another state that is rather off-table. Similar to other states on this list, this one taxes most types of retirement income, including Social Security benefits, pensions, and distributions from IRAs and 401(k)s. But what really earned the Ocean State a place on this list is its high median property tax bill of $4,483.

The good news is that, while Rhode Island taxes Social Security retirement benefits, many seniors won’t pay a dime. That is because the income thresholds for the exemption on this type of income are generous (compared to other states that still tax Social Security).

For single filers, only those with a federal adjusted gross income greater than $95,800 are subject to state tax on Social Security benefits. For joint filers, only retirees with a federal adjusted gross income greater than $119,750 pay state taxes on Social Security benefits.

You may wonder why Rhode Island is on this list if the income thresholds are so generous. While it might not be bad for renters, homeowners in the state might not be able to save money on taxes.

10. Vermont

Another state you should avoid if you want to save money on taxes in your golden years is Vermont. Similar to Rhode Island, this one taxes most types of retirement income, from Social Security benefits and pensions to military retirement benefits and distributions from IRAs and 401(k)s.

The median property tax bill of $4,570 here is even higher than the median tax bill for California homeowners, which makes Vermont even less tempting. The good news is that some retirees can save money on taxes and don’t pay income tax on Social Security. There are, however, income thresholds that apply, and they are more generous than in other states.

Single filers are eligible for a partial exemption with an adjusted gross income up to $59,999 ($74,999 for joint filers). Single and married filers filing separately with an adjusted gross income of more than $50,000 are required to pay taxes on Social Security retirement income.

Married filing jointly seniors with an adjusted gross income greater than $65,000 are subject to state tax on Social Security.

This being said, if you want to move to another place in retirement and want to save money on taxes, make sure you avoid these states. If you liked our article, you may also want to read 8 Major Drawbacks of Working in Retirement.