Thinking of relocating in retirement? Remember that withdrawals of previously untaxed income from retirement plans are subject to ordinary income tax. Therefore, you might consider moving to these states, which have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. New Hampshire and Tennessee have income taxes that apply only to interest and dividend income, so retirement plan withdrawals would be untaxed.
Moreover, just because a state has an income tax does not mean you’ll owe state tax when you pull money from a retirement plan. Most states that impose an income tax exempt at least part of pension income from taxable income and three states (Illinois, Mississippi, Pennsylvania) fully exempt all public and private pensions from taxation. In addition, 26 of the 41 states (and the District of Columbia) that have broad-based personal income taxes do not tax Social Security benefits.
Going beyond income taxes, retirees may face sales, property, and other taxes as well. Overall, the least taxing states for retirees include Delaware, Alaska, Kentucky, and South Carolina while retirees will face high taxes in Pennsylvania, New Jersey, Wisconsin, Vermont, and Maryland.