Retirees often think about going south after they retire. However, if your main concern is low taxes, looking west might be a better choice. MarketWatch, a subsidiary of Dow Jones, has analyzed data and reported on the most tax-friendly states for retirees:
East of the Mississippi: Only Florida, in sixth place, makes the list of least-taxing states for seniors. Florida does not tax income, including pensions and Social Security benefits. Property and sales tax can add up, though.
West of the Mississippi: Alaska, Nevada, South Dakota, Wyoming, and Texas are the most tax-friendly states for retirees, while Washington is just behind Florida, as number seven. All of these states have no individual income tax. Alaska, moreover, has no sales tax while property taxes in Nevada generally are reasonable.
Relocating in retirement may be an especially savvy move if you’ve spent your working career in a high-tax state. Tax-deductible contributions to employer-sponsored retirement plans, such as the federal Thrift Savings Plan, provide significant tax savings while you are in a high-tax state. If you tap such a plan after you retire in a low-tax state, you won’t owe tax to the state where you earned the money and took the deduction.