Worst States to Retire for Taxes: Why People Are Leaving
High income taxes, estate taxes, and overall tax burden are driving retirees out of these states. Here's what to avoid.
Key Takeaways
- 1California, New York, and New Jersey have the highest overall tax burdens
- 2Some states have estate/inheritance taxes that hit retirees hard
- 3High property taxes can devastate fixed-income retirees
- 4Cost of living compounds the tax problem in many high-tax states
- 5Retirees are relocating in record numbers to tax-friendly states
- 6Plan your move carefully to maximize tax savings
The Worst States for Retiree Taxes
These states consistently rank worst for retirees due to high income taxes, property taxes, and overall tax burden.
| State | Top Income Rate | Property Tax | Sales Tax | Overall Tax Burden |
|---|---|---|---|---|
| New York | 10.9% | 1.72% | 8% | Highest |
| California | 13.3% | 0.74% | 7.25%+ | Very High |
| New Jersey | 10.75% | 2.47% | 6.625% | Very High |
| Connecticut | 6.99% | 2.14% | 6.35% | High |
| Illinois | 4.95% | 2.27% | 6.25%+ | High |
| Vermont | 8.75% | 1.90% | 6% | High |
| Massachusetts | 9% | 1.23% | 6.25% | High |
| Minnesota | 9.85% | 1.12% | 6.875% | High |
Net Migration Data
California lost 340,000 residents in 2022. New York lost 300,000. Illinois lost 140,000. Many are retirees seeking tax relief.
California: The Tax Champion
California has the highest state income tax rate in the nation at 13.3%, plus high cost of living.
- Top income tax rate: 13.3% (highest in US)
- Taxes all retirement income including 401k, IRA, pensions
- Social Security exempt, but that's the only break
- High cost of living compounds tax burden
- No property tax exemption specifically for retirees
- Mental health tax adds 1% on income over $1 million
| Income Level | CA Tax | FL/TX Tax (0%) | Annual Difference |
|---|---|---|---|
| $50,000 | $2,500 | $0 | -$2,500 |
| $75,000 | $4,500 | $0 | -$4,500 |
| $100,000 | $6,800 | $0 | -$6,800 |
| $150,000 | $12,000 | $0 | -$12,000 |
New York: Double Taxation Trouble
New York combines high state taxes with brutal NYC taxes for city residents.
- State income tax up to 10.9%
- NYC adds another 3.876% for city residents
- Combined top rate: 14.776% (higher than California for NYC)
- Taxes 401k and IRA withdrawals fully
- Social Security exempt (one bright spot)
- Estate tax starts at just $6.94 million (vs $13.61M federal)
The NYC Retiree Trap
A retiree with $100,000 pension income pays over $8,500 in state/city taxes in NYC, vs $0 in Florida. That's enough to fund a year of Medicare premiums.
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New Jersey: Property Tax Hell
New Jersey has the highest property taxes in the nation, devastating for retirees on fixed income.
- Average property tax: 2.47% (highest in US)
- Average property tax bill: $9,500/year
- Some counties average over $15,000/year
- Top income tax rate: 10.75%
- Social Security exempt, but everything else taxed
- Inheritance tax on non-immediate family
| County | Average Property Tax Bill | On $400k Home |
|---|---|---|
| Bergen | $12,500 | $15,800 |
| Essex | $13,400 | $16,900 |
| Morris | $11,200 | $14,100 |
| Union | $11,800 | $14,900 |
| Hunterdon | $10,800 | $13,600 |
States with Estate and Inheritance Taxes
Some states add insult to injury with estate or inheritance taxes that can hit your heirs.
- Massachusetts has lowest estate tax threshold ($2M)
- Oregon estate tax kicks in at just $1M
- Inheritance taxes can hit beneficiaries even from other states
- Federal estate tax exemption is $13.61M (2024)
| State | Estate Tax | Inheritance Tax | Exemption Threshold |
|---|---|---|---|
| New York | Yes | No | $6.94 million |
| New Jersey | No (repealed) | Yes | Varies by relationship |
| Maryland | Yes | Yes | $5 million |
| Massachusetts | Yes | No | $2 million |
| Oregon | Yes | No | $1 million |
| Connecticut | Yes | No | $13.61 million |
| Illinois | Yes | No | $4 million |
| Iowa | No | Yes | Phasing out |
Moving Won't Save Taxes If Done Wrong
States like California are aggressive about claiming you're still a resident. To establish new residency: spend 183+ days in your new state, change driver's license, register to vote, move bank accounts, update your will. Keep documentation.
Making Your Tax Escape Count
Leaving a high-tax state often means selling an expensive home and having significant cash to invest. A Gold IRA helps protect this windfall while you establish new residency.
- Tax-deferred growth while transitioning states
- Physical gold protected in tax-friendly state
- No state tax on Gold IRA distributions in no-income-tax states
- Hedge against inflation eroding your fixed income
- Diversification beyond real estate and stocks
Frequently Asked Questions
1What is the worst state for retirees tax-wise?
New York (especially NYC) and California vie for worst overall due to extremely high income taxes. New Jersey may be worst for property taxes. It depends on your specific situation—high income = avoid CA/NY, high property value = avoid NJ.
2Why are retirees leaving California?
California combines the highest state income tax (13.3%) with high cost of living. A retiree can save $10,000+ per year in state taxes alone by moving to a no-income-tax state. Add lower housing costs and the savings can exceed $30,000/year.
3Can I avoid state income tax by moving?
Yes, if done properly. You must establish bona fide residency in your new state by spending majority time there, changing all licenses/registrations, and severing ties with your former state. Some states (CA, NY) are aggressive about auditing recent movers.
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