Why do Pennsylvania and Illinois look so attractive despite having income taxes?

Both states exempt virtually all retirement income from income tax: Social Security, pensions, and IRA/401(k) distributions are all fully exempt from PA personal income tax and IL income tax. The income tax rate in both states only applies to things like wages, interest income, dividends, and capital gains — income streams that most retirees have in smaller amounts. For a retiree living on SS + pension + IRA distributions with minimal other income, the effective PA or IL income tax is close to zero. The catch: Pennsylvania has high property taxes (avg 1.52% effective rate) and Illinois even higher (2.23%), which can partially offset the income tax advantage.

Does Georgia's $65,000 retirement exclusion apply to IRA distributions?

Yes. Georgia's retirement income exclusion for those 65 and older applies to qualifying retirement income including pension payments, IRA distributions, 401(k) distributions, and other qualifying retirement income — not just pension. The exclusion is per person, so a married couple where both are 65+ can exclude up to $130,000 combined. Georgia's flat rate is approximately 5% for 2026. At $130,000 combined exclusion for MFJ, most retirees pay zero or minimal GA income tax.

Why does California have low average property taxes but high income taxes?

Proposition 13 (1978) caps California property tax assessments at 1% of the purchase price and limits annual increases to 2%. Longtime California homeowners pay very low property taxes relative to market value — often 0.3–0.5% effective rate on an appreciated home. But this only benefits long-term owners; new buyers pay 1% on the full purchase price. For retirement planning, if you are a long-term California homeowner, your property tax is artificially low and the 13.3% income tax on pension and IRA income becomes the dominant cost.

How does this comparison handle federal taxes?

Federal income tax (including Social Security taxation) is computed once and shown as a constant — it is the same regardless of which state you live in. The comparison table shows state income tax and estimated property tax for each state, and total burden (federal + state income + property). The "savings vs current state" column reflects only state-level differences.

Does the comparison include state estate taxes?

No. State estate taxes are not modeled. This matters for states like Massachusetts ($2M exemption), Oregon ($1M exemption), and Washington state ($2.193M exemption), which have estate taxes below the federal $13.99M threshold. If you have a large estate, state estate taxes can be more valuable to model than annual retirement income taxes.

Are there other factors beyond taxes that matter for retirement location?

Yes — and most of them are not captured here. Cost of living, healthcare access, proximity to family, climate, Medicaid rules (some states are more nursing-home friendly than others), and Medicaid look-back periods vary by state. The tax comparison is one input to a multi-factor retirement relocation decision. Additionally, moving from a high-cost state to a lower-cost state can compound the tax savings through reduced housing, healthcare, and daily expenses.

Retirement & Investing

Retirement State Tax Comparison — Best States to Retire for Taxes

Compare after-tax retirement income across 12 key states — including state income tax on SS, pension, and IRA distributions plus estimated property tax — to find your optimal retirement state.

By The FinCalc TeamUpdated May 29, 2026

State income taxes on retirement income can vary by $10,000–$30,000 per year for the same household depending on where you live. Florida, Texas, and Nevada have no income tax at all. Pennsylvania and Illinois exempt virtually all retirement income. Georgia exempts up to $65,000 per person for those 65+. California taxes everything except Social Security at rates up to 13.3%. This calculator compares 12 key retirement destinations side-by-side using your actual income — so you can see the real after-tax difference, not just a generic ranking.

How Retirement State Taxes Vary

The Income Tax Landscape

Of the 12 states in this comparison, four have no income tax at all:

| State | Income Tax | Notable | |-------|-----------|---------| | Florida | None | No estate tax; Save Our Homes property cap | | Texas | None | High property taxes (~1.6% effective) | | Nevada | None | Lowest property taxes in comparison (~0.49%) | | Tennessee | None | Hall Tax repealed 2021 |

Four states have flat rates but with significant retirement exemptions:

| State | Rate | SS | Pension / IRA | |-------|------|----|---------------| | Pennsylvania | 3.07% | Exempt | Fully exempt | | Illinois | 4.95% | Exempt | Fully exempt | | Georgia | ~5.0% | Exempt | $65K per person (65+) | | Colorado | 4.4% | Exempt (65+) | $24K deduction (65+) |

Arizona and North Carolina have no retirement-specific exemptions beyond SS, so the full flat rate applies to pension and IRA income.

New York and California use progressive rates — California up to 13.3% with no retirement income exemption, New York up to 10.9% with a $20K per-person exclusion for those 59½+.

Property Tax as a Counterweight

High property taxes can significantly offset income tax advantages:

| State | Avg. Effective Property Tax Rate | Annual Tax on $400K Home | |-------|----------------------------------|--------------------------| | Illinois | 2.23% | $8,920 | | New York | 1.72% | $6,880 | | Pennsylvania | 1.52% | $6,080 | | Texas | 1.60% | $6,400 | | Florida | 0.86% | $3,440 | | Nevada | 0.49% | $1,960 |

A Texan with no income tax still pays ~$6,400/year in property taxes on a $400K home — far more than a Nevadan in the same situation.

Who Should Use This Calculator

If you are considering relocating in retirement, enter your expected retirement income and home value to see the dollar-for-dollar comparison. The table shows net income after all taxes — a direct apples-to-apples comparison between states.

If you have a mix of SS, pension, and IRA income, the state breakdown matters enormously. A retiree in Pennsylvania on $80K total income (pension + IRA + SS) may owe close to zero state income tax. The same retiree in California owes thousands.

If you are planning Roth conversions before moving, consider the interaction: converting while still in a high-income-tax state (CA, NY) costs extra; waiting until you've moved to a no-tax state to convert means only federal tax applies to the conversion.

If you are evaluating a high-property-value home in a low-income-tax state, the property tax estimate reveals the full picture — moving from California to Texas on a $2M home means swapping a ~13% income tax for a ~1.6% effective property tax rate, which at $2M is $32,000/year.

Related Calculators

Social Security Taxation Calculator — federal SS taxation is the same regardless of state; optimize the timing of other income to minimize SS taxation at the federal level
Pension Lump Sum vs Monthly Calculator — if you're also deciding on lump sum vs monthly, model both tax implications in the context of your target state

Understanding the Inputs

Filing Status: Single or Married Filing Jointly. MFJ doubles most retirement income exemptions in states that offer per-person exclusions (e.g., Georgia's $65K exclusion becomes $130K for a couple where both are 65+).
Your Age: Age determines eligibility for Colorado's and Georgia's retirement income exemptions (both require age 65+), and affects the federal standard deduction add-on ($2,000 single / $1,600 per qualifying person MFJ for those 65 and older). Enter the primary taxpayer's age.
Annual Social Security Benefit: Gross annual Social Security benefit. Federal SS taxation still applies regardless of which state you live in — this calculator computes the federal tax the same way for all states. All 12 states in this comparison fully exempt Social Security from state income tax.
Pension Income: Annual pension payments from a defined-benefit plan (private or government). State treatment varies significantly: PA and IL fully exempt pension income; GA exempts up to $65K per person (65+); NY exempts $20K per person (59½+); AZ and NC tax pension income at their flat rate; CA taxes it fully.
IRA / 401(k) Distributions: Annual withdrawals from traditional IRAs, 401(k)s, and similar pre-tax accounts. Taxed similarly to pension income in most states. PA and IL exempt qualifying distributions; GA includes distributions in the $65K retirement exclusion; NY includes distributions in the $20K exemption.
Other Taxable Income: Wages, interest, dividends, capital gains, and non-retirement income. All states with income taxes generally tax this income. In PA (flat 3.07%) and IL (flat 4.95%), this is often the ONLY taxable income for retirees — interest and dividends are taxable even though pension and IRA income is not.
Home Value: Used to estimate annual property tax in each state using average effective property tax rates. This is a rough approximation — actual rates vary significantly by county and municipality. Nevada's average effective rate is 0.49%; Illinois averages 2.23%. Property tax can swing the comparison dramatically in some states.
Current (or Reference) State: Select your current state to see "savings vs current" in the comparison table — how much more or less you would pay in taxes each year by moving to each other state. This does not imply you should move; it shows the annual tax differential at your stated income and home value.

Frequently Asked Questions

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The FinCalc Team

Personal Finance Experts

The FinCalc team is a group of personal finance writers, analysts, and engineers dedicated to building accurate, transparent financial calculators. Every formula is verified against industry standards and explained in plain language.

Last reviewed and updated: May 29, 2026

Disclaimer: State income tax rules reflect 2026 law to the best of available knowledge. Georgia's rate is the 2026 scheduled flat rate (~4.99%). Pennsylvania's and Illinois's retirement income exemptions are based on qualifying distributions from employer-sponsored plans and IRAs; non-qualifying income may be taxable. New York's $20,000 per-person exemption applies to qualifying pension and IRA income for taxpayers age 59½+. Property tax estimates use each state's average effective property tax rate as of 2025; actual rates vary by county, municipality, and local assessments. Federal income tax uses 2026 OBBBA brackets and standard deductions. This comparison is for general educational purposes and does not constitute tax or relocation advice. State tax laws change annually — verify current rules with a CPA before making relocation decisions.