States with no income tax or that waive income tax for retirement income as of 2014 include Alaska, Florida, Illinois, Mississippi and Nevada, explains Emily Brandon for U.S. News and World Report. Other tax-friendly states for retirees are Pennsylvania, South Dakota, Texas, Washington and Wyoming.Continue Reading
Alaska has no income tax, including for Social Security or pension income, and no sales tax, according to Brandon. Florida similarly charges no income or retirement taxes, but the state sales tax is 6 percent. Although Illinois and Mississippi have income tax, income from retirement accounts and Social Security is not taxable. However, sales tax in both states is relatively high. Nevada does not impose individual income tax, which includes retirement taxes, but has a high sales tax.
Pennsylvania does not tax pension benefits or Social Security, and the overall cost of living is less than in other nearby states, states Brandon. South Dakota and Wyoming have no income or retirement taxes and low sales taxes. Although Texas and Washington do not levy income or retirement taxes, their sales taxes are high.
Important tax considerations for retirees include not only taxes on retirement income but also sales tax rates, property taxes and estate and inheritance taxes, cautions Robert Powell for MarketWatch. In assessing the most tax-friendly states, retirees should consider how much they depend on Social Security and pension income, whether they plan to do some sort of work and how much they plan to spend.Learn more about Taxes