How Moving to a New State Affects Your Retirement Taxes

A realistic image of an older couple sitting at a kitchen table with a laptop open to a tax document, surrounded by moving boxes. Papers and coffee mugs are on the table, suggesting they’re planning a move and reviewing tax impacts.

How your taxes are impacted by changing residency

For retirees, relocating to a new state can offer better weather, proximity to family, or a more affordable lifestyle. But one of the most overlooked factors in this decision is how moving can dramatically affect your tax obligations. From income and property taxes to estate laws and healthcare-related costs, retirement tax states vary significantly.

In this blog, we’ll walk through what you need to know about the tax implications of moving in retirement, and how to avoid costly surprises. For help evaluating your personal situation, visit our tax planning services page.

Income Taxes: Do All States Tax Retirement Income?

When you retire, your income sources shift from wages to Social Security, pensions, annuities, IRAs, and 401(k)s. Each state treats these income types differently, and this can impact how much of your retirement income is available for living expenses.

Nine states do not impose any income tax at all. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. In these states, your pension, IRA distributions, and even capital gains are typically free from state tax.

Other states, like New Jersey and Pennsylvania, may not tax Social Security or certain types of retirement income for qualifying seniors, but they may still tax distributions from retirement accounts. Still others—like California, Minnesota, and Vermont—tax nearly all retirement income.

Before you move, compare how different states treat each type of retirement income you expect to receive. This will help you understand whether a “low-tax” state really benefits you.

 

Establishing Legal Residency in a New State

Changing your state of residence for tax purposes requires more than simply signing a lease or buying a home. Legally, your state of residency (your domicile) is the place you intend to make your permanent home.

States like New York and California aggressively enforce residency audits if they suspect taxpayers have moved primarily to avoid taxes. They may look at your driver’s license, where your mail is delivered, your voting registration, bank statements, healthcare provider locations, and even utility bills.

To avoid being taxed in two states during the same year, take steps such as:

  • Changing your driver’s license and vehicle registration
  • Updating your voter registration and insurance policies
  • Spending more than 183 days in the new state
  • Selling or renting out your former primary residence
  • Filing a declaration of domicile where applicable

Establishing clear legal residency helps avoid dual taxation and provides stronger protection if your old state questions your status. Learn more about how we help clients with multi-state tax planning.

Property Taxes and Homestead Exemptions

Property taxes are a significant and recurring cost for homeowners. While a state may not impose income taxes, it may have high property taxes that offset any savings.

For example, states like Illinois, New Jersey, and Connecticut have among the highest effective property tax rates in the country. Meanwhile, states like Hawaii and Alabama have much lower rates.

Many states offer homestead exemptions to lower the property tax bill for seniors or primary residents. Some also offer circuit breaker programs based on income, which cap the amount of tax you must pay in relation to your income level.

However, you typically need to file for these exemptions and renew them annually. In Florida, for instance, the homestead exemption can lower your property’s taxable value by $50,000 and caps annual increases in assessed value to 3%.

To make sure you take advantage of all available savings, consult your new state’s Department of Revenue website or contact a tax advisor familiar with state and local rules. 

States With Inheritance and Estate Taxes

Federal estate tax only applies to estates valued over $13.61 million (2024). However, several states have their own estate or inheritance taxes, often with much lower thresholds.

For example:

  • Oregon and Massachusetts have estate taxes that kick in at $1 million
  • Maryland is the only state with both estate and inheritance taxes
  • Iowa, Kentucky, and Pennsylvania impose inheritance taxes depending on the relationship of the heir to the deceased

Relocating to a state without these taxes can reduce or eliminate a significant liability for your heirs. However, you must also consider whether your estate plan needs to be updated to reflect new residency and legal requirements.

WFP Tax Partners offers full estate and legacy tax planning for retirees and high-net-worth individuals.

Sales and Other Everyday Taxes

States that don’t tax income often generate revenue through higher sales, excise, and utility taxes. These everyday costs can quietly undermine your retirement budget.

For example:

  • Tennessee and Louisiana have combined sales tax rates of over 9%
  • Washington state adds excise taxes to vehicles and real estate
  • Some states tax groceries and medications, while others exempt them

Also, consider local taxes imposed by counties or cities. These can apply to lodging, fuel, alcohol, utilities, and other essential expenses.

When evaluating your move, review your typical monthly expenses and estimate how much more (or less) you might pay in your new state. The total tax picture is broader than just income and property taxes.

Healthcare and Long-Term Care Considerations

Medicare benefits are federal and travel with you, but many related costs—such as supplemental insurance, long-term care, and Medicaid—are state-dependent.

Supplemental policies (Medigap) vary by state, as do the costs for long-term care insurance. Some states offer additional benefits or tax credits for these expenses, while others have stricter asset thresholds for Medicaid eligibility.

For retirees considering aging-in-place or eventual assisted living, these factors can outweigh income tax considerations. A state with robust long-term care services or lenient Medicaid rules may be worth more than one with no income tax.

If you’re based in or moving from New Jersey, be sure to understand how the state’s retirement exclusions and healthcare provisions compare with your new location. 

Hidden Costs: The Real Financial Impact of Relocating

Beyond the tax code, there are many practical and financial costs that come with relocating in retirement:

  • Real estate commissions, legal fees, and closing costs
  • Homeowners association (HOA) dues or resort community fees
  • Capital gains tax if you exceed the home sale exclusion ($250K single, $500K married)
  • Differences in homeowners or car insurance rates
  • Moving expenses, especially if downsizing or shipping possessions long distance
  • Potential travel costs if you maintain ties to family or property in another state

These factors may not appear on your tax return, but they impact your disposable income and quality of life. WFP Tax Partners helps clients estimate relocation-adjusted cash flow before they move.

Financial Checklist Before You Move

Before relocating, we recommend completing this comprehensive review with your tax advisor:

  • List all sources of retirement income and estimate their state taxability
  • Project property taxes, homeownership costs, and insurance premiums
  • Review income thresholds for capital gains, estate, and inheritance taxes
  • Understand local tax breaks, credits, or incentives for seniors
  • Assess access and cost of healthcare services and supplemental insurance
  • Confirm how to establish and maintain legal residency

Create side-by-side comparisons for your current and future state, and update your estate plan and beneficiary designations to match your new residency.

Want to see what this looks like in real numbers? Contact us to request a customized state-to-state tax impact analysis.

Smart Moves Start With Smart Tax Planning

Relocating during retirement may offer sunshine, scenery, or better amenities—but it can also come with significant tax consequences. By understanding the laws in both your current and future state, and proactively planning with a tax advisor, you can make a move that benefits both your lifestyle and your bottom line.

WFP Tax Partners helps retirees across the U.S. evaluate how moving to a new state affects their taxes—from income and estate tax analysis to residency planning and long-term care strategy.

Schedule a consultation today to secure your retirement plan before you pack your bags.

 

 

FAQs

What states have no income tax for retirees?
Florida, Texas, and Nevada are among the most popular tax-friendly states with no income tax. Some states like Illinois and Pennsylvania do not tax certain retirement distributions, such as pensions or Social Security. It depends on your income mix.

Do I have to pay taxes in both states if I move mid-year?
Potentially. You may be required to file part-year resident returns in both states. This can get complicated if you maintain financial or residential ties to your old state. A tax professional can help you structure the move to minimize dual taxation.

Will my Social Security be taxed differently after I move?
Yes. Some states tax Social Security benefits (e.g., Colorado, New Mexico), while others do not (e.g., Florida, Nevada, Illinois). Moving to a no-tax state may help preserve more of your income.

How long do I need to live in a state to become a legal resident?
Most states require you to spend more than 183 days there. However, proving domicile also requires actions like registering to vote, changing your driver’s license, and using your new address for tax and legal documents.

What’s the best state to retire in for low taxes?
It depends on your total financial picture. States like Florida, Wyoming, and South Dakota are income tax-free and offer additional tax-friendly policies for retirees. But you must weigh this against cost of living, property taxes, and healthcare access.