One of the most exciting parts of planning for retirement is choosing where you’ll spend your golden years. For many, a key piece of that puzzle is finding a place where their hard-earned savings can stretch further. A big part of that equation is taxes. Moving to a state with a lower tax burden can feel like giving yourself a raise, freeing up cash for travel, hobbies, or simply peace of mind.
But the phrase “tax-friendly” can be tricky. A state with no income tax might surprise you with high property taxes or sales taxes that eat into your budget every time you go to the store. The best choice for you depends entirely on your personal financial picture: your income sources, your spending habits, and whether you plan to own a home.
This guide will walk you through eight of the most tax-friendly states for retirees in 2025. More importantly, it will teach you how to think about taxes in retirement. We’ll explore the three major types of state taxes and give you a step-by-step framework to evaluate any state for your unique needs. Think of this not just as a list, but as a roadmap for making a confident and informed decision.
Alabama, beginning in 2025, exempts the 5% state tax on up to $12,000 dollars that is withdrawn from an IRA/401K account by people that are 65+. A savings of up to $600 dollars from a $12,000 dollar withdrawal..