The All-Around Low-Tax Contenders
Some states don’t stand out for having a zero in any one tax category. Instead, their appeal comes from having a low and balanced tax burden across the board. They may have a modest income tax, a modest sales tax, and a modest property tax, resulting in a low overall cost for residents.
Delaware
Delaware is a small state with big tax advantages. The most famous is its complete lack of a state or local sales tax. That means the price you see on the tag is the price you pay, which can lead to thousands of dollars in savings each year.
On the income tax front, Delaware exempts Social Security benefits. It also allows retirees aged 60 and over to exclude up to $12,500 of pension and other retirement income (including from 401(k)s and IRAs) from their state taxes. To top it off, property taxes in Delaware are among the lowest in the nation, and there is no estate or inheritance tax.
The Trade-Off: Delaware does have a graduated state income tax, but the rates are modest. The real consideration is that the cost of living, particularly housing, can be higher than in some other states on this list, especially in the popular beach areas.
A Quick Example: Imagine a retired couple spends $40,000 per year on taxable goods, services, and vehicles. In a state with a 7% combined sales tax, they would pay $2,800 in sales tax alone. In Delaware, they pay $0. This savings can easily offset the modest income tax they might owe on income above their retirement exclusion.
Wyoming
For those who love the great outdoors and wide-open spaces, Wyoming offers a compelling tax picture. Like Florida and Nevada, Wyoming has no state income tax. But where it truly shines is its low burden from other taxes. The state sales tax is low, and even with local additions, the average combined rate is one of the lowest in the country.
Property taxes are also remarkably low, with the average effective rate being about half the national average. This combination of no income tax, low sales tax, and low property tax gives Wyoming one of the lowest total tax burdens in the United States.
The Trade-Off: The primary trade-offs in Wyoming are not financial. It is the least populous state in the nation, so amenities, shopping, and specialized healthcare may be farther away. The winters can be long and harsh, which is a major lifestyle consideration for many retirees.
Alabama, beginning in 2025, exempts the 5% state tax on up to $12,000 dollars that is withdrawn from an IRA/401K account by people that are 65+.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..