Moving to Texas or Florida Could Save You $50K in Retirement Taxes

The State Tax Advantage That Could Transform Your Retirement

When you’re earning $200,000 in California and paying 9.3% state income tax, retirement feels far away. But consider this: if you retire to Texas or Florida—states with no income tax—every dollar you withdraw from your IRA keeps more cents in your pocket. Over a 25-year retirement, this difference can exceed $50,000 in tax savings.

The Zero Income Tax States

Nine states impose no tax on personal income:

Alaska—no sales tax either, but high cost of living
Florida—warm climate, established retirement communities
Nevada—no income or estate tax
New Hampshire—taxes only interest and dividends
South Dakota—no income, estate, or inheritance tax
Tennessee—recently eliminated tax on interest/dividends
Texas—large state, diverse regions, no income tax
Washington—no income tax, but higher sales and property taxes
Wyoming—low population, minimal taxes

Calculating the Difference

Let’s model a realistic scenario:

Retiree profile:

$1.2 million in traditional IRA
Withdrawing $60,000 annually in retirement
Social Security: $30,000 annually
Total income: $90,000

State tax comparison on retirement income:

California (up to 9.3%): approximately $5,500/year
New York (up to 6.85%): approximately $4,100/year
Illinois (flat 4.95%): approximately $3,000/year
Florida/Texas (0%): $0/year

25-year retirement savings:

California to Florida: $137,500 in avoided taxes
New York to Texas: $102,500 in avoided taxes

Even accounting for inflation and increased withdrawals, the savings are substantial.

States That Don’t Tax Retirement Income

Beyond the zero-income-tax states, several states exempt retirement income specifically:

Pennsylvania—no tax on 401(k), IRA, or pension distributions (regardless of age)
Mississippi—no tax on qualified retirement income
Illinois—exempts retirement income from state tax

These states still have income taxes on wages and other income, but retirement distributions receive favorable treatment.

The States to Avoid

Some states tax retirement income aggressively:

California—taxes all retirement income as ordinary income, up to 13.3%
Vermont—no retirement exemptions, up to 8.75%
Minnesota—taxes retirement income, up to 9.85%
Oregon—no sales tax but up to 9.9% income tax on retirement

Beyond Income Tax: The Full Picture

State income tax is just one factor. Consider:

Property taxes: Texas has no income tax but property taxes averaging 1.8% of home value—among the highest nationally. Florida averages 0.89%.

Sales tax: Tennessee has no income tax but charges 9.55% sales tax (including local). Oregon has no sales tax.

Estate and inheritance taxes: Some states tax inheritances even when the federal estate tax doesn’t apply. Pennsylvania charges up to 15% on inheritances to non-lineal heirs.

Cost of living: Tax savings mean nothing if housing, healthcare, and daily expenses consume the difference.

Establishing Residency

To claim tax residency in a new state, you typically must:

Spend more than 183 days (half the year) in the new state
Obtain a driver’s license in the new state
Register to vote there
Use the new address on tax returns and financial accounts
Maintain your primary residence there

States like California and New York aggressively audit former residents who claim to have moved. Keep meticulous records—cell phone location data, credit card statements, doctor visits—proving you’ve genuinely relocated.

The Rollover Connection

Where you’re domiciled when you take IRA distributions matters. If you roll over your 401(k) while living in California but plan to retire in Texas, the rollover itself has no tax consequence. But every distribution you take while still a California resident faces California tax.

Some strategies:

Delay large IRA distributions until after establishing residency in a low-tax state
Consider Roth conversions before moving—pay tax at your current rate now, then move and withdraw tax-free later
Time your move to minimize any year of dual-state filing complexity

Is Relocating Worth It?

For someone with $50,000+ in projected tax savings, relocation deserves serious consideration. But money isn’t everything. Proximity to family, healthcare access, climate preferences, and community connections matter too.

Run the numbers. Visit potential destinations. Consult with a tax professional who understands multi-state residency issues. The savings are real—but they must fit your life, not just your spreadsheet.