Best And Worst States To Retire In, According To Their Tax Codes

When it comes time to retire, one of the biggest considerations is whether to downsize and how to best preserve one's wealth for the remaining years. Things like climate, community atmosphere and healthcare are also important considerations when it comes to choosing a retirement location.

While climate tends to be one of the biggest determinants in many people's relocation choices, financially savvy retirees would be smart to consider tax implications before making their final decision.

Kiplinger recently ranked all 50 states according to their income taxes, taking into account retirement income like Social Security benefits and pensions to determine which states are the most and least retirement-friendly.

Related Link: Can You Afford To Retire?

Best Tax Rates For Retirees

Most people think of the sun when they imagine their retirement, and Alaska may not even enter their minds. However, America's northernmost state has the best tax laws in the country for retirees.

Alaska is the only state with no state income tax and no sales tax, and the state government even rewards citizens living there for at least a year with an annual dividend check from its oil savings account. Seniors also receive a tax break on the first $150,000 of their assessed property value.

So, why aren't retirees flocking to Alaska by the thousands? For one thing, the state has a difficult climate with harsh winters. It also has a relatively high crime rate and its location makes it challenging to travel to other states for family visits.

Wyoming came in at number two on Kiplinger's list due to a lack of state income tax and a relatively low sales tax. Another state that profits from the oil industry, Wyoming's state government has consistently kept taxes low.

There is no sales tax on food and prescriptions, and residents pay around 5 percent on other items. Retirement income is not taxed in Wyoming, and the local government offers several tax relief programs when it comes to property taxes. Low taxes are not the only reason to choose Wyoming for retirement, the state has some of the best scenery in the country with Yellowstone National Park, the Grand Tetons and Jackson Hole all on residents' doorsteps.

The only drawback could be healthcare, especially for early retirees. The cost of buying a silver heath insurance plan on the individual market runs around $11,000 per year.

Related Link: Beautiful Places To Retire Beyond The Sunshine State

Retirees who head to Nevada to live out their golden years will find that Las Vegas isn't the only place to make their money go further. The state has no income tax and retirement income isn't subject to any taxes.

However, the state does have a 6.85 percent sales tax and there are no property tax breaks for seniors. Health insurance costs in Nevada are fairly average with the price of an individual plan running around $7,481 per year. However, while the climate in Nevada is considered one of the best in the country, the state has suffered from a relatively high crime rate and lackluster healthcare according to a Bankrate study that came out in March.

Low income taxes for retirees make Mississippi an attractive place to retire. The state excludes retirement income from its income taxes and uses a 5 percent maximum on any remaining income. The state also boasts one of the cheapest property tax rates in the United States, and seniors are exempt from paying taxes on the first $75,000 of value on their home. The state's tax code makes it the perfect location for early retirees.

Mississippi also has the lowest cost of living in the country, more than 15 percent below the national average. That means that retirees living there will be able to get more bang for their buck and their dollars will stretch further.

However, Mississippi was ranked 47th out of 50 for quality of healthcare, something that could be a drawback for seniors.

Georgia offers its older residents a variety of tax benefits, making it the fifth most tax friendly state for retirees in the nation. The state allows taxpayers from 62 to 64 an income tax exemption for both Social Security benefits and the first $35,000 of their retirement income. For those 65 and older, the tax break is $35,000 per person.

Seniors are also eligible for a property tax exemption on their home and up to 10 acres of land. Georgia also boasts a relatively mild climate and the cost of living is below average.

In addition to those benefits, retirees are able to take advantage of credits that exclude a portion of their retirement income from income taxes. The state's residents also enjoy above average healthcare, but Delaware's its crime rate leaves something to be desired.

The Worst

While Vermont offers breathtaking views and a host of outdoor activities, the state has been named the least tax-friendly state for retirees. Not only does the Green Mountain State have one of the highest property tax rates in the country, but Vermont doesn't offer its retirees much as far as tax breaks. Most types of retirement income, including Social Security, is taxed at the normal rate, which can be exorbitant for high earners.

However, despite the high taxes, Vermont was ranked 15th on Bankrate's list of best states to retire in. That was due to the state's high quality healthcare and impressively low crime rate, the lowest in the nation.

The tax code in Connecticut may be enough to persuade retirees to move elsewhere. The state boasts the second-highest real estate taxes in the United States and offers no exemptions or credits for any type of retirement income except military pensions.<?p>

For retirees above a certain income, Social Security income is taxed, and the state's sales tax is 6.35 percent. Connecticut residents also suffer from a high cost of living, although the crime rate is relatively low.

Related Link: When Your Parents' Financial Health Becomes Your Concern

Rhode Island is another tax nightmare for retirees, though changes to the state's legislation may ease the burden for some in the coming year. Almost all sources of retirement income are subject to retirement taxes, and the state has the tenth-highest real estate taxes in the nation.

However, in 2016 the income at which Social Security benefits aren't taxed will be raised, and recent amendments to the tax code lowered Rhode Island's tax rate to 5.99 percent from 9.9 percent. Low-income seniors are eligible for certain exceptions regarding property taxes, but high earners will find very few benefits.

Although the state's healthcare has been ranked in the top ten, the community atmosphere and cost of living were both considered subpar according to Bankrate.

In Minnesota, retirees are given very few tax breaks. All types of retirement income, including military and government pensions, are taxed. Not only that, but the state has some of the highest sales and income tax rates in the country. The state's average sales tax is 7.3 percent, and high earners can expect to pay nearly 10 percent on their income.

Although Minesota's tax rate and climate leave something to be desired, the state ranked 11th on Bankrate's list of best places to retire, due in large part to having the nation's highest quality healthcare.

Oregon offers very few tax benefits to retirees, putting it in the top five least tax-friendly states on Kiplinger's list. Retirement income is taxed at the state's normal income tax rate, 9.9 percent for taxpayers bringing in more than $125,000.

However, the state's tax code does have some bright spots. Tax rules allow retirees with income restrictions certain tax breaks and the state has absolutely no sales tax. Healthcare costs are relatively low for early retirees; an individual plan runs about $5,729. While Oregon has been praised for its welcoming community atmosphere, the state also has one of the highest costs of living in the country.

While Montana is another state without any sales tax, the benefits seem to end there. Retirees must pay taxes on most types of retirement income, and those with income limitations are only eligible for an exemption of up to $3,980. Those with taxable income over $17,000 pay a 6.9 percent tax rate and Social Security benefits are subject to state taxes. Montana residents are able to claim a $1,000 credit on their property taxes, but only if their household income is less than $45,000 per year.

However, in contrast to Montana's dismal ranking on Kiplinger's list, Bankrate named the Treasure State as the seventh best place for retirement. Weather, a low crime rate and residents' wellbeing all contributed the state's appeal.