Taxes could easily end up comprising a large percentage of your expenses in retirement. Most states have sales taxes, income taxes, property taxes, gas taxes, estate taxes and inheritance taxes just to name a few. It makes sense to consider seriously the taxes each state imposes when deciding where you wish to live in retirement. While you probably will not move solely for tax benefits, picking between two locations could be decided by your financial situation and how much you can afford to pay toward taxes in your golden years.

Two of the heaviest taxes most retirees pay are income taxes and sales taxes. Depending on your income source and your consumption habits, it may make sense to consider states that lack an income tax or a sales tax so you can afford to live a comfortable life. Be sure to consider the whole tax environment of a state, since states often make up for the lack of one tax with a higher tax in another area, such as property taxes.

10 States with Most Favorable Taxation for Retirees

Analyzing which states favor retirees the most when it comes to taxation is a very complex task. Kiplinger has completed this analysis and has determined the top ten most tax-friendly states for retirees in 2014, as listed below.

1. Alaska
2. Wyoming
3. Nevada
4. Georgia
5. Arizona
6. Mississippi
7. Delaware
8. Louisiana
9. South Dakota
10. Florida

If you move to any of the above states, your finances will probably thank you. Of course, none of these states will seem like suitable retirement options for some people.

10 States with Least Favorable Taxation for Retirees

If you have enough money, you can live anywhere you want in retirement with no regard for the taxes you pay. However, you may still want to avoid a few states due to their heavy taxation of retirees. Kiplinger has also compiled a list of the top ten least tax-friendly states for retirees in 2014, as listed below.

41. New York
42. New Jersey
43. Nebraska
44. California
45. Montana
46. Oregon
47. Minnesota
48. Connecticut
49. Vermont
50. Rhode Island

Keep in mind these rankings take all taxes into account on a high level, overall basis. Your personal situation could result in a very different tax situation to the general population. In general, most states base their income taxes on a marginal income tax system, with the highest tax rate applying to all income over a certain level. For those that plan to have a large amount of taxable income in retirement, try to avoid states that have high income tax rates in their top tax bracket.

No matter where you decide to retire to, make sure you fully examine your retirement tax situation so that you avoid the shock of your first tax return of retirement. The types of income you will have in retirement can differ greatly from the wage income you earned your entire working career.

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