These Are the 5 Most Tax-Friendly States for Retirement

Saving for retirement is an enormous challenge for many Americans, and you're not alone in worrying whether you'll have enough. Careful budgeting can help you save more and stretch your dollars further in retirement, but that only goes so far.

If you want to help your money go as far as it can, you also have to minimize the taxes you pay. A lot of this comes down to where you live. Here's a look at the five most tax-friendly states in the U.S., according to The Motley Fool's research.

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1. Florida

Florida is one of the most popular retirement states for several reasons, including beautiful weather and many beaches. But its tax-friendliness is a factor as well. Seniors here will appreciate that the state doesn't have its own income, estate, or inheritance taxes. Sales tax is also pretty reasonable.

However, the overall cost of living is higher here than in other Southern states. This varies by city, but it's something to keep an eye out for when deciding whether Florida is the right retirement home for you.

2. Alaska

Alaska stands out because it doesn't have state sales, estate, or inheritance taxes. It also has a Permanent Dividend Fund that gives residents money each year. Higher property taxes and local sales taxes could offset some of these gains in certain cities. But overall, Alaskans pay some of the lowest retirement taxes around.

Of course, living in Alaska brings other challenges like colder, longer winters and being farther from major cities and the continental U.S. You'll have to weigh these factors alongside the potential savings to decide if it's right for you.

3. Nevada

Nevada is another state with no state income, inheritance, or estate taxes. It also has pretty low property taxes. However, some of these savings might be offset slightly by its higher sales taxes.

Though it's not directly related to taxes, it's worth noting that healthcare within the state is also pretty affordable, according to the Missouri Economic Research and Information Center (MERIC). This is a plus for retirees, many of whom will see their healthcare costs rise as they age.

4. South Dakota

South Dakota is another solid option for retirees who hope to avoid state taxes on their retirement income. The state doesn't tax Social Security benefits either. Wealthy Americans will appreciate the lack of estate and inheritance taxes too.

The state's relatively low cost of living could also help retirees stretch their dollars further. Property values in the state are especially low, so it's a great choice for those who want to own their own home in retirement without breaking the bank.

5. Tennessee

Tennessee checks all the boxes a tax-conscious retiree would like to see: no state income tax, no Social Security benefit tax, and no estate or inheritance taxes, to name a few. Property tax rates are also pretty reasonable in the state. However, Tennessee has an above-average sales tax rate.

There's more than just cost to consider when deciding where you want to live in retirement. You also have to consider proximity to friends and family, hobbies, weather, and other factors. But don't forget to investigate tax liability as well when comparing potential retirement destinations.

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