Where you live throughout your life can often come down to circumstance. You might move somewhere for a specific job or to pursue a career. Other times, people may move simply because they want a change — for example, desiring to experience a big city after a lifetime in a small town (or vice versa). Some will choose to stay put because it allows them to be close to family and friends. Others will move to be closer to children who have relocated.

However, where you choose to live in retirement specifically can have a significant impact on your finances in your golden years, and taxes are a big reason why. With that in mind, it’s essential to be aware of how the policies of the state you live in could financially impact your retirement.

There are 13 U.S. states that don’t tax retirement income. Here’s what you should consider when deciding whether to retire in these states.

Nine states don’t tax any income

Why don’t some states tax retirement income? It could be as simple as a desire to attract retirees. The United States is one country, but its 50 states compete with each other for residents and economic opportunities. Tax policy is one way a state can attempt to win people and businesses over.

So, here are the states that don’t tax your retirement income … or any income whatsoever:

• Alaska
• Florida
• New Hampshire (see below)
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Note: New Hampshire levies taxes on income from interest and dividends, but the state government has repealed that tax, which will go into effect Dec. 31, 2024.

These four states make exceptions for retirement income

These states do tax wages while making exceptions for retirement income:

• Illinois
• Iowa
• Mississippi
• Pennsylvania

What constitutes retirement income? Think withdrawals and payments from pensions, 401(k)s, IRAs, and similar accounts. However, just because a state doesn’t tax retirement income doesn’t mean you aren’t subject to all the federal rules regarding the retirement accounts you use. For example, if you take early withdrawals from an IRA before you turn 59 1/2, you could still be subject to penalties and taxes, no matter which state you live in.

Even fewer states — just nine of them — tax any portion of seniors’ Social Security income.

Is it that simple? It rarely is.

Depending on your finances, retiring in one of these 13 states could reduce your tax bill, but that alone shouldn’t determine where choose to settle down. State tax policy is just one aspect of a more complex discussion. Just because a state doesn’t tax retirement income doesn’t guarantee lower living expenses overall or a better quality of life.

While a state might not tax income, it will have to levy some form of taxes to fund its government and services. As a result, it might charge higher sales taxes or property taxes instead. And if a state maintains generally lower taxes by keeping its spending low, some services a retiree might want or need may be harder to come by.

Housing is another significant expense for retirees. Home prices vary wildly from state to state, and it may cost significantly more to insure your home if you live in an area that’s more vulnerable to natural disasters.

The bottom line is that even if you’re saving money on one front by not having to pay state taxes on your income, you should focus on your overall quality of life before retiring in one of these 13 states. The potential to keep thousands of dollars in your pocket at tax time is a big deal, but so are proximity to family and friends, access to quality healthcare, and other considerations that should factor into this important decision for your golden years.

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