Retirees Beware: The 8 Worst States for Taxes on Your Nest Egg in 2026
You can do everything right and still feel the squeeze once you retire. Saving matters, but so does your address. State tax rules handle pensions, Social Security, and withdrawals very differently, and those differences start to matter more when a regular paycheck disappears. In some states, taxes eat into retirement income year after year, which can be especially tough for people relying on a fixed budget
New Jersey
Credit: Getty Images
Average property tax bills hover around $9,500 a year, a cost that doesn’t scale down with income. Retirement income exclusions help at lower levels, but larger withdrawals face rates as high as 10.75%. Estate taxes remain a factor for higher-value homes, so retirees are careful to stay in familiar neighborhoods.
New York
Credit: pexels
At first, New York looks welcoming to retirees. Social Security isn’t taxed, and a portion of pension income gets excluded. The problem appears once withdrawals increase. Estate tax rules include a steep cutoff that can pull an entire estate into taxation. Progressive rates climb past 10%, and property taxes in many counties rival those of cities.
California
Credit: Getty Images
California’s challenge is less about a single bad rule than about accumulation. Social Security stays exempt, but nearly every other income source gets taxed, including pensions, IRA withdrawals, and investment gains. Rates rise quickly at higher income levels. Pair that with housing and insurance costs that rarely ease in retirement, and monthly budgets can feel tighter than expected.
Connecticut
Credit: Getty Images
For many retirees, staying close to family or familiar communities makes Connecticut feel like a natural choice. The financial tradeoffs emerge slowly. Social Security breaks narrow as income rises, and relief on IRA withdrawals doesn’t arrive all at once. Pensions and 401(k) income often remain taxable, while housing and daily expenses stay elevated.
Minnesota
Credit: Getty Images
Income tax brackets reach modest withdrawal levels quickly in Minnesota, pulling savings into higher rates early on. While some households benefit from Social Security relief, estate taxes begin at around $3 million. For people relying on a mix of savings and home equity, the cumulative effect becomes noticeable in the first years of retirement rather than later.
Vermont
Credit: Getty Images
Vermont taxes retirement income more heavily than many people expect. Social Security can be taxed once income passes certain thresholds, and withdrawals from retirement accounts receive no special breaks. Property taxes add another layer of pressure, ranking among the highest in the country relative to home values. Over time, these combined costs can make retirement budgets feel tighter than planned.
Oregon
Credit: Getty Images
Oregon fully taxes IRA and 401(k) withdrawals, with top income tax rates reaching 9.9%. While Social Security benefits are excluded, many retirees still feel the impact once they begin drawing from their savings. Longtime homeowners can also face planning challenges tied to accumulated home equity, and the state’s estate tax kicks in at just $1 million, a low threshold compared to most states.
Illinois
Credit: Getty Images
Illinois exempts most retirement income from state income tax, but other costs often fill that gap. Property taxes are among the highest in the country, frequently topping 2%, and local sales taxes in many areas approach 9%. For retirees who stay in place, housing, utilities, and daily expenses can end up weighing more heavily on the budget than expected.
Massachusetts
Credit: Getty Images
Longtime homeowners often discover the pressure here through estate planning, not income taxes alone. Most retirement income faces a flat state tax, capital gains cost more, and estate taxes begin at $2 million. In metro areas, high housing costs push retirees toward downsizing conversations earlier than expected, even with solid savings.
Maryland
Credit: Getty Images
Many retirees move here to stay close to family, then adjust as tax layers add up. State income taxes rise gradually, counties tack on their own rates, and capital gains surtaxes affect investors. Property taxes vary widely, and estate taxes arrive sooner than expected, turning budgeting into an ongoing process.