5 States That Don’t Tax Your Retirement Income

4. Illinois

Insider Monkey Score: 13

Tax Friendliness: Tax-friendly

Cost of Living Index: 92.1

Illinois is another tax-friendly state that seniors can consider for their retirement years. The state has a flat income tax rate of 4.95%, but seniors don’t have to pay this on their retirement income. This income includes social security payments, pension payments, and distributions from plans such as 401(k)s and IRAs. The state isn’t entirely tax-free, however, and is notorious for having some of the highest sales and property taxes in the country. The average effective property tax rate is an estimated 2.2%, which is the second-highest rate in the country. As a senior, buying a property in this state means paying bulky taxes. There is a specific homestead exemption that seniors can avail of called the Senior Citizen Homestead Exemption. This program allows individuals who are 65 or older who meet certain requirements to defer all or part of the real estate taxes and special assessments (up to a certain limit) on their principal residences.