Discover the best U.S. states for retirees using annuities in 2025. Maximize your income with this state-by-state annuity tax guide.
Introduction: Why Your State of Residence Matters More Than You Think
If you’re nearing retirement and planning to use annuities as part of your income strategy, where you live can make or break your financial future. Why? Because taxes on annuity income vary drastically from one state to another. In this blog, Freedom Path Financial Services dives into the top states where retirees can keep more of their annuity income—and why others may cost you dearly.
Whether you’re a beginner, a financial blogger, or just planning your retirement, this state-by-state guide will help you make informed, tax-smart decisions in 2025.
What Are Annuities in Retirement? (Snippet-Friendly Definition)
An annuity is a financial product that provides guaranteed income during retirement, typically in monthly payments. Retirees often purchase annuities using their savings, 401(k), or IRA. The income is either immediate or deferred, depending on the type of annuity.
Why Taxes on Annuities Matter for Retirees
* State income taxes can eat into your fixed annuity payments
* Some states treat annuity income as regular taxable income
* Others offer exemptions or don’t tax retirement income at all
Knowing where your annuity dollars are taxed the least is key to maximizing your retirement income.
Step-by-Step Guide: Choosing the Best State for Annuity Income
Step 1: Understand How Annuities Are Taxed by State
Federal Tax:
* Annuity income is generally taxed as ordinary income
* Part of your payment may be excluded if you’ve made post-tax contributions (“exclusion ratio”)
State Tax:
Each state treats annuity income differently:
* Some fully exempt annuity income
* Others partially exempt it (e.g., age-based or income-limited exclusions)
* A few fully tax annuity income like regular income
Step 2: Evaluate State Taxes on Retirement Income
Ask these key questions:
* Does the state tax Social Security or pension income?
* Are annuities treated as taxable income?
* Is there an income exemption threshold?
* What’s the overall tax burden for retirees?
Step 3: Identify Retirement-Friendly States with Low or No Tax
We’ve compiled the best states where retirees using annuities pay the least in taxes.
Top 10 Tax-Friendly States for Retirees Using Annuities in 2025
1. Florida
* No state income tax
* Full exemption for annuity and retirement income
* Warm climate and senior-friendly healthcare
2. Nevada
* No state income tax
* Popular for retirees due to financial and climate reasons
3. Texas
* No tax on annuity income
* Affordable housing and cost of living
4. Tennessee
* No tax on income, including annuities
* Low property taxes and living expenses
5. Wyoming
* No individual income tax
* Tax-friendly for estates and inheritances too
6. South Dakota
* No income tax, no estate tax
* Retiree-friendly legal structure for trusts and annuities
7. Alaska
* No income or sales tax
* State dividend programs may even pay you
8. New Hampshire
* No tax on annuity or retirement income
* Does tax dividends and interest
9. Pennsylvania
* Exempts annuity income from state tax for retirees
* Low cost of living in certain areas
10. Illinois
* State tax exemption for annuity and pension income
* Tax-friendly despite higher property taxes
States to Be Cautious About
California
* High state income taxes
* Annuity income taxed as regular income
New York
* Partial exemption available, but high base taxes
New Jersey
* Exempts annuity income only under certain conditions
Oregon
* Retirement income is taxed, though with age-based exclusions
Common Mistakes to Avoid When Relocating for Annuity Benefits
1. Ignoring Overall Tax Burden
Focus on more than income tax: property, sales, and estate taxes matter too.
2. Failing to Recalculate Cost of Living
Tax savings may be offset by higher healthcare or housing costs.
3. Not Considering Estate Taxes
Even if annuity income is tax-free, estate taxes could hurt your heirs.
4. Assuming Federal and State Tax Laws Are the Same
They’re not. Always evaluate both.
5. Moving Without Updating Legal & Financial Documents
Your trust, will, and annuity contracts should reflect your new state’s laws.
Best Tools and Resources to Compare State Taxes for Annuities
1. Annuity Campus
2. Freedom Path Financial Retirement and Annuity Expert– Personalized annuity tax guidance
3. AARP Livability Index
4. State Department of Revenue Websites
5. NerdWallet Cost of Living Calculator
Frequently Asked Questions (FAQs)
1. Do all states tax annuity income?
No. Many states either partially or completely exempt annuity income, especially for retirees.
2. Can I move states after purchasing an annuity?
Yes, but your new state’s tax laws will apply to your annuity distributions.
3. What type of annuity is best for tax savings?
Fixed and tax-deferred annuities are generally better for tax efficiency.
4. Are annuity death benefits taxable to heirs?
Usually yes—federal income tax applies. State tax depends on where you and your heirs live.
5. Do Roth IRA annuities get taxed?
No federal tax if conditions are met. States vary—some fully exempt it.
6. Is a financial advisor needed to choose the best state?
Yes, especially one experienced in annuity and retirement tax planning, like at Freedom Path Financial.
Conclusion: Choose Smart, Live Better
Choosing the right state to retire in is more than a lifestyle decision—it’s a financial strategy. By understanding the tax treatment of annuity income across different states, you can unlock thousands in savings, year after year.
At Freedom Path Financial Services, we help retirees plan smarter, relocate wisely, and build a future where their income lasts longer. If you’re considering retirement or just want to get the most out of your annuity plan, reach out to our advisors today.
Contact us at for a free retirement income consultation.
Want help selecting the best state for your annuity income in 2025? Contact Freedom Path Financial and start your retirement planning journey with confidence.
