State-Specific Tax Benefits for Retirees: NY, NC & FL Compared

State-Specific Retirement | by Jules Buxbaum | Thursday, January 09, 2025

Retirement tax benefits can vary dramatically depending on your state, leaving many older adults unsure of where and how to optimize their finances. If you’re thinking about long-term financial security, exploring the differences among New York, North Carolina, and Florida is a smart first step, and our brief comparison sets the stage for doing just that. For a broader look at other states, take a peek at our guide on the most tax-friendly states for retirees.

This article is especially relevant for individuals on the cusp of retirement or those already enjoying their post-work years. By focusing on key areas like income taxes, property taxes, and estate considerations, you can make smarter decisions about where to live and how to structure your retirement income.

What Makes Retirement Tax Benefits Crucial?

As you transition out of full-time work, taxes can reduce your cash flow more than you might expect. Pension distributions, Social Security benefits, and withdrawals from accounts like IRAs or 401(k)s all have different tax treatments at the state level.

In some states, retirees face minimal taxation on these income sources. In others, you might find higher income taxes but targeted exclusions or credits that lessen the bite. According to a Kiplinger analysis, the difference in overall tax bills for retirees moving from a high-tax state to a low-tax state can exceed $5,000 per year. That can amount to tens of thousands of dollars in savings over a 20-year retirement.

New York: Higher Rates But Not Without Perks

New York retirement taxes are known for being on the upper end of the scale, yet the state does offer key advantages for older adults. Social Security benefits are off-limits for New York’s income tax, and taxpayers age 59½ or older can subtract up to $20,000 in retirement income (including pensions and IRAs) each year.

Although this exclusion is helpful, it pales in comparison to the state’s top income tax rates—which can exceed 10% for high earners. Property taxes also rank among the nation’s highest. Fortunately, New York has relief programs like the Enhanced STAR exemption for seniors. According to the New York State Department of Taxation and Finance, retirees with incomes under $107,300 may receive enhanced school tax relief on their primary residence.

Estate planning is another factor. New York levies an estate tax for estates above $6.11 million (2023 figure), which can affect wealth transfer. Still, retirees with moderate assets might find that targeted exemptions on retirement income and property tax relief offer a partial cushion.

North Carolina: Flat Rates and Growing Appeal

Many see North Carolina as a halfway point between a high-tax environment and the total absence of income tax. The state’s flat tax rate of 4.75% in 2023 is slated to drop to 3.99% by 2026, making it increasingly attractive for retirees who draw multiple sources of income.

Similar to New York, North Carolina excludes Social Security from taxation. Other retirement distributions, such as private pensions, 401(k)s, and IRAs, are taxed at the flat state rate. However, military retirement pay and certain government benefits may be exempt under the Bailey Settlement for qualifying retirees.

Although North Carolina’s property taxes are moderate compared to New York, local rates vary widely. The Homestead Exclusion offers further relief, allowing eligible seniors to reduce the taxable value of their primary home by 50% or $25,000, whichever is greater. With more moderate real estate costs and a tax rate that continues to drop, it’s no surprise many northern retirees now consider North Carolina a viable option.

Florida: Zero Income Tax, Big Appeal

The Sunshine State remains a magnet for retirees, partly because it imposes no state income tax on any form of retirement income. Whether you have hefty IRA withdrawals or a sizable pension, Florida won’t tax it at the state level.

While property taxes in some areas can feel significant, Florida’s Homestead Exemption and the “Save Our Homes” benefit help keep increases in check. Furthermore, there is no estate or inheritance tax, which appeals to anyone seeking a large-scale wealth transfer.

If you need quick confirmation of Florida’s popularity among older adults, consider that United Van Lines data has consistently shown the state leading in inbound retiree moves. With lower average property taxes than New York and no state income tax, Florida can feel like a financial breath of fresh air for those looking to stretch their retirement dollars.

Comparing the Three States

All three states spare Social Security from taxation, which is an immediate advantage for many. However, pension and IRA treatments differ significantly. New York’s partial exemption contrasts with North Carolina’s single flat rate, and Florida forgoes an income tax entirely.

Property tax is another differentiator. New York has high property taxes, North Carolina maintains moderate rates with certain senior exemptions, and Florida offers homestead protections but has varying local millage rates. On top of that, only New York imposes an estate tax, a point that especially interests higher-net-worth households.

If you’re still deciding which state might be best for you, the details can feel overwhelming. For a deeper look at current rules on income tax and retirement, explore our state income tax rules for NY, NC, and FL. Another way to figure out how each place affects your overall plan is to use an intelligent tool that scenarios your income, spending, and risk. Our 2Pi Financial Planner shows you how shifting your retirement base from one state to another could change your projected withdrawals, tax exposure, and asset longevity.

Bottom Line

Even if tax differences may not be your only reason for choosing a retirement destination, the real impact on your bottom line is difficult to ignore. Before settling on New York, North Carolina, or Florida, weigh how each state’s taxes align with your long-term goals.

If you want extra tips on reducing your tax burden wherever you decide to retire, check out our guide on how to minimize taxes on your retirement income. Knowledge is powerful. By understanding each state’s rules, you’ll be better prepared to fine-tune your plan and keep your money working for you throughout your post-work life.

References

1. AARP. (2023). “State Taxes Guide.” Available at: https://states.aarp.org/new-york/state-taxes-guide

2. Kiplinger. (2023). “Taxes in Retirement: How All 50 States Tax Retirees.” Available at: https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees

3. Tax Foundation. (2023). “State Income Tax Rates.” Available at: https://taxfoundation.org/data/all/state/state-income-tax-rates/