By Antonio Hill
I’ve lived in four states and published a strategy for paying zero federal income tax. Until last week I had never once checked what my own state would take from that same year. The answer was $4,730.
Here’s the short version. Eight states tax a Roth conversion at zero because they have no income tax at all. Illinois taxes wages but not conversions, at any age. Pennsylvania doesn’t tax the conversion event itself. Everywhere else, your conversion is ordinary income and your state takes its cut at 40 exactly like it would at 60. The states you keep seeing at the top of “best states to retire” lists mostly won’t help you, because their breaks are locked behind an age you won’t reach for a decade or two.
The Year You Pay Zero Federal Tax and Your State Still Bills You
Idaho, Texas, Alabama, Mississippi. That’s the list, in reverse order. Here’s the number I finally ran.
Here’s the scenario straight out of the zero tax article. Married couple, 2026, living entirely on long term capital gains from a taxable brokerage bridge. Gross income of $131,100. Subtract the $32,200 federal standard deduction and taxable income lands at $98,900, which is precisely the ceiling of the federal 0 percent long term capital gains bracket for a joint filer this year.
Federal income tax on that year. Zero. Beautiful.
Now Idaho. Idaho conforms to the federal standard deduction, so Idaho taxable income is also $98,900. Idaho’s flat rate is 5.30 percent for 2026, and it applies to everything above $9,622 for a joint filer. That’s $89,278 taxed at 5.30 percent.
Every dollar of income tax you owe that year is state tax.
Somebody asked me recently how state tax stacks up against federal, and I said what I’ve always thought – state tax never really compares. That’s a W-2 answer. When you’re pulling a paycheck, federal plus payroll dwarfs the state tax and you barely notice it. The whole point of the strategy on this site is to engineer federal tax down to nothing in early retirement. Do that successfully and the state line isn’t the small one anymore. It’s the only one.
Think of it through the three levers. In the withdrawal phase, the return lever runs backward, and a state that skims 5 percent off every conversion year for nineteen straight years before you turn 59½ is a permanent drag on that lever, the same drag I named in why the 4 percent rule inflates your number. On $90,000 of conversions a year, that’s roughly $85,000 handed over between 40 and 59½. Nobody puts that line in their FI number. Add it to yours in the early retirement calculator and watch what nineteen years of it does to the target.
Retirement Friendly Means Friendly to Sixty-Five Year Olds
Search “best states to retire for taxes” and you’ll get Kiplinger, SmartAsset, and Fidelity ranking all fifty. Every one of those pages is built for somebody with Social Security, a pension, and a birth certificate that says 1961. Almost none of it applies to you.
Call it the Age Gate. Nearly every state retirement tax break in the country is locked behind a birthday or a plan retirement requirement. New York excludes $20,000 of retirement income starting at 59½. Colorado starts at 55. Georgia’s big exclusion starts at 62. Iowa’s starts at 55. At 40, you get none of it. You’re taxed like a guy with a job who happens not to have one.
My own state is the cleanest example of how absurd this gets. Idaho has a Retirement Benefits Deduction. Sounds promising. Read the statute and it requires two things at once. You must be at least 65, and the money has to come from federal Civil Service Retirement, the Idaho firefighters’ fund, an Idaho city police fund, or military retirement. Idaho’s own state employee pension doesn’t qualify. Neither does a 401(k). Neither does an IRA.
So I’m not waiting out an age gate. There is no gate. There’s a wall. As a mechanical engineer with a 401(k), I will never qualify for Idaho’s retirement deduction at 40, at 65, or at 90.
The One That’s Actually Wrong on Most Lists
Mississippi is where I grew up, and it shows up on every retirement-friendly list. SmartAsset’s page says Mississippi exempts all forms of retirement income from taxation. Kiplinger tells a similar story.
Here’s what the actual Mississippi regulation says. Early distributions from retirement plans do not qualify for the exemption. That’s it, in writing, in the state administrative code. Mississippi exempts your retirement income once you’ve met your plan’s retirement requirements. Pull it at 40 and Mississippi taxes the whole thing at 4 percent.
A 42 year old reads that ranking page, believes Mississippi is a zero tax retirement state, moves there, runs a conversion ladder, and gets a bill he was told didn’t exist. That’s not a nitpick. That’s the top result on Google being wrong in a way that costs somebody real money.
Nine other quiet leaks like this one.
State tax is the leak I just named in print. There are ten more in the same family that I’ve watched smart high earners make, and most of them cost years, not dollars. Free, no fluff, straight to your inbox.
The Four Tiers That Matter Before 59½
Forget the rankings. For somebody running a conversion ladder in their forties, every state falls into one of four buckets.
| Tier | What happens at 40 | States |
|---|---|---|
| 1. No income tax | Conversion taxed at 0 percent. Gains taxed at 0 percent. | Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Wyoming |
| 2. No age gate | Has an income tax, exempts your conversion anyway, with no birthday attached. | Illinois (4.95 percent on wages, conversions subtracted). Pennsylvania (3.07 percent, conversion event not taxable). |
| 3. Gains free, conversions taxed | Long term gains 100 percent exempt. Conversions still fully taxed. | Missouri (up to 4.70 percent on conversions, zero on capital gains). Washington (no income tax, 7 percent on gains above $278,000). |
| 4. Age gated or nothing | Conversion and gains both taxed as ordinary income. Any retirement break is locked behind 55, 59½, 62, or 65. | The other 38 states and DC, including Mississippi, Idaho, New York, Colorado, Georgia, Iowa, and California |
Tier 3 is the one nobody in this space is talking about, and it’s brand new.
Missouri became the first state with an income tax to fully exempt individual capital gains. House Bill 594, signed July 10, 2025, retroactive to the start of that tax year. Individuals subtract 100 percent of federally reported capital gains, short term and long term, from Missouri adjusted gross income.
Read that again with an early retiree’s eyes. If you live off a taxable brokerage bridge and harvest gains to fund your spending, Missouri now costs you exactly what Florida costs you. Zero. Missouri’s flat rate only bites the conversion side of your plan. For somebody whose first five years run entirely on harvested gains, Missouri quietly became one of the best states in the country for early retirement.
Your State’s Top Rate Is the Wrong Number
My position on California has always been that I’d never live there and taxes are a huge reason why. The rate is 13.3 percent at the top, and everybody knows it. While that opinion still holds during my working years, it might not be as solid during an early retirement. I ran the actual number on the same zero tax scenario from earlier, and California came out cheaper than Idaho.
| State | Top marginal rate | State income tax owed on this income |
|---|---|---|
| Texas | None | $0 |
| Illinois | 4.95 percent flat | $0 (conversions and distributions subtracted) |
| California | 13.30 percent | About $4,060 |
| Idaho | 5.30 percent flat | About $4,730 |
California’s schedule is steeply progressive. The 13.3 percent headline rate doesn’t touch you until you’re over a million dollars of income, and the entire design of early retirement is to have a low, engineered income. At roughly $120,000 of California taxable income, a joint filer never leaves the 8 percent bracket, and most of the money gets taxed at 1, 2, 4, and 6 percent on the way up.
Idaho’s flat 5.30 percent does not care that you retired. It hits the first dollar over $9,622 at the same rate it hits the millionth.
So my conclusion about California survives and my reasoning doesn’t. I still wouldn’t retire in Los Angeles, because a comparable house costs two or three times what it costs here and no tax table saves you from that. But if you’re picking a state for early retirement based on its top marginal rate, you’re reading the wrong column. Flat tax states are the ones that punish low engineered incomes. Progressive states are the ones that reward them. That’s the opposite of what everybody assumes, including me, up until I started researching for this article a week ago.
Katherine Loughead of the Tax Foundation, testifying to the Illinois legislature this April, noted that “many top earners are already leaving high tax states.” True. But top earners and early retirees are optimizing two different numbers, and the exodus advice written for one group actively misleads the other.
Moving Is Usually a Wash, and I Can Prove It on Myself
Fine, you say. Idaho charges you $4,730 a year. Texas charges nothing and you already lived there. Go back.
I ran that too.
Tax Foundation puts Texas at a 1.40 percent effective property tax rate on owner occupied housing value. Idaho sits at 0.50 percent, one of the lowest in the country. On a $500,000 house, that’s $7,000 a year in Texas against $2,500 in Idaho.
I would avoid $4,730 in state income tax by moving to Texas, but I would end up paying $4,500 in extra property tax on a comparable house.
Two hundred and thirty dollars. And Texas has a higher combined sales tax than Idaho, 8.19 percent against 6.03 percent, which eats the whole thing on about $11,000 of taxable spending. So the move is a wash or slightly negative, and I’d be uprooting my family for it.
That’s the part the relocation content never runs. No income tax does not mean no tax. It means the state collects somewhere else, usually property or sales, and those two do not shrink when your income shrinks. Your property tax bill is identical whether you earn $400,000 or engineer your way down to $98,900. Which means the value of living in a state with no income tax gets smaller exactly when you retire early, not bigger.
Somebody asked me what it would take to make me pack. On paper, something like $40,000 a year would do the trick, and I’d go without blinking. On paper. Moving isn’t just about the money, though. If moving saved me $40,000 a year while putting my daughter in a worse school district, I’d adjust my FI number or work a few more months instead. Money exists so you can live the life you want. It doesn’t make you happy, it makes happy easier to reach, and past a certain point the schools and the drive to family matter more than optimization.
Where does moving genuinely pay? When the gap is structural rather than cosmetic. A state with no income tax plus a low property tax rate, like Nevada or Wyoming or Florida, against a state that stacks a mid rate income tax on top of high property taxes. Those exist and the gap is real. But it’s a two variable comparison minimum, and running that second variable is the key.
Run Your Own Number This Week
The Tax Foundation notes that a state’s stiffest competition usually comes from other states, and that competition is why this table changes every single year. Idaho cut its rate twice in three years. Mississippi is phasing its income tax toward zero. Missouri just deleted capital gains tax entirely. Whatever you read in 2023 is stale.
Three steps, maybe ninety minutes total.
One. Take the conversion figure from your own ladder plan. If you don’t have one yet, start with the ladder versus 72(t) comparison and come back. Multiply it by your state’s rate from the table below. That’s your annual state cost, and if it’s not already in your FI number, your FI number is wrong.
Sean Mullaney, the CPA who co-wrote Tax Planning To and Through Early Retirement, sums up the whole early retirement tax game in six words. “Let’s keep our ordinary income low.” That’s the right instinct everywhere. It just does less for you in a flat tax state, because there’s no lower bracket waiting underneath you.
Two. Go to your state revenue department’s site, not a ranking page, and search for how it treats early distributions and rollovers to a Roth. Look for the word “early.” That single word is where the age gate hides. If your state has a retirement income subtraction, find out what age unlocks it and whether your account type even qualifies.
Three. Stack it against the other two costs in the same bridge year. Federal tax on the conversion, and the ACA subsidy cliff, which came back for 2026 when the enhanced premium credits expired at the end of 2025. Above 400 percent of the federal poverty level, that’s $84,600 for a married couple and $128,600 for a family of four, your premium tax credit drops to zero all at once. I used to rank those three as federal, then ACA, then state. That’s the wrong axis. ACA is the biggest possible hit and you can duck it by managing income. State tax is the most certain hit, because there’s no threshold to stay under. Rank by certainty and state tax moves up.
And if there’s ever a moment to pay for one hour of real advice, this is it. I’ve argued for years that advisors are worth paying for in two scenarios, for behavioral coaching if you’re a panic seller, and for a one time flat fee plan near retirement. State specific conversion sequencing is that second thing. I’d pay $500 for an hour with somebody I actually trusted on this, and I haven’t booked it yet, which is its own small piece of hypocrisy I’m working on.
Ten years from now your state might raise its rate or change how it treats conversions, and staying could turn out to have been the wrong call. That’s survivable. What isn’t survivable is not knowing. If you’re not tracking the rules that govern your own money, you’re not as serious about retiring early as you think you are.
The other ten leaks.
State tax is one blind spot. I wrote up the ten that quietly add years to a timeline while you feel completely responsible the whole time. Free.
All Fifty States, 2026 Rates
| State | 2026 top rate | Conversion at 40 |
|---|---|---|
| Alabama | 5.00% | Taxed |
| Alaska | None | Not taxed |
| Arizona | 2.50% | Taxed |
| Arkansas | 3.90% | Taxed |
| California | 13.30% | Taxed, progressively |
| Colorado | 4.40% | Taxed (break starts 55) |
| Connecticut | 6.99% | Taxed |
| Delaware | 6.60% | Taxed |
| Florida | None | Not taxed |
| Georgia | 5.19% | Taxed (break starts 62) |
| Hawaii | 11.00% | Taxed |
| Idaho | 5.30% | Taxed. Verified. |
| Illinois | 4.95% | Not taxed. Verified. |
| Indiana | 2.95% | Taxed |
| Iowa | 3.80% | Taxed (break starts 55) |
| Kansas | 5.58% | Taxed |
| Kentucky | 3.50% | Taxed |
| Louisiana | 3.00% | Taxed |
| Maine | 7.15% | Taxed |
| Maryland | 6.50% | Taxed. Plus 2% gains surtax above $350,000 AGI. |
| Massachusetts | 9.00% | Taxed |
| Michigan | 4.25% | Taxed (age based exemption) |
| Minnesota | 9.85% | Taxed |
| Mississippi | 4.00% | Taxed. Verified. Early distributions excluded from the exemption. |
| Missouri | 4.70% | Taxed. Capital gains 100% exempt. Verified. |
| Montana | 5.65% | Taxed |
| Nebraska | 4.55% | Taxed |
| Nevada | None | Not taxed |
| New Hampshire | None | Not taxed. Interest and dividends tax repealed as of 2025. |
| New Jersey | 10.75% | Taxed |
| New Mexico | 5.90% | Taxed |
| New York | 10.90% | Taxed (break starts 59½) |
| North Carolina | 3.99% | Taxed |
| North Dakota | 2.50% | Taxed |
| Ohio | 2.75% | Taxed |
| Oklahoma | 4.50% | Taxed |
| Oregon | 9.90% | Taxed |
| Pennsylvania | 3.07% | Conversion event not taxable. Verified. Early withdrawals are a separate question. |
| Rhode Island | 5.99% | Taxed |
| South Carolina | 6.00% | Taxed |
| South Dakota | None | Not taxed |
| Tennessee | None | Not taxed |
| Texas | None | Not taxed |
| Utah | 4.50% | Taxed |
| Vermont | 8.75% | Taxed |
| Virginia | 5.75% | Taxed |
| Washington | None on wages | Not taxed. 7% on capital gains above $278,000, 9% above $1 million. |
| West Virginia | 4.82% | Taxed |
| Wisconsin | 7.65% | Taxed |
| Wyoming | None | Not taxed |
| Washington DC | 10.75% | Taxed |
Methodology and limits. Rates come from the Tax Foundation’s State Individual Income Tax Rates and Brackets, 2026, published February 17, 2026. Federal figures come from IRS Revenue Procedure 2025-32. The conversion column reflects direct statutory or department verification for the states marked Verified. For every other state it reflects the general rule that federally taxable retirement distributions are ordinary income at the state level and that any retirement subtraction carries an age or plan retirement requirement. Confirm your own state with its revenue department before you build a plan on it. Nothing here is a substitute for state specific advice. Refresh date on this table is July 2026.
Common Questions
Does Idaho tax a Roth conversion?
Yes. Idaho taxes conversions as ordinary income at its flat 5.30 percent rate for 2026. Idaho’s Retirement Benefits Deduction does not help, because it requires you to be at least 65 and requires the income to come from federal Civil Service Retirement, the Idaho firefighters’ fund, an Idaho city police fund, or military retirement. A 401(k) or IRA never qualifies at any age.
Which states do not tax a Roth conversion ladder before 59½?
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming have no individual income tax, so a conversion costs nothing at the state level. Illinois subtracts amounts rolled over to a Roth IRA from state income with no age requirement. Pennsylvania does not treat a traditional to Roth conversion as a taxable event at all.
Does any state give you a 0 percent bracket on long term capital gains like the federal one?
Almost none. Most states with an income tax treat capital gains as ordinary income with no preferential rate and no 0 percent band, which means the federal gain harvesting strategy generates a full state tax bill in most of the country. Missouri is the standout exception. As of tax year 2025 it exempts 100 percent of individual capital gains. Washington taxes only gains, and only above a large annual deduction.
Does Mississippi tax early retirement withdrawals?
Yes, and this contradicts several ranking sites. Mississippi exempts qualified retirement income once you have met your plan’s retirement requirements. The state administrative code says plainly that early distributions do not qualify for that exemption. A conversion or withdrawal at 40 is taxed at Mississippi’s 4 percent rate for 2026.
Is it worth moving states to run a Roth conversion ladder?
Usually less than people think. Compare at least two variables, not one. Moving from Idaho to Texas saves roughly $4,730 of income tax on a typical zero federal tax year and costs roughly $4,500 more in property tax on an equivalent $500,000 house, a net benefit of about $230 before sales tax differences. Moving pays when the gap is structural, meaning no income tax combined with a low property tax rate, against a state that stacks both.
Disclosure and disclaimer. I am a mechanical engineer, not a tax professional or a financial advisor, and nothing here is individualized tax, legal, or investment advice. I write about my own strategy and my own numbers, and I sell a paid product called The Early Retirement Blueprint, so I have a financial interest in you finding this site useful. State tax law changes constantly. Verify anything here against your own state’s revenue department or a licensed professional before you act on it. Past market performance does not guarantee future results.
