Is Texas Really a Tax-Friendly State for Retirees? The Honest Answer

A few months ago, I was sitting across from a couple who had just moved to Austin from California. They were in their early 60s, both retired, and they were thrilled. Thrilled about the barbecue, thrilled about the weather, and most of all, thrilled about never paying California state income tax again. Their previous top state rate had been 13.3%. In Texas, it was zero.

Then we got to the property tax conversation.

They had just bought a $2.2M home in Westlake. Their property tax bill for the year was going to be roughly $42K. Their property tax bill in California on a home of similar value had been around $11K.

The California-to-Texas math still worked for them. On their income picture, the state income tax savings dwarfed the property tax increase by a wide margin. But the look on their faces when I walked through the annual property tax number was the same look I see on most new Texans. Nobody warned them.

Here is the honest answer to the question "is Texas really a tax-friendly state for retirees?"

Yes. And not in the way most people assume.

The short answer

Texas has no state income tax. That is real, and it matters. Your Social Security, pension, 401(k) distributions, IRA withdrawals, Roth conversions, and capital gains are all untaxed at the state level.

If you are moving from California (top rate 13.3%), New York (10.9%), or New Jersey (10.75%), that alone can save you tens of thousands of dollars per year in retirement.

But Texas gets its revenue from somewhere. And where it gets it from is the part most retirees don't plan for.

We have worked with a lot of great clients entering retirement in Texas or relocating here from out of state. The attraction of no state income tax is very real. I will be the first one to say it. I own property in Texas. The property tax bill every year is meaningfully higher than almost any other state in the country.

But the no-state-income-tax piece is still a game changer. It is why so many families and high-net-worth individuals are picking up and moving from places like California. The federal tax bill does not change when you move. The state tax bill often does.

Where Texas gets you

Property taxes

Property tax is the single biggest offset to the no-state-income-tax benefit. Texas effective property tax rates average around 1.6% to 1.8% of assessed value depending on the county. In Travis County, where Austin sits, combined rates often push north of 1.9% once you factor in school district, MUD, and city levies.

On a $1.5M home in Austin, that is roughly $27K to $30K per year in property tax. On a $3M home, you are talking $55K-plus per year. Every year. For a retiree coming from a state with 0.5% to 0.7% property tax rates on a similar home, the property tax bill can triple even as the income tax bill goes to zero.

For HNW families, this gets even more pronounced. Many of the clients we serve own multiple properties across Texas, including ranches and significant pieces of land. That stacks. And if you are trying to play the 1031 exchange game, rolling properties into new ones for tax-deferred growth, you can absolutely make the 1031 math work, but you still cannot escape the annual property tax on the new asset. You are deferring federal capital gains and you are inheriting a fresh, usually higher, property tax bill.

If you are not accounting for that every-year step-up in property taxes, especially on larger holdings, it will change your entire retirement cash flow picture.

I have been having serious conversations lately with families doing extremely well on income and assets, and telling them it might be the better play to rent instead of own when they first arrive in Texas. You avoid some of the brutal 30-year mortgage rates we are seeing right now. You avoid the property tax bill. And you give yourself 12 to 24 months to really understand where in Texas you actually want to plant roots.

I say that with some hesitation, because this is a serious buyer's market, and if you know you are looking for a 10, 20, or 30-year home, there has not been a better time in a while to get real negotiation room on price. Buying when the market flips in your favor can be powerful. I hesitate to tell anyone what is a good property and what is not. I try to meet clients where they are and back out the right answer from their actual goals.

Two things to know about the senior homestead exemption

If you are 65 or older and own your primary residence in Texas, there are two meaningful breaks worth understanding.

The first is the over-65 homestead exemption, which adds an extra $10K school district exemption on top of the standard $100K homestead exemption. More importantly, it triggers a school tax ceiling, which freezes the school portion of your property tax bill at the amount you paid the year you turned 65. Your taxes can go down if rates drop, but they cannot go up, even if your property value skyrockets.

The second is the property tax deferral, which allows homeowners 65 and older (or disabled) to defer payment of property taxes on their homestead until the home is sold or the owner passes away. The deferred taxes accrue interest, but at a lower rate than most credit lines. This is not the right tool for every retiree, but it is a legitimate cash flow strategy for the right situation, and surprisingly few homeowners know it exists.

In Travis County, you apply through the Travis Central Appraisal District. It is one of those small planning details that can save a retiree tens of thousands of dollars across a retirement lifetime, and almost nobody talks about it.

Sales tax

Texas state sales tax is 6.25%. Most metros add 2% local, bringing the combined rate to 8.25% in cities like Austin, Houston, Dallas, and San Antonio. For most day-to-day spending, this is not a game changer.

It is a game changer on the big purchases. A $100K vehicle costs you $8,250 in sales tax in Texas. In Oregon, Delaware, Montana, or New Hampshire, the sales tax on that same car is zero. For retirees making significant purchases in their first year in Texas (new car, boat, RV, furniture for the new house, landscaping, a second vehicle for the grandkids), this adds up fast.

Not a dealbreaker. But plan for it.

Franchise tax

If you retired from a W-2 job, the Texas franchise tax does not affect you.

If you retired from, or still run, a business, it probably does. Texas imposes a franchise tax on most entities with revenue above roughly $2.47M (the 2024-2025 no-tax-due threshold). Rates are 0.375% for wholesalers and retailers, and 0.75% for most other entities. For a consulting practice, a family LLC holding real estate, or a semi-retired business still throwing off meaningful revenue, this is a real line item you need to plan around.

Federal tax (the one nobody wants to hear about)

Moving to Texas saves you state income tax. It does not save you federal income tax.

Federal tax is the biggest tax most HNW retirees pay. Nothing about moving states changes that. This is actually the part I spend the most time on with new Texas arrivals, because they often assume the move solved their tax problem. It solved part of it. The bigger part is still there.

What Texas gets right

Three things Texas genuinely does better than most retirement-friendly states.

No state income tax on any form of retirement income. Pension, Social Security, IRA and 401(k) distributions, Roth conversions, capital gains, dividends, and business income all zero at the state level.

No state estate tax or inheritance tax. Your estate still faces federal estate tax above the exemption amount (currently $13.99M per person in 2025), but Texas adds nothing on top.

Strong asset protection. This one matters a lot more than people realize, especially for business owners in industries with meaningful liability exposure. Think anyone carrying high insurance loads, operating in partnerships, or exposed to civil suits or contractual disputes. Texas has one of the strongest homestead protection statutes in the country. Your primary residence is effectively protected from most creditors, subject to acreage limits. Retirement accounts are strongly protected. Certain annuity and insurance contracts are protected. For a business owner in a high-risk industry moving here, Texas is not just a tax-friendly state. It is a creditor-unfriendly state, and that is a feature, not a bug.

The federal piece nobody wants to hear, part 2

Now here is where planning actually matters.

When you remove state income tax from the equation, federal tax strategy does not become less important. It becomes the whole game.

The biggest thing we do when working with retirees on the tax problem, especially around withdrawing income from assets they have already built up, is mapping out a proper distribution schedule. How much money, from which accounts, in which order, factoring in pre-tax versus post-tax, Social Security timing, RMDs, and long-term Roth conversion windows.

In simple terms, the goal is to get as much of your own money out of your own accounts as possible, in the most tax-efficient order possible, across the rest of your life.

Everybody knows what the federal tax brackets are. Everybody knows what they have saved. That means you can do the math. Most retirees never do, and their advisor never does it for them, so they end up pulling from the wrong accounts in the wrong order and paying more federal tax than they needed to.

That is the actual game. Not the move to Texas. The federal plan that sits on top of the move to Texas.

The scenarios where Texas is a clear win

Texas is almost always the right call if you are:

A retiree with a large IRA or 401(k) you will be drawing from heavily. A retiree planning a large Roth conversion in the next few years. A business owner selling a business for a large gain. A retiree leaving a high-income-tax state like California, New York, New Jersey, Illinois, or Oregon. A family planning to stay modest on real estate relative to income.

The scenarios where it is more complicated

Texas is a closer call, sometimes a wash, if you are:

Buying a very expensive home where the annual property tax bill starts eating meaningfully into the income tax savings. Running a sizable business with Texas nexus (franchise tax). Coming from a state that was already retiree-friendly (Florida, Nevada, Wyoming, Tennessee, and South Dakota also have no state income tax). Planning to spend heavily on big-ticket purchases in the first few years of the move.

What I tell clients who are thinking about moving

When a prospect calls me and says "I'm thinking of moving from California to Austin for retirement, is it a good move?", I never answer yes or no. I walk them through five questions.

What does your income picture actually look like for the next 10 years? If you are pulling heavily from pre-tax accounts, doing large Roth conversions, or selling a business, the no-income-tax benefit is massive. If you are living on already-taxed savings with modest withdrawals, the benefit is smaller.

What is your real estate budget? A $1M house changes the math. A $5M house changes it differently. The property tax line is not a rounding error, and the bigger the house, the more the property tax eats into the income tax savings.

Are you bringing a business with you? If yes, we need to run the franchise tax numbers, and we need to think about nexus, entity structure, and whether the business should actually move with you.

What does your charitable giving look like? If you are giving meaningfully, there is a whole second layer of federal planning (DAFs, QCDs, appreciated stock, bunching) that becomes more valuable, not less, when state tax disappears.

What is your liability exposure? For business owners, this is the quiet one. Texas asset protection law is one of the strongest in the country, and it is a real reason some of our clients move here and structure their holdings here, independent of the tax picture.

If the answers to those five questions line up, the move is usually an obvious yes. If two or three of them point the wrong direction, the move is closer to a wash, and the "I'm moving to Texas to save on taxes" logic does not hold up on its own.

The bottom line

Texas is a tax-friendly state for retirees. It is not the most tax-friendly state for every retiree.

The value of a no-income-tax state depends entirely on the shape of your retirement income, your real estate plans, your business exposure, and your federal tax situation. For a lot of HNW Texans, the move pencils out beautifully. For others, the headline savings get eaten by property tax, sales tax, and franchise tax in the first three years, and they are left with the same federal tax picture they started with.

The right way to think about moving to Texas is not as a tax event. It is one input in a full retirement plan that sits on top of federal tax strategy, estate planning, investment location, and charitable giving.

If you get the plan right, Texas is an excellent place to retire. If you move here assuming the plan will take care of itself, you are going to be surprised by a property tax bill in October and an RMD in December, and neither of those surprises is the kind retirees want.

(As always, these are my thoughts and observations. This is definitely not financial advice. Do your own research!)