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Texas is more than just wide-open skies, good brisket and mild winters – it’s also one of the most financially favorable states for retirees. With no personal income tax, no estate or inheritance tax and relatively manageable sales and property taxes, the Lone Star State makes it easier for retirees to preserve their income and enjoy long-term financial flexibility.

If you’re thinking about spending your retirement years in Texas, or if you’re already living there, it’s important to understand how your Social Security and other income streams are treated under state and federal tax law.

Let’s walk through what you need to know.

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TEXAS AND SOCIAL SECURITY

Let’s start with a big win for retirees: Texas does not tax Social Security benefits.

That includes:

• Retirement benefits
• Disability benefits
• Survivor benefits
• Supplemental Security Income

Texas is one of just nine states that levy no personal income tax at all, so it doesn’t tax wages, investment income or distributions from retirement accounts either. That means your Social Security checks arrive free of state deductions, which can make a meaningful difference over time – especially when combined with smart withdrawal strategies for this and other income sources.

But while Texas won’t tax your Social Security, the federal government still might. That’s where strategic income planning becomes essential.

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TEXAS RETIREMENT INCOME

Texas’s tax-friendly approach goes well beyond Social Security. If you’re drawing income from other sources in retirement, such as:

• Traditional IRAs or 401ks
• Roth accounts
• Public or private pensions
• Annuities
• Investment earnings
• Rental properties or part-time consulting

Texas will not tax those either. This tax treatment consistency provides more predictability for retirees managing complex income streams.

Other states may offer partial exclusions or tax breaks for older adults, but they can also have complex thresholds, clawbacks or limits based on income level. Texas keeps it simple: no income tax, for anyone, at any age.

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HOW FEDERAL TAXES AFFECT YOUR SOCIAL SECURITY BENEFITS

Even though Texas doesn’t tax Social Security, the IRS might, depending on how much other income you earn in retirement. The federal government uses something called provisional income to determine how much of your Social Security is taxable.

Provisional income includes:

• Your adjusted gross income
• Any tax-free interest (like from municipal bonds)
• 50% of your Social Security benefits

Depending on your filing status and income level, up to 85% of your Social Security benefits may be taxable at ordinary income rates at the federal level.

FEDERAL TAXATION THRESHOLDS FOR SOCIAL SECURITY

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If you’re drawing income from a traditional IRA, 401k or taxable investment account, it’s likely that a portion of your Social Security benefits will be subject to federal taxes. But with thoughtful planning, you can manage your income in a way that minimizes this exposure.

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BEYOND INCOME TAX: WHAT RETIREES SHOULD EXPECT IN TEXAS

Texas’s lack of income tax is just one part of its overall tax picture. Retirees should also account for:

Sales Tax

The base state sales tax is 6.25%, but local jurisdictions can add up to 2%, bringing the maximum combined rate to 8.25% in some areas. This can affect big purchases or day-to-day spending, especially in urban areas.

Property Tax

Texas has some of the highest property tax rates in the U.S. – averaging around 1.6% of a home’s value. However, homeowners over age 65 may qualify for a senior exemption or a property tax school-zone freeze, which can help offset rising home values over time.

No Estate or Inheritance Tax

Texas does not impose an estate or inheritance tax, making it a favorable state for legacy and wealth transfer planning.

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TAX-SMART STRATEGIES TO MAKE YOUR RETIREMENT INCOME LAST LONGER

Living in Texas gives you a solid head start on tax savings, but federal taxes still apply – and without a retirement strategy, you could end up paying more than necessary. Here are five ways to manage your income more efficiently:

1. Delay Social Security to Boost Benefits and Manage Taxes

Waiting past full retirement age to begin taking Social Security can increase your benefit. It also allows you to draw from other income sources first (potentially at lower tax rates) and delay triggering the provisional income thresholds that make your benefits taxable.

2. Use Roth Accounts Strategically

Tax-free withdrawals from Roth IRAs and Roth 401ks in retirement are not included in your AGI and don’t count toward your provisional income. That makes them ideal for controlling how much of your Social Security is taxed and for managing your overall tax bracket.

3. Sequence Withdrawals Thoughtfully

The order in which you tap into taxable, tax-deferred and tax-free accounts can significantly impact your liability. A smart strategy may involve spending from taxable accounts first, then converting tax-deferred assets to Roths before Required Minimum Distributions begin.

4. Take Advantage of Qualified Charitable Distributions

If you’re over age 70 ½ and charitably inclined, QCDs let you give up to $108,000 (for the 2025 tax year) per year directly from your IRA to a qualified charity. This satisfies your RMD while keeping that income out of your federal tax calculation.

5. Consider Partial Roth Conversions Before RMD Age

Converting part of your traditional IRA to a Roth can reduce future tax exposure. Spreading conversions over several years may also help you avoid large spikes in taxable income.

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MOVING TO TEXAS FROM OUT OF STATE? MAKE IT OFFICIAL

If you’re relocating from a high-tax state like California, Illinois or New York, buying a home in Texas isn’t enough. You’ll need to establish legal residency to fully benefit from Texas’s tax policies.

Here’s what that typically involves:

• Spend at least 183 days per year in Texas
• Get a Texas driver’s license and register your vehicle
• Register to vote in Texas
• Update your address on legal documents and tax filings
• Consider filing a Declaration of Domicile, if applicable

Establishing residency is key to avoiding double taxation and clearly separating your status from your former state.

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PLANNING AHEAD FOR A TAX-EFFICIENT RETIREMENT IN TEXAS

Texas offers a strong foundation for tax-efficient retirement planning, but to fully benefit, you still need a thoughtful strategy. Federal tax rules, income timing and account withdrawal decisions can all affect how far your money goes, regardless of where you live.

Whether you’re already retired in Texas or considering a move, having a clear plan can help you reduce unnecessary taxes, increase your income flexibility and feel more confident about the years ahead.

At 91��ý Engines, our advisors can help you build a personalized financial planning strategy that is designed to take full advantage of Texas’s tax-friendly environment while staying ahead of the federal tax curve. Let’s talk about how you can make your retirement years as financially rewarding as they are fulfilling.