Retirement taxes in Florida: What retirees need to know in 2025

Florida is a popular destination for retirees due to its financial benefits and warm weather. Florida offers many tax advantages for retirees, including no personal income tax, which also applies to retirement income.

As a result, income from pensions, IRAs, 401(k)s, and other retirement accounts will not be taxed by the state. However, pension income and withdrawals from traditional IRA and 401(k) accounts are still subject to taxes on the federal level. So while you may be exempt from paying state taxes, you will still owe taxes to the IRS based on your total income and tax bracket at retirement. While the absence of state taxes may lessen the overall burden of taxes in retirement, it is important to consider federal tax rates.

Another notable benefit of Florida’s retirement income tax policy is the exemption of Social Security benefits from state taxation. However, it is important to note that federal income tax regulations can still apply to these benefits.

Depending on your income and tax filing status, up to 85% of your Social Security benefits may be subject to federal income tax.¹

Capital gains from investments and dividends are exempt from state and local taxes, making it another one of the many tax benefits of retiring in Florida, and another reason why it is often considered one of the best states to retire for tax purposes.

Again, federal taxes may still apply. While your earnings are exempt from state and local taxes, you are still responsible for federal taxes on investment income. Proper tax planning and understanding of federal tax obligations are essential to manage and potentially minimize your tax liability on capital gains and dividends.

Florida’s retirement tax benefits are not the only financial benefits that are appealing to retirees — many retirees also want to take advantage of the property taxes. Property taxes in Florida are calculated based on the assessed value of your home and can vary between counties. As of 2023 (the most recent data available), the effective tax rate in Florida was 0.74%.² 

The state also offers a homestead exemption up to $50,000 if you own property in Florida and make it your permanent residence.³ This can be yet another way to help you get the most of your retirement funds.

While you may not have to worry about retirement income tax in Florida, it is important to consider other local taxes. A 6% sales tax rate still applies to most consumer goods and services. While most groceries are exempt from these sales taxes, some food made and sold for immediate consumption may still be subject to sales taxes. Sales taxes can also have varying surtaxes depending on the county and can range from 0.95% to 2%.⁴  

Prescription and nonprescription drugs are also exempt from taxes, along with medical equipment and other medical items. The Florida Department of Revenue offers an extensive list of other general grocery and medical items that are exempt from sales taxes, which also includes feminine hygiene products and diapers. 

Furthermore, there are no inheritance or estate taxes in Florida. If you plan on leaving part of your wealth behind to heirs, you may want to ensure beneficiaries on your estate plan and relevant retirement accounts are up-to-date. 

However, aside from Florida’s retirement tax advantages, retirees may also want to consider other elements that may potentially affect their retirement.

While Florida state income tax benefits for retirees may be enticing, it can be wise to also factor in other considerations such as the climate, rising insurance costs, and the state’s rapidly growing population.

Taking the time to thoroughly research potential retirement destinations can help you make a more informed decision. You might even consider a “try before you buy” approach by spending an extended period in your preferred area to get a clearer sense of whether it truly suits your lifestyle.

Although Florida is renowned for its abundant sunshine, it also contends with frequent, intense thunderstorms and a hurricane season that runs from June 1 through November 30 — peaking between mid-August and mid-October. Coastal regions, in particular, are often vulnerable to severe weather.

If you are not accustomed to managing hurricanes, tropical storms, or other potential weather disruptions, it is important to consider how these factors might affect your well-being in retirement. In addition, extreme weather increases the need for comprehensive property protection, often requiring additional insurance coverage that can add to your overall living expenses.

Due to the risk of extreme weather conditions mentioned above, insuring your property may be a bit more complicated and expensive in Florida compared to other states. If you own property and live in a hurricane-prone area, insurance companies may require homeowners insurance, flood insurance, and potentially windstorm coverage. 

Coverage and costs of insurance premiums may vary and may not fully cover hurricane damages. If you are interested in buying a house, you may first want to figure out how insurable it is to avoid annual premiums that are much higher than you anticipated. 

Therefore, while property taxes may be lower compared to other states, you may want to factor in extra insurance costs, as this could potentially affect your financial situation.

If you are considering retiring in Florida, expect to share the sunshine with many others — the state is the third most populous in the country⁵ and its population continues to grow. Lower comparative retirement taxes in Florida and its coastal charm have made it a magnet for many retirees. 

But along with fellow retirees, you’ll also encounter a steady stream of tourists, especially if you settle near major attractions like Walt Disney World, the Florida Keys, or Everglades National Park. 

If tranquility and solitude are high on your retirement wishlist, you may want to explore quieter towns less affected by tourism. On the other hand, if you thrive on social interaction and enjoy vibrant surroundings, the state’s lively atmosphere may be just what you’re looking for.

Florida’s sun-soaked beaches, tax advantages, and relatively affordable housing make it an appealing retirement destination — but not without its trade-offs. The state’s susceptibility to extreme weather, influx of tourists, and rising property insurance costs may turn some retirees away.

As with any major financial decision, it may be crucial to weigh the benefits against the potential drawbacks to determine if the state aligns with your retirement goals. Relocating later in life can be an exciting new chapter, but thoughtful planning and a clear understanding of your priorities are key to making the best choice for you.

Tax advantages in Florida can help you make the most of your retirement funds, but you should ensure you have enough to get you through a big move and still maintain a comfortable lifestyle. If you are looking to further grow your retirement funds, Raisin is here to help. The Raisin marketplace gives you access to various high-yield savings products with competitive interest rates, all with just one login. Open an account today and start earning more on your savings!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sources

 ¹https://www.irs.gov/newsroom/irs-reminds-taxpayers-their-social-security-benefits-may-be-taxable 

² https://taxfoundation.org/data/all/state/property-taxes-by-state-county/ 

³ https://floridarevenue.com/property/Documents/pt113.pdf 

⁴ https://taxfoundation.org/data/all/state/sales-tax-rates/ 

⁵ https://worldpopulationreview.com/states