Retiring in Arizona: What the State Actually Takes

On the ordinary retirement profile — $34,000 of Social Security and $61,000 of plan distributions — Arizona takes $1,131 a year in state income tax.

That is the number people compare, and it is the smallest of three. Property tax adds about $2,152 on the state's $448,407 median home, and insurance another $2,135. The three together come to $5,418, placing Arizona 4th of 50.

A note before you start. This is general education, not tax advice. Every Arizona figure comes from this site's own fifty-state income-tax dataset and its retirement tax engine, computed for a single filer aged 70 unless stated otherwise; property tax, median home price and insurance figures come from the site's core state dataset. Rates are for tax year 2025. Property tax is assessed locally in most states, so the effective rate here is a statewide figure rather than your county's.

1. What Arizona takes from retirement income

On Social Security. Fully exempt, with no age condition and no income threshold. A.R.S. 43-1022(10) subtracts from Arizona gross income 'the amount included in federal adjusted gross income pursuant to section 86 of the internal revenue code, relating to taxation of social security and railroad retirement benefits' — so whatever portion of benefits the federal return taxes, Arizona backs out in full. Railroad Retirement Tier 1 and Tier 2 benefits are excluded on the same authority, confirmed in the 2025 Form 140 instructions.

On 401(k) and IRA distributions. Fully taxable at the 2.5% flat rate. There is no general exclusion for 401(k), 403(b) or traditional IRA distributions, no age trigger, and no income limit. This is worth stating flatly because Arizona is often described as retiree-friendly on the strength of its Social Security exemption and its unlimited military pension exemption — neither of which touches a private-sector 401(k). Arizona's only pension subtractions are source-specific (US government and Arizona state or local service, and military retirement) rather than plan-type specific, so the plan a private-sector worker actually has is the one Arizona does not relieve. The saving grace is the rate: at 2.5% flat, a fully taxed distribution still costs less in Arizona than a partially excluded one does in most graduated-rate states.

2. The rule that decides your Arizona bill

Three genuinely different answers, which is exactly the case this field exists to prevent collapsing. Private pension: fully taxable, no subtraction of any kind. Public pension: a $2,500 subtraction under A.R.S. 43-1022(2), 'Benefits, annuities and pensions in an amount totaling not more than $2,500' — and the eligibility is narrower than 'government pension' suggests. It reaches United States Government service retirement and disability plans and Arizona state and local plans only. An out-of-state government pension does not qualify: a retired California or Illinois state employee who moves to Arizona gets nothing under this provision. The subtraction is per person — the 2025 Form 140 instructions for line 29a state that if both spouses receive such pension income, each spouse may subtract the amount received or $2,500, whichever is less — which is why the married-joint figure above is $5,000.

Arizona's headline retiree benefits — a full Social Security exemption and an uncapped military pension exemption — do not touch the 401(k) or IRA that most private-sector retirees actually live on, which remains fully taxable.

The $2,500 public pension subtraction is restricted to federal and Arizona state or local service; an out-of-state government pension gets nothing.

3. What Arizona charges at three income levels

The same state, three retirements. All figures are for a single filer aged 70.

The marginal rate at the typical profile is 2.5%. That is what an extra dollar of distribution costs — a larger number than the 1.2% effective rate, and the one that matters when deciding how much to withdraw.

A married couple with $48,000 of Social Security and $62,000 of distributions pays $762.

4. Property tax, and why it lands harder in retirement

An effective rate of 0.5% on the state's $448,407 median home is about $2,152 a year.

For a retiree this is a harder cost than income tax, and the reason is structural: property tax is levied on the house, while retirement income falls. A bill sized to a working income arrives every year after the income has gone.

It is also assessed locally almost everywhere, so a statewide effective rate conceals real variation between counties. Treat the figure above as the state's shape rather than as your bill.

Arizona does have a homestead provision, and it is the one lever on this line worth understanding.

Arizona's homestead exemption under A.R.S. §33-1101 is not a property-tax reduction — it is a creditor/judgment-protection exemption that shields a set dollar amount of equity in a person's primary residence (a house, condo/co-op, mobile home, or similar dwelling) from attachment, execution, and forced sale by most creditors. The statutory base was raised to $400,000 effective January 1, 2022 (up from $150,000) and has since been indexed annually to the Consumer Price Index each January 1, rounded up to the nearest $100; multiple current legal sources (JacksonWhite Law, RJP Estate Planning, US Bankruptcy Help) put the 2026 protected amount at approximately $437,600. It is automatic — no filing/application is required to claim it, unlike some other states' homestead programs — but it does not reduce the annual property tax bill.

Two things about homestead rules catch people out after a move. They almost always require the property to be your primary residence, which a snowbird splitting the year has to be able to demonstrate. And several states require an application to the county rather than granting it automatically — a benefit you qualify for and never claimed is worth nothing.

5. Insurance, the line nobody prices

Average home insurance in Arizona: $2,135 a year — 19th cheapest of the fifty states.

This is the line almost no retirement comparison includes, and across the country it varies more than income tax does: from Hawaii's $900 to Florida's $8,375, a ninefold spread.

For a retiree it behaves like a second property tax. It rises independently of income, a fixed-income household absorbs the whole increase, and it is a condition of the mortgage if you still have one.

6. What retiring in Arizona actually costs

Income tax on the typical retirement profile, plus property tax and insurance on each state's own median home. Arizona is shown against its own neighbours in the ranking, and against the extremes.

Arizona comes to $5,418, 4th of 50.

Income tax is 21% of that total. It is the line every comparison leads with and, here, not the largest of the three.

One large caveat, and it matters. Each row uses that state's own median home, and those differ a great deal. So this compares the typical house in each state, not the same house in each state — buying below a state's median improves its figure materially.

7. Whose pension it is changes the bill

Arizona does not tax all pensions the same way. The same $50,000 costs $856 if it is a private employer pension and $794 if it is a government one. Three genuinely different answers, which is exactly the case this field exists to prevent collapsing. Private pension: fully taxable, no subtraction of any kind. Public pension: a $2,500 subtraction under A.R.S. 43-1022(2), 'Benefits, annuities and pensions in an amount totaling not more than $2,500' — and the eligibility is narrower than 'government pension' suggests. It reaches United States Government service retirement and disability plans and Arizona state and local plans only. An out-of-state government pension does not qualify: a retired California or Illinois state employee who moves to Arizona gets nothing under this provision. The subtraction is per person — the 2025 Form 140 instructions for line 29a state that if both spouses receive such pension income, each spouse may subtract the amount received or $2,500, whichever is less — which is why the married-joint figure above is $5,000. This is the distinction most published comparisons flatten. A state described as exempting pension income may exempt only the government kind — and a private-sector career is the case most states treat least generously.

8. What a Roth conversion costs in Arizona

Converting $50,000 to a Roth costs an extra $1,250 in Arizona tax — 2.5 cents on the dollar.

These are computed, not read off the bracket table, which matters because a conversion large enough to be worth making usually leaves the bracket it started in.

The state's share is the part you can move. Convert in a year you are resident somewhere with no income tax and it is zero; convert here and it is 2.5%. The federal tax is due either way.

9. What part-time work costs here

$20,000 of part-time work costs an extra $500 in Arizona tax — an effective 2.5% on the earnings.

Compare that with the 2.5% a Roth conversion costs. The state treats the two identically, which keeps the decision a non-tax one.

Two federal rules apply on top and neither depends on your state. Earnings can raise the taxable share of Social Security, and claiming before full retirement age exposes you to the federal earnings test.

10. The order to draw your accounts in

The order you draw accounts in is worth real money, and the right order depends on the state.

Arizona applies the same treatment whenever you withdraw, so the order is a federal question rather than a state one — with the exception that the marginal rate is 2.5%, and a year of unusually high withdrawals pays that on the excess.

Smoothing withdrawals across years therefore beats lumping them, modestly. Take a large one-off distribution in a single year and it climbs the bracket schedule; spread the same amount over three and more of it stays low.

Required minimum distributions overrule all of this from 73 onward. Once they begin you must take the calculated amount whether the order suits you or not, which is the argument for drawing down or converting the pre-tax balance in the years before.

11. Or move across the state line

For most people the real alternative to Arizona is not Wyoming — it is the state on the other side of the line, near the same family, the same doctors and the same weather.

Nevada is the cheapest of the group at $4,514, $904 below Arizona. Whether that is worth a move is a question about your life rather than your spreadsheet — but it is the comparison worth running, because it is the one you could actually act on.

One thing this table cannot show is the county. Property tax is set locally, and the spread inside a single state is routinely wider than the gap between two neighbouring states. A border move to a cheaper state and an expensive county can leave you worse off.

12. If you are moving to Arizona from somewhere else

The eight most populous states people leave, measured against Arizona on the same three lines.

Arizona is cheaper than 8 of these eight. That is the case for the move, on these lines.

A move is not free, and this table does not price it. Transaction costs on both houses run to several per cent of the sale price, and at typical values that is often more than the first two or three years of the saving.

Arizona charges no transfer tax on the purchase, which is one closing cost you will not meet here and do meet in most states. Closing costs here run about 2% to 5% of the price — $8,968 to $22,420 on the median home, which is the real entry fee for the annual saving this article has been describing.

13. What Arizona does not exempt you from

The federal system, entirely. This is the commonest misunderstanding about state retirement taxation, and it is worth stating plainly.

Required minimum distributions still apply. The amount is federal — your prior-year balance divided by an IRS life expectancy factor — and identical in all fifty states. A state changes what the distribution costs you, not whether you must take it.

Social Security is still federally taxable, on the federal provisional-income calculation, whatever your state does with it.

IRMAA still applies, with its two-year lag. A large conversion or distribution raises a Medicare premium two years later regardless of address.

And capital gains are still federally taxed. What Arizona adds on top is a separate question from what the federal system takes.

14. Establishing that you actually live here

Any state tax advantage is worth nothing until Arizona is your domicile, and the state you left may disagree about when that happened.

High-tax states audit departing residents. The question is not whether you own a home here; it is whether you genuinely abandoned the old domicile. Days spent in each state, voter registration, vehicle registration, where your doctors are and where you claim a homestead all bear on it.

The snowbird case is the risky one. Splitting the year between two states while keeping a home in both is exactly the profile a residency audit is built for. If a plan depends on the saving, count the days from the first year rather than reconstructing them afterwards.

15. Who Arizona actually suits

A military retiree, whose pension is exempt here while a private one is not.

Someone with a government pension, which this state treats better than a private one of the same size.

It suits an affluent retiree least. At the affluent profile the bill is $3,106, and whatever exclusion helps a modest income has stopped helping by then.

16. What to check before you decide

Get your county's actual property tax rate, not the state average. Property tax is levied locally almost everywhere, and the spread inside a state is often wider than the spread between states.

Get a real insurance quote on a real address. $2,135 is the state average; construction, roof age and exposure move it a long way.

Work out your own income tax rather than using the profile above. $95,000 split one way is not $95,000 split another, and in Arizona the mix between Social Security and distributions changes the answer.

And check what your current state actually charges you before assuming it is worse. On these three lines the ranking surprises people in both directions.

Frequently asked questions

Does Arizona tax Social Security? No. Fully exempt, with no age condition and no income threshold. A.R.S. 43-1022(10) subtracts from Arizona gross income 'the amount included in federal adjusted gross income pursuant to section 86 of the internal revenue code, relating to taxation of social security and railroad retirement benefits' — so whatever portion of benefits the federal return taxes, Arizona backs out in full. Railroad Retirement Tier 1 and Tier 2 benefits are excluded on the same authority, confirmed in the 2025 Form 140 instructions.

Does Arizona tax 401(k) or IRA withdrawals? Fully taxable at the 2.5% flat rate. There is no general exclusion for 401(k), 403(b) or traditional IRA distributions, no age trigger, and no income limit. This is worth stating flatly because Arizona is often described as retiree-friendly on the strength of its Social Security exemption and its unlimited military pension exemption — neither of which touches a private-sector 401(k). Arizona's only pension subtractions are source-specific (US government and Arizona state or local service, and military retirement) rather than plan-type specific, so the plan a private-sector worker actually has is the one Arizona does not relieve.

What about pensions — private, government, or military? A $50,000 pension costs $856 if private, $794 if a government pension, and $0 if military retired pay. Those differences are the state's own policy, not an accident of the arithmetic.

What does retiring in Arizona actually cost? Income tax of $1,131 on the typical profile, plus about $2,152 of property tax and $2,135 of insurance on the median home — $5,418, which is 4th of 50.

Is Arizona a cheap state to retire in? On these three lines it ranks 4th of 50. Whether that makes it cheap for you depends far more on the house than on the tax code.

What does a Roth conversion cost in Arizona? An extra $1,250 in state tax on $50,000 converted, and $2,500 on $100,000. That is 2.5% of the amount converted, on top of the federal tax.

Does part-time work get taxed differently from my 401(k) withdrawals? $20,000 of part-time earnings costs $500 in state tax, an effective 2.5%.

Would a neighbouring state be cheaper than Arizona? Nevada is the cheapest of Arizona and its neighbours at $4,514 against Arizona's $5,418.

Do required minimum distributions change if I move here? No. The required amount is a federal calculation and identical in every state. What changes is what the distribution costs once taken.

Does this article include local income tax? No local income tax applies to retirement income in Arizona on the figures used here.

Will Arizona's treatment still apply in ten years? State legislatures revise retirement taxation regularly — several states have changed theirs in the past three years. Figures here are for tax year 2026 and are worth re-checking before a move.

What to do next

Two numbers decide this and neither is the one in the headline: your county's actual property tax rate, and a real insurance quote on a real address.

• Retirement state tax calculator — what any state charges on your income, cited per state
• RMD calculator — the distribution you must take, which no state changes
• Home insurance premium estimator — the line this article says decides it
• The Relocation Tax Playbook — establishing domicile, and the states that contest it