Iowa’s Advantage: Why It’s One of the Best States to Retire Tax-Wise

Everyone Talks About Moving — Few Do the Math

Iowa retirees don't need to chase sunshine to find tax savings — they're already living in one of the most retirement-friendly states in the country.

Yet every year, thousands of Midwesterners consider leaving for states like Florida or Texas, lured by promises of "lower taxes."

Here's what most don't realize: the math rarely works out the way they expect.

Yes, Florida and Texas have no state income tax. But higher property taxes, skyrocketing homeowners insurance, and elevated costs of living often wipe out any tax savings — and then some.

Meanwhile, Iowa quietly transformed itself. Thanks to sweeping tax reform, it's now one of the best-kept secrets in retirement planning.

Iowa’s 2023 Retirement Tax Reform

As of January 1, 2023, Iowa made a game-changing shift for retirees:

• No state tax on most retirement income, including IRA, 401(k)
• Social Security and Pension stopped being taxed beginning in 2011

For decades, Iowa was known as a middle-of-the-road tax state.

Today, it’s among the most tax-friendly in the Midwest for retirees.

That means more money stays in your pocket — without packing a single box.

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How Iowa Compares to Neighboring States

When it comes to taxes, Iowa now stacks up impressively well against its neighbors:

StateSocial Security Taxed?Retirement Income Taxed?NotesIowaNoNoBalanced property & sales taxesMinnesotaPartialYesOne of the least tax-friendly for retireesIllinoisNoNoHigher property taxesWisconsinNoYesHigher income & property taxesMissouriNoPartialExemptions phase out at higher incomes

Iowa residents enjoy tax-free retirement income, moderate property taxes, and an overall cost of living roughly 10–15% below the national average.

For many retirees, that combination outperforms states often considered “tax havens.”

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Beyond Taxes: The Real Iowa Advantage

Smart financial planning is about more than tax brackets.

It’s about lifestyle, community, and long-term affordability — and Iowa excels on all fronts.

• Affordable housing — Median home prices are well below national averages.
• Reasonable property taxes — with homestead credits and senior exemptions in many counties.
• Quality healthcare access — Iowa consistently ranks high for healthcare affordability and accessibility.
• Strong community ties — lower crime, friendly neighborhoods, and proximity to family.
• Four distinct seasons — perfect for those who love variety (and a summer trip south when needed).

“Financial peace of mind isn’t just about minimizing taxes — it’s about maximizing life.”

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When Moving Doesn’t Add Up

Let’s look at an example:

John and Mary, lifelong Cedar Falls residents, are retired with about $120,000 in annual income from IRAs, pensions, and Social Security.

They consider moving to Florida to “save on taxes.”

After running the numbers, here’s what they find:

Expense CategoryIowaFloridaState Income Tax$0$0Property Tax~$5,000~$7,200Home Insurance~$2,200~$4,000Cost of Living Index85101Healthcare AccessHighModerateFamily ProximityLocalOut-of-state travel costs

Bottom line: They'd spend about $5,000 more per year living in Florida — not counting travel to visit family or friends back in Iowa — largely due to higher property taxes, homeowners insurance, and air conditioning costs.

For many retirees, "moving for taxes" sounds appealing — until they realize it doesn't necessarily add up.

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Iowa’s Advantage in Practice: A Case Study

Jill and Bob, a couple from the Waterloo–Cedar Falls area, were also weighing their options.

After retiring, they compared staying in Iowa versus relocating to Arizona.

Their planner helped them look beyond income taxes and model total expenses.

They discovered:

• Iowa’s retirement income exemptions meant no tax on their IRAs or Social Security.
• Property taxes were manageable and predictable.
• They’d save thousands by keeping their current home and healthcare providers.
• Their children and grandkids were nearby — a priceless benefit.

With a few Roth conversions, Qualified Charitable Distributions (QCDs), and a tax-efficient withdrawal strategy, their projected lifetime taxes dropped significantly — all without leaving Iowa.

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How to Maximize Iowa’s Advantage

Even in a tax-friendly state, the biggest savings come from planning — not location.

Here are four smart moves Iowa retirees can make right now:

1️⃣ Time Your Roth Conversions Wisely

Convert in lower-income years before Required Minimum Distributions (RMDs) begin at 73 or 75.

That tax-free growth will compound for life.

2️⃣ Coordinate Withdrawals from Different Account Types

Mix withdrawals from taxable, tax-deferred, and Roth accounts to smooth income and keep your tax bracket stable.

3️⃣ Use Qualified Charitable Distributions (QCDs)

If you’re age 70½ or older, give directly from your IRA to charity.

It satisfies your RMD, doesn’t count toward taxable income, and aligns with your giving goals.

4️⃣ Review Property and Local Taxes Annually

Many Iowa counties offer homestead credits and senior exemptions.

Review your assessments annually to make sure you’re getting every available break.

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The Iowa Reality Check

Iowa’s reputation used to lag behind warmer-weather states, but the numbers tell a different story today:

✅ Tax-free retirement income

✅ Lower cost of living

✅ Affordable healthcare

✅ Proximity to family and community

Add it all up, and Iowa stands out not just as a good place to retire — but one of the best.

“You don’t have to move to optimize your retirement — you just have to plan.”

The Bottom Line

Iowa’s tax reforms, affordability, and sense of community make it a standout for retirees who value both financial stability and quality of life.

Moving might sound tempting, but for many retirees, the math — and the meaning — points to staying right where you are.

At Ignite Financial, we help Iowans create tax-smart retirement income plans that work with the state’s favorable laws — helping you keep more of what you’ve earned and enjoy more of what you love.

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Take the Next Step — It Only Takes Two Minutes

You’ve worked hard to build a life here — now it’s time to make the most of it.

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