Retiring in a High-Tax State: What New Jersey, New York, and California Actually Cost a Woman With $3 Million

Written by Hazel Secco, CFP®, CDFA®

Estimated reading time: 19 minutes

“Are all of her traditional IRA withdrawals NJ taxable??” That is the title of a Bogleheads thread, and the two question marks tell you how the poster felt. The answer he got was the one most people in New Jersey, New York, and California eventually learn: mostly yes, with an exclusion that is smaller than you think and disappears faster than you expect.

Retiring in a high-tax state is not the disaster the “best states to retire” rankings make it sound like, and it is not free either. For a woman with $3 million, the rate on the bracket table matters less than three specific mechanics: what each state does with IRA withdrawals, where the income cliffs sit, and what happens to the estate. Those three decide whether the state costs you $6,000 a year or $60,000, and whether moving would change that at all.

This guide runs the 2026 rules for all three states against one hypothetical portfolio, shows the dollar difference, and then answers the question underneath the search: whether a move to Florida is worth it, and when it is not.

Is New Jersey tax-friendly for retirees?

New Jersey is friendlier to retirees than its reputation, up to a point. It does not tax Social Security at all, and from age 62 it lets a single filer exclude up to $75,000 of pension and IRA income ($100,000 married filing jointly) as long as total income is $100,000 or less. Above $150,000 of total income the exclusion is zero, with no phase-out cushion: one dollar over the line removes the entire benefit for that year. Property taxes are the highest in the country, and there is an inheritance tax on anyone who is not a spouse, child, grandchild, or parent.

The exclusion tiers are where most articles get it wrong. Between $100,001 and $125,000 of total income, a single filer excludes 37.5 percent of her taxable pension and IRA income, not a fixed amount (a joint filer excludes 50 percent). Between $125,001 and $150,000 it is 18.75 percent (25 percent joint). “Total income” for this test is New Jersey gross income before the exclusion: IRA withdrawals, dividends, interest, capital gains, and any Roth conversion. It does not include Social Security, which is why a couple living on Social Security plus modest withdrawals often pays New Jersey nothing.

The rates themselves are moderate for most retirees. A single filer pays 1.4 percent on the first $20,000 and 6.37 percent on everything from $75,000 to $500,000. The 10.75 percent rate you see quoted applies above $1,000,000, which for a retiree usually means the year you sell a business or a concentrated stock position. New Jersey taxes capital gains as ordinary income and offers no standard deduction, only a $1,000 personal exemption (plus another $1,000 at 65).

Two things soften the property tax bill. Senior Freeze locks your property tax at a base year if you are 65 or older with income under $172,475 (2025 income). Stay NJ, which paid its first benefits in 2026, reimburses up to 50 percent of property tax. For the 2024 benefit year the cap was $6,500 with income under $500,000; for the 2025 benefit year, payable in 2027, the income limit was cut to $200,000 with a tiered maximum of $6,500, $5,000, or $4,000. At $3 million of assets most of my clients qualify for Stay NJ only in the years they keep taxable income low, which turns out to be the same years the retirement income exclusion works. That is not a coincidence, and it is the planning window I describe below.

How does New York tax retirement income?

New York exempts Social Security and government pensions entirely, then taxes everything else above a $20,000 per-person pension and IRA exclusion at rates that, for 2026, run from 3.9 percent to 6.85 percent on income up to $1,077,550 for a single filer. The $20,000 exclusion has not changed since 1981 and is available from age 59½. New York City residents pay an additional 3.078 to 3.876 percent. The state estate tax starts at $7,350,000 in 2026 and has a cliff: an estate more than 5 percent over that line loses the exemption entirely.

For 2026 the legislature cut the bottom five brackets by a tenth of a point, and they drop another tenth in 2027. The middle of the schedule is where a retiree with $3 million lives: 5.4 percent from $13,900 to $80,650 of taxable income, 5.9 percent to $215,400, then 6.85 percent. Above $107,650 of New York adjusted gross income, a “tax benefit recapture” gradually takes back the value of the lower brackets, so the effective rate flattens toward the top bracket you are in. IRA withdrawals beyond the $20,000 exclusion are taxed in full. So are Roth conversions, though a qualified Roth withdrawal later is tax-free in New York as it is federally.

The estate cliff is the New York rule that matters most at your level, even if $3 million feels far from $7.35 million. Add a Manhattan or Westchester home, the growth on a $1.8 million IRA over twenty years, and life insurance payable to your estate, and a single woman in her early sixties can reach the line without noticing. At 105 percent of the exemption, $7,717,500 in 2026, the entire estate is taxed from the first dollar at rates that reach 16 percent. New York has no gift tax, but gifts within three years of death are added back.

How does California tax retirement income?

California taxes every dollar of IRA, 401(k), and pension income as ordinary income, with no age-based exclusion of any kind, at rates that reach 9.3 percent by $72,724 of taxable income for a single filer (2025 schedule, the latest published) and 12.3 percent above $742,953. A 1 percent Behavioral Health Services Tax (formerly the Mental Health Services Tax) applies to taxable income above $1,000,000, for a top rate of 13.3 percent. Social Security is exempt. California has no estate or inheritance tax, and Proposition 13 holds property tax at 1 percent of assessed value plus local bonds, with assessed value capped at 2 percent growth a year.

The California trade is the opposite of New Jersey’s. Annual income tax is the highest of the three for a retiree drawing six figures from an IRA, because the 9.3 percent bracket starts so low and the standard deduction is only $5,706. But a woman who bought her home in 1998 pays property tax on something close to the 1998 price, and when she dies the state takes nothing. Proposition 19 lets homeowners 55 and older carry that low assessed value to a replacement home anywhere in the state, up to three times.

Two California rules catch high-net-worth retirees who think they have left. There is no bright-line day count; the Franchise Tax Board applies a “closest connections” test, presumes residency at more than nine months in the state, and will not issue a written opinion on your status. And the state can still tax income you earned while working in California, such as stock options and some deferred compensation, after you move, so the exit has to be planned years ahead, not the week of the closing.

How do the three states compare side by side?

Rule (2026 unless noted)	New Jersey	New York State	California
Social Security	Exempt	Exempt	Exempt
IRA / 401(k) / pension income	Up to $75,000 single / $100,000 joint excluded at 62+ if total income is $100,000 or less; partial to $150,000; nothing above	$20,000 per person excluded at 59½; government pensions fully exempt; rest taxed	Fully taxed, no exclusion
Rate on the next dollar for a single filer with $130,000 of taxable income	6.37%	5.9% (plus 3.876% in NYC)	9.3%
Top rate	10.75% above $1,000,000	10.9% above $25,000,000 (9.65% above $1,077,550)	13.3% above $1,000,000 (12.3% plus 1%)
Capital gains	Ordinary income	Ordinary income	Ordinary income
Standard deduction / exemption	None; $1,000 exemption ($2,000 at 65)	$8,000 single / $16,050 joint	$5,706 single / $11,412 joint (2025)
Estate or inheritance tax	No estate tax; inheritance tax of 11% to 16% on non-Class A heirs (siblings, nieces, partners, friends)	Estate tax above $7,350,000 with a cliff at 105%; top rate 16%	None
Property tax relief	Senior Freeze; Stay NJ up to 50% of the bill, capped and income-tested	STAR and Enhanced STAR	Proposition 13; Proposition 19 base transfer at 55+

Federal rules sit on top of all three. The 2026 SALT deduction cap is $40,400 for modified AGI under $505,000, which for most of my New Jersey clients means the property tax and state income tax are deductible again if they itemize. The new $6,000 senior deduction starts at 65 and phases out at 6 percent of MAGI above $75,000 single ($150,000 joint), so it is gone by $175,000. And Medicare IRMAA, which uses your return from two years earlier, raises the Part B premium from $202.90 to between $284 and $690 a month once MAGI passes $109,000 single ($218,000 joint). I keep the full set in the 2026 planning numbers guide.

What does a $3 million portfolio actually pay in each state?

Diane is a hypothetical composite. She is 62, single, retired this year from a pharmaceutical company, and has $3 million invested: $1.8 million in a traditional IRA and old 401(k), $800,000 in a taxable brokerage account, and $400,000 in a Roth IRA. She owns her home outright and is deferring Social Security to 70. In 2026 she withdraws $90,000 from the IRA, and her brokerage account produces $25,000 of qualified dividends, $25,000 of long-term gains, and $8,000 of interest. Her income for tax purposes is $148,000.

Her federal tax is the same wherever she lives: about $20,230 (the $98,000 of ordinary income lands mostly in the 12 and 22 percent brackets after the $16,100 standard deduction, and the $50,000 of dividends and gains is taxed at 15 percent). No net investment income tax, because she is under $200,000. What changes is the state line.

2026 state income tax on Diane’s $148,000	Amount	How it gets there
New Jersey (Hoboken)	About $6,160	Total income of $148,000 is in the $125,001 to $150,000 tier, so 18.75% of the $90,000 IRA withdrawal ($16,875) is excluded; remaining $130,125 taxed at 1.4% to 6.37%
New York State (Westchester)	About $6,740	$20,000 pension exclusion, $8,000 standard deduction, $120,000 taxed at 3.9% to 5.9%, plus tax benefit recapture above $107,650 of NY AGI
New York City	About $11,270	Same state tax plus roughly $4,530 of city tax on $120,000
California (Bay Area)	About $9,520	No exclusion, $5,706 standard deduction, $142,294 taxed at 1% to 9.3%, less the personal exemption credit
Florida	$0	No state income tax

Read the table two ways. First, the spread between Florida and the most expensive option, Manhattan, is about $11,000 a year, or roughly 0.4 percent of a $3 million portfolio. That is real money, and it compounds, but it is not the 10 percent haircut the rankings imply. Second, New Jersey is the cheapest of the three high-tax states for Diane this year, and only because she stayed under $150,000. Take the withdrawal to $94,000 instead of $90,000 and her New Jersey tax rises to about $7,490: $4,000 of extra income, $1,330 of extra tax, a 33 percent marginal rate on those specific dollars.

Property tax is the number the income tax comparison hides. New Jersey’s average residential bill was $10,570 in 2025 as reported from state Department of Community Affairs data, and a Hoboken condo or a house in Summit runs well above it. Diane’s Bay Area counterpart, if she bought decades ago, may pay a third of that on a home worth three times as much. Florida’s property tax and homeowners insurance are not zero either, and I have watched more than one client’s “no income tax” savings get absorbed by the insurance renewal.

Why the New Jersey $150,000 cliff matters more than the rate

The New Jersey exclusion is a window, not a permanent feature. It opens at 62, it closes the first year total income passes $150,000, and for a woman with a $1.8 million IRA, required minimum distributions will close it for good. If Diane’s IRA grows at 5 percent, it is about $3.4 million when her RMDs begin at 75 (she was born after 1959), and the first RMD alone is roughly $138,000. Add dividends and interest and she is over $150,000 every year for the rest of her life, exclusion gone, with New Jersey taking 6.37 percent of every withdrawal.

That is the argument for Roth conversions in her sixties, and here is the catch: a conversion counts as total income for the $150,000 test. Convert $80,000 in a year when she also withdraws $90,000 and her total income is $218,000, the exclusion is zero, and New Jersey taxes the full $170,000 of retirement income at up to 6.37 percent. So the choice is not “convert or don’t.” It is which years to spend inside the exclusion window taking cheap withdrawals, and which years to give up the exclusion on purpose and convert a large amount, ideally in the low-income years before Social Security starts at 70. Whether a Roth conversion is right for you in New Jersey is a three-tax question: federal bracket, state exclusion, and IRMAA two years later.

One New Jersey detail in your favor: the state never allowed a deduction for traditional IRA contributions, so contributions you made while living here are New Jersey basis, and that portion of each withdrawal or conversion is not taxed by the state (401(k) contributions after 1983 were deductible, so they do not count). Most people have no record of it. If you contributed to an IRA in the 1990s and 2000s as a New Jersey resident, reconstructing that basis is worth a few hours of your CPA’s time before the first large conversion, not after.

The same window logic applies to New York, where the $20,000 exclusion is small but permanent, and to the New York estate cliff, where the conversion strategy runs in reverse: paying tax now from the taxable account shrinks the estate, which is exactly what you want when a $7.35 million line with a cliff is in view. This is the kind of sequencing I cover in the Executive Woman’s Tax Playbook: the order in which you draw from the IRA, the brokerage account, and the Roth is a bigger lever than the state you do it in.

Should I move to a low-tax state when I retire?

Move if the numbers, the audit exposure, and your life all point the same way; otherwise stay and plan the withdrawals. For Diane, leaving Hoboken for Florida saves roughly $6,000 to $7,500 of state income tax a year at her current income, more once RMDs push her over the New Jersey cliff. Against that: the cost of the move itself, the loss of Senior Freeze and Stay NJ, Florida homeowners insurance, and the possibility that New Jersey or New York does not agree she left.

New York treats you as a resident if you keep a permanent place of abode in the state for substantially all of the year and spend 184 or more days there, and any part of a day counts. When you claim you changed domicile, the burden is yours to prove it by clear and convincing evidence, and the state’s audit guidelines look at your home, your business involvement, your time, your “near and dear” items, and where your family is. California has no day count at all and decides residency on the strength of your ties. A woman who keeps the Manhattan apartment, the grandchildren, the doctors, and the club membership while spending 190 days in Naples has not moved in the eyes of either state, and the tax bill arrives with interest.

When it is not worth it: your income is under the New Jersey cliff and likely to stay there, your heirs are Class A (children and grandchildren), and your estate is comfortably under the New York line. In that case the state costs Diane about $6,000 a year, and the same $6,000 is available from a better withdrawal sequence without moving anywhere. When it is worth it: RMDs or a pension will put you over $150,000 permanently, your heirs are nieces, nephews, or a partner (New Jersey inheritance tax of 15 to 16 percent on Class D beneficiaries), or you are a New Yorker whose estate is heading for the cliff. Then the savings are five or six figures a year, and the move deserves a real plan, including the year before you leave. If you split time between New Jersey and New York already, that cross-border planning is something we do for clients every year.

What to Do This Week

Find your state’s number on last year’s return. New Jersey: total income on line 27 of the NJ-1040 and the exclusion on line 28a. New York: line 29 of the IT-201 (the $20,000). California: taxable income on line 19 of the 540. Know whether you used the exclusion, missed it, or blew through the cliff.

Project your total income at 75. Take today’s IRA balance, grow it at 5 percent to your RMD age, divide by the IRS factor for that age (24.6 at 75), and add your dividends and interest. If the answer is over $150,000 in New Jersey, the exclusion window is your sixties, and every year in it should be used deliberately.

Decide which years are conversion years and which are exclusion years. They cannot be the same year in New Jersey. Map 62 to 70, before Social Security starts, and assign each year one job.

Check who inherits. If any beneficiary is a sibling, niece, nephew, partner, or friend, price the New Jersey inheritance tax on their share now, while a change of ownership, a life insurance beneficiary designation, or a lifetime gift can still fix it.

If you are considering a move, start the domicile file this year. Driver’s license, voter registration, doctors, safe deposit box, the days log. New York and California audit these; the file is the defense.

Frequently Asked Questions

Does New Jersey tax Social Security?

No. Social Security benefits are exempt from New Jersey gross income tax and do not count toward the $100,000 or $150,000 income tests for the retirement income exclusion. They do count as income for Senior Freeze and Stay NJ eligibility, which use a broader definition that also includes tax-exempt interest and Roth withdrawals.

Does a Roth conversion count toward New Jersey’s $150,000 limit?

Yes. The taxable amount of a conversion is reported as pension income on the NJ-1040 and flows into total income for the exclusion test. A conversion large enough to push total income over $150,000 eliminates the entire retirement income exclusion for that year, so conversion years and exclusion years should be planned separately.

Does New York tax IRA withdrawals?

Yes, beyond a $20,000 per-person exclusion available from age 59½. IRA, 401(k), and private pension income above that amount is taxed at New York’s regular rates, which for 2026 run from 3.9 percent to 10.9 percent, plus city tax for New York City residents. Pensions from New York State, local, and federal government employment are fully exempt.

Does California tax Roth IRA withdrawals?

Qualified Roth withdrawals are tax-free in California, matching federal treatment. What California does tax, in full and with no age-based exclusion, is every traditional IRA, 401(k), and pension distribution, and the taxable amount of any Roth conversion in the year you convert. Social Security remains exempt.

What is the New York estate tax cliff?

New York’s estate tax exemption is $7,350,000 for deaths in 2026. If the taxable estate exceeds that amount by more than 5 percent, so above $7,717,500, the exemption disappears and the entire estate is taxed from the first dollar at rates up to 16 percent. Gifts made within three years of death are added back to the estate.

Is Stay NJ still $6,500 with a $500,000 income limit?

Only for the 2024 benefit year, which was paid in installments during 2026. For the 2025 benefit year, payable in 2027, the state budget lowered the income limit to $200,000 and set the maximum at $6,500 for income up to $100,000, $5,000 to $150,000, and $4,000 to $200,000. The 2025 application deadline is November 2, 2026.

How ready is your plan for this?

The state you retire in is one input. The withdrawal order, the conversion years, and the estate line are the rest. My Retirement Readiness Assessment takes about ten minutes and shows you where your plan is solid and where it is exposed, including the tax side.

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Hazel Secco, CFP®, CDFA®, is the founder of Align Financial Solutions, a fee-only fiduciary wealth management firm in Hoboken, New Jersey, serving high-net-worth women with complex financial lives: retirement, equity compensation, tax, and estate as one coordinated plan.

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Advisory services are offered through Align Financial Solutions LLC, an investment advisor in the State of New Jersey. This article is for educational purposes only and is not personalized tax, legal, or investment advice. Tax figures are for tax year 2026 where published and 2025 where 2026 figures were not yet released (California brackets and standard deduction), and are subject to change. Diane is a hypothetical composite, not a real client, and her figures are illustrative. Consult a qualified tax professional about your own situation.

Sources

1. New Jersey Division of Taxation, Retirement Income Exclusions (tiers, age 62, income tests): https://www.nj.gov/treasury/taxation/njit7.shtml
2. New Jersey Division of Taxation, 2025 NJ-1040 instructions (exempt income, Roth conversions on line 20a, total income line 27): https://www.nj.gov/treasury/taxation/pdf/current/1040i.pdf
3. New Jersey Division of Taxation, Tax Rate Schedules, 2020 and after: https://www.nj.gov/treasury/taxation/pdf/current/njtaxratesch.pdf
4. New Jersey Division of Taxation, Inheritance and Estate Tax (estate tax repealed for deaths on or after January 1, 2018): https://www.nj.gov/treasury/taxation/inheritance-estate/inheritance.shtml
5. New Jersey Division of Taxation, Inheritance Tax rates by beneficiary class: https://www.nj.gov/treasury/taxation/inheritance-estate/tax-rates.shtml
6. New Jersey Division of Taxation, Senior Freeze eligibility (2025 income limit $172,475): https://www.nj.gov/treasury/taxation/ptr/eligibility.shtml
7. New Jersey Division of Taxation, Stay NJ (2025 benefit year income limit and tiered maximums): https://www.nj.gov/treasury/taxation/staynj/index.shtml
8. New Jersey Department of the Treasury, first Stay NJ payments, February 2026: https://www.nj.gov/treasury/news/2026/02042026.shtml
9. New Jersey Department of Community Affairs, 2025 property tax tables (average residential bill as reported): https://www.nj.gov/dca/dlgs/resources/Property_Tax_info.shtml
10. New York State Department of Taxation and Finance, Information for seniors ($20,000 pension exclusion, government pensions, Social Security): https://www.tax.ny.gov/pit/file/information_for_seniors.htm
11. New York Tax Law § 601, 2026 rate schedules: https://www.nysenate.gov/legislation/laws/TAX/601
12. New York State Department of Taxation and Finance, 2026 Form IT-2105-I (state and NYC rate schedules): https://www.tax.ny.gov/pdf/current_forms/it/it2105i.pdf
13. New York State Department of Taxation and Finance, Estate tax basic exclusion amounts ($7,350,000 for 2026): https://www.tax.ny.gov/pit/estate/etidx.htm
14. New York Tax Law § 952, estate tax rates and the 105 percent cliff: https://www.nysenate.gov/legislation/laws/TAX/952
15. New York State Department of Taxation and Finance, Income tax definitions (statutory residency, 184 days): https://www.tax.ny.gov/pit/file/pit_definitions.htm
16. New York State Department of Taxation and Finance, Nonresident Audit Guidelines (2021): https://www.tax.ny.gov/pdf/2021/misc/nonresident-audit-guidelines-2021.pdf
17. California Franchise Tax Board, Publication 1005, Pension and Annuity Guidelines (2025): https://www.ftb.ca.gov/forms/2025/2025-1005-publication.pdf
18. California Franchise Tax Board, 2025 Tax Rate Schedules: https://www.ftb.ca.gov/forms/2025/2025-540-tax-rate-schedules.pdf
19. California Franchise Tax Board, 2026 Form 540-ES instructions (Behavioral Health Services Tax, standard deduction): https://www.ftb.ca.gov/forms/2026/2026-540-es-instructions.html
20. California Franchise Tax Board, Publication 1031, Guidelines for Determining Resident Status (2025): https://www.ftb.ca.gov/forms/2025/2025-1031-publication.pdf
21. California State Board of Equalization, Publication 29, California Property Tax: An Overview (Proposition 13): https://www.boe.ca.gov/proptaxes/pdf/pub29.pdf
22. California State Controller, Estate tax and inheritance tax status: https://sco.ca.gov/ardtax_estate_tax.html
23. IRS, Rev. Proc. 2025-32, 2026 inflation adjustments (brackets, standard deduction, estate exclusion): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
24. 26 U.S. Code § 151(d)(5), senior deduction (Pub. L. 119-21): https://www.law.cornell.edu/uscode/text/26/151
25. 26 U.S. Code § 164(b), SALT deduction limitation for 2026: https://www.law.cornell.edu/uscode/text/26/164
26. CMS, 2026 Medicare Parts A and B premiums and deductibles (IRMAA tiers): https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
27. IRS, Retirement topics, required minimum distributions (age 75 for those born in 1960 or later; Uniform Lifetime Table): https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
28. Bogleheads forum thread, “Are all of her traditional IRA withdrawals NJ taxable??”: https://www.bogleheads.org/forum/viewtopic.php?t=401828