Retirement Planning in Washington

Retiring in a state with no income tax

For retirees, Washington’s chief attraction is easy to state: the state does not tax Social Security, pensions, annuities or withdrawals from IRAs and 401(k) plans. That leaves only the federal government to tax retirement income. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 16.6 percent of Washington residents are 65 or older and about 63.8 percent of homes are owner occupied. The median home is valued near $564,600, one of the higher figures in the country, which has two effects. Retirees who bought decades ago often hold substantial equity. And newcomers face a steep price of entry.

Being tax-free on income does not mean tax-free. Sales tax, property tax and the estate tax fill the gap, and a thoughtful plan accounts for each.

What changes when only the federal government taxes income

With no state tax to worry about, retirees can focus on federal brackets, the taxation of Social Security benefits and Medicare premium surcharges tied to income. That shifts the usual planning questions. There is no need to time withdrawals around a state exclusion or to compare the state treatment of different income types. Roth conversions have a simpler tradeoff, since the only cost is federal tax today versus federal tax later. For retirees who moved from a high-tax state, a useful move is to wait until you are a Washington resident before realizing large gains, taking a lump-sum pension or doing big Roth conversions, if the timing is flexible. Confirm the details of your former state’s rules with a tax professional, since some states pursue former residents on certain income. Our tax planning guide explains how federal rules work.

Washington residents with large long-term capital gains from selling stock should also know about the state’s capital gains excise tax, which applies above a high annual threshold. Most retirees never reach it, but someone who sells a large block of concentrated stock in one year might. Real estate and retirement accounts are generally exempt.

The estate tax and a long retirement

A retiree with a paid-off home in Seattle, a million dollars in retirement accounts and a life insurance policy can have an estate above the state exemption without feeling wealthy. The state tax is calculated on the part above the exemption, at rates that rise to the highest in the nation, and payment is due within nine months of death. Because the exemption is not portable between spouses, married couples often use a credit shelter trust to make sure the first spouse’s exemption is not wasted. Other tools include lifetime gifts, charitable bequests and an irrevocable trust for life insurance. A retirement plan should include an estimate of the estate and a conversation with an attorney who focuses on Washington estates. Our estate planning guide explains the documents.

Retirees who move out of Washington should know that the state taxes real estate and tangible property located in Washington even if the owner lives elsewhere. Keeping a Washington vacation home after moving to another state does not avoid the tax on that property.

Property taxes

Property tax is a major cost for homeowners. Washington offers relief through several programs.

• Senior and disabled exemptions. Homeowners who are 61 or older, or have a disability, and who meet income limits can claim an exemption from part of the tax or from the increase in value. The program is run by county assessors.
• Deferral. Homeowners who are 60 or older, or disabled, with limited income can defer property tax and special assessments on a primary residence. The deferred amount accrues interest and is repaid when the home is sold.
• Appeals. Any owner can contest an assessed value with the county board of equalization.

Applications and income limits change, so check with your county assessor each year and file by the deadline.

Public and private pensions

Many Washington retirees worked for the state, schools or local governments. The Department of Retirement Systems runs several plans. Teachers belong to the Teachers’ Retirement System, and most other public employees to the Public Employees’ Retirement System, each with Plan 1, Plan 2 and Plan 3 options depending on hire date. Plan 3 combines a defined benefit pension with a defined contribution account, and members choose how to invest the contribution side. Police and firefighters have their own plan. Retirees must choose among payment options, including survivor benefits, and some plans allow a partial lump sum. Boeing and other private employers have frozen or closed pensions, and many workers hold savings plans instead. Compare payment choices carefully, because most cannot be changed.

Public employees in some Washington plans do not earn Social Security through all of their jobs, so ask for an estimate. The Social Security Fairness Act, signed in January 2025, repealed the Windfall Elimination Provision and Government Pension Offset. Our retirement planning guide covers the broader steps.

Facing a pension choice?

A Washington retirement advisor can compare your payment options and survivor benefit for free, and no purchase is expected.

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Medicare, health coverage and WA Cares

Medicare begins at 65. The Statewide Health Insurance Benefits Advisors program, called SHIBA, offers free, unbiased counseling on Medicare choices, and a call before you choose between original Medicare with a supplement and a Medicare Advantage plan is worthwhile. Networks vary a great deal between the Puget Sound area and rural counties, so confirm that your doctors and hospital are in any plan you consider.

WA Cares is the state’s long-term care benefit, funded by a premium taken from wages. It provides a limited lifetime benefit to those who have paid in for enough years, and people near retirement who did not pay long enough may receive only a partial benefit or none. Many residents obtained exemptions by buying private long-term care insurance by a deadline. Others consider a hybrid life policy or self-funding. Medicare covers only short stays after a hospital visit, and Medicaid covers long-term care for people who meet income and asset limits and looks back five years at gifts. An elder law attorney can explain how the rules treat a spouse and a home.

Where to retire in Washington

Washington offers retirees a wide menu. The Seattle area has well-regarded healthcare and the highest prices. The Olympic Peninsula, Whidbey Island and the San Juan Islands offer scenery and quiet, with ferry schedules, limited services and long drives to specialists. Spokane, Walla Walla, Yakima and the Tri-Cities offer lower costs, sunnier weather and a strong medical presence. The Columbia Gorge and Vancouver combine Washington’s lack of income tax with Portland’s amenities. Test a place by renting for a season, and look at insurance quotes for wildfire or earthquake risk before you buy.

Making the money last

One way to picture retirement money is as three buckets sorted by when it will be spent. The nearest holds cash and short-term bonds for the first few years of withdrawals. The middle holds balanced funds for the next decade. The farthest holds stocks that must outpace inflation. A retiree with a solid pension can afford a larger stock bucket than one relying on savings alone. Timing matters, because a market slump just as withdrawals begin hurts more than the same slump ten years in. Our investing basics guide explains diversification. For retirees with restricted stock from a long tech career, selling over several years to diversify is often the first task.

What retirement advice costs

Choosing a retirement advisor in Washington

1. Request a written illustration of how your savings and pensions turn into monthly income.
2. Ask about experience with Washington state retirement plans and the estate tax.
3. Check the advisor with the SEC, FINRA and Washington’s Securities Division.
4. Obtain the total yearly cost expressed in dollars.
5. Make sure claiming ages are tested for each spouse.
6. Talk with a few firms and leave any that lead with a sales pitch.

Social Security timing

Choosing a Social Security start date locks in a lifetime income level. Checks are available at 62 and increase with every year of delay until 70. In a couple, the bigger of the two checks becomes the survivor’s, which is why holding off on the larger benefit protects the longer-lived spouse. Because Washington does not tax benefits, only the federal tax on up to 85 percent of benefits matters, and testing several start ages for each spouse reveals the right pairing.

Papers to update

Washington is a community property state, so most assets acquired during marriage belong equally to both spouses, and the will, trusts and beneficiary forms should reflect that. A durable power of attorney and a health care directive name people to act when you cannot. Beneficiary designations on retirement accounts and insurance override the will. At the first death, community property can receive a new cost basis for both halves, which can reduce taxes on later sales. Review documents after a marriage, divorce, birth or death in the family, and when you move to or from the state.

Weighing a move after you stop working

Many Washington retirees ask whether to stay put, cross the Columbia into Oregon, head east to Idaho or look at warmer states. Each choice trades one set of costs for another, and the numbers deserve a worksheet rather than a hunch. Washington has no tax on pensions, IRA withdrawals or Social Security, which is a real advantage for a retiree living on account withdrawals. Oregon taxes income, so a couple drawing sixty thousand dollars a year from savings would normally owe state tax there that they would not owe here. Property tax and housing costs move the other way in many places, so run both columns before listing a house.

Selling a long-held home adds its own wrinkle. The federal exclusion on gain from a primary residence is large, yet in a region where prices rose sharply the gain on a house bought decades ago can still exceed it. Washington taxes some capital gains on stocks and bonds but exempts real estate, so the state side of a house sale is usually quiet. A couple who sells and buys a smaller place can free cash for the early years of retirement, which lowers the pressure on the portfolio when markets are weak.

Health coverage before Medicare begins

People who stop work at 60 or 62 face a gap of several years before Medicare starts at 65. Options include continuing coverage from a former employer for a limited period, a plan from the state health exchange, or a spouse’s plan. Because exchange premiums can depend on income, the amount you withdraw from retirement accounts in those years affects what you pay for health insurance. Planners often build the early retirement years around that interaction, choosing which accounts to draw from so that taxable income stays in a favorable range. After 65, free local Medicare counseling through the state benefits advisors program can help you compare supplement and Advantage plans without a sales pitch.

Frequently asked questions