Tax Strategies for Retirees Relocating to Arizona: What Still Applies After You Move?

Moving to Arizona for retirement, or even wintering here part-time, offers plenty of lifestyle benefits. But before you settle into your home in Sun City, Peoria or another Phoenix-area community, it’s important to understand how your move could affect your taxes.

Your State of Residency Still Matters

Many retirees split their time between Arizona and another state. If you live in Arizona for part of the year and another state for the rest, your tax liability depends on your official state of residency.

Arizona does not tax Social Security benefits and has relatively low tax rates on other types of retirement income. However, you can’t automatically claim Arizona residency just because you bought a house here. Your primary residence, the state where you spend the most time, vote, register your car and claim a driver’s license, typically determines which state can tax your income.

If you still claim residency in your original state, that state may continue taxing your full retirement income, even if you spend months in Arizona. If you switch your residency to Arizona, you may still owe partial-year taxes to your previous state, depending on their laws.

You Might Owe Taxes in More Than One State

Changing your primary residence doesn’t always mean cutting ties completely. Some states aggressively tax retirement income, especially pensions and 401(k) distributions, and may try to collect taxes even after you move.

If your old state considers the income “earned” there or if distributions came from accounts you contributed to while working in that state, you could still be on the hook for source-based taxation.

Double taxation isn’t common, but it's possible in some cases. Fortunately, Arizona offers credits for taxes paid to other states, which may offset the burden. Still, multi-state retirees should work with a tax advisor familiar with both states’ laws to avoid costly mistakes.

Social Security and Pensions: What Arizona Taxes

Arizona does not tax Social Security benefits, which makes it attractive to many retirees. The state does tax most pension income and retirement account withdrawals (like traditional 401(k)s and IRAs), but the rates are relatively modest compared to high-tax states like California, New York or New Jersey.

If you have a government pension—military, federal, or certain Arizona state plans—you may qualify for additional exclusions, but private pensions are generally taxable under Arizona law.

Beware the State You Leave

Some high-tax states, like California and New York, have a reputation for aggressively pursuing former residents. If you move to Arizona but continue to maintain property, bank accounts or professional relationships in your former state, they may still consider you a resident, especially if you return regularly or haven't changed key legal documents.

To avoid this, make sure to update your:

• Voter registration
• Driver license
• Vehicle registration
• Mailing address for tax and financial documents
• Legal residence listed on estate planning documents

Proving you’ve established a new primary residence can help prevent tax issues down the line.

Planning Withdrawals Strategically Still Matters

Even after relocating, the way you structure your retirement withdrawals can make a big difference. For example:

• Drawing from taxable accounts before tapping IRAs can help manage your marginal rate
• Roth conversions might be more tax-efficient in Arizona than in higher-tax states
• Timing large withdrawals in years when your income is lower may reduce your overall tax bill

Just because Arizona has lower taxes doesn’t mean strategy no longer matters. You still want to avoid jumping tax brackets or missing out on deduction opportunities.

Talk to a Personal Tax Professional Before You Move

Whether you’re planning a full relocation or just becoming a part-time Arizona resident, your tax situation will likely change. Planning ahead can help you avoid surprises like unexpected tax bills from your former state or missed deductions tied to your income sources.

A qualified advisor can help you:

• Determine the right time to change residency
• Coordinate state returns if you live in two places
• Structure your retirement income to minimize total tax exposure

Get Tax Guidance from a Phoenix-Area Accounting Team That Understands Multi-State Issues

At H&H Accounting Services, we can help retirees understand the tax implications of relocating to Arizona, whether you’re making a permanent move or splitting time between states. Our team can help you determine residency status, identify potential exposure to out-of-state taxes and file correctly across jurisdictions. We also review how different types of retirement income are taxed at the state level so you can avoid unnecessary surprises.

Call us at (480) 561-5805 to schedule a consultation.