A 68-year-old widow spent her career in a no-income-tax state, sold the family home after her husband passed, and moved to the Burlington area to be closer to her son and grandkids. She bought a small place last spring and expected her Social Security check to arrive as it always had. Then her first Vermont tax return showed a slice of that benefit taxable at the state level.
She is far from alone. According to the According to the National Association of Realtors’ 2026 Home Buyers and Sellers Generational Trends Report, 31% of older baby boomers ages 71 to 79 and 23% of younger baby boomers ages 61 to 70 cited a desire to be closer to family, friends, or relatives as their primary reason for purchasing a home. One retiree on a forum wrote that she had budgeted for higher property taxes when relocating but never thought to ask whether her new state would tax her Social Security. That is the gap that many retirees miss.
Why Vermont Is Different
As of 2026, eight states still tax Social Security benefits: Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. The other 42 states and Washington, D.C. leave benefits alone. Federally, most retirees owe little or nothing on their benefits thanks to the One Big Beautiful Bill Act signed July 4, 2025, which created a temporary $6,000 senior deduction for filers age 65 and older ($12,000 for two qualifying spouses), phasing out above $75,000 single and $150,000 joint modified adjusted gross income, and scheduled to expire after tax year 2028. State tax is separate.
Living in a taxing state does not automatically mean you owe. Vermont fully exempts Social Security benefits for single filers with adjusted gross income (AGI) up to $55,000, and for joint filers with AGI at or below $70,000. Above those thresholds the exemption phases out, and part of the benefit becomes taxable at Vermont rates that top out near 9%. Plenty of moderate-income retirees in Vermont pay zero state tax on their checks. The bite lands on people whose overall income mix crosses the line.
The One Number That Decides the Outcome
Her income picture is modest but crowded: a Social Security benefit that just got a 2.8% cost-of-living adjustment (COLA) for 2026, a small pension from her late husband, and a traditional IRA she taps each year. Her AGI lands a few thousand dollars above Vermont’s $55,000 single-filer full-exemption line. That is why a portion of her benefit is now taxable in Vermont, even though the federal senior deduction wipes out her federal exposure.
The lever with the most reach is her IRA withdrawal. Every dollar pulled from a traditional IRA counts toward AGI. Roth withdrawals do not. If she has a Roth balance she can lean on in a given year, or if she can trim her traditional withdrawal by a modest amount, she may slip back under the exemption line and owe nothing to Vermont on her benefit. Pension income and Social Security itself cannot be easily reshaped. The IRA is where flexibility lives.
The Cost of Living Piece People Miss
Next, Vermont is not a cheap state to retire in. The Tax Foundation’s 2025 State Tax Competitiveness Index ranked Vermont 43rd overall, including 43rd for individual income taxes and 49th for property and wealth taxes. Its cost-of-living index is above the national average, with housing costs carrying particular weight for a fixed-income household. When someone leaves a no-tax state for Vermont, the tradeoff spans income tax, property tax, and everyday costs stacked together, weighed against the fact that grandkids are a 10-minute drive away.
What Actually Matters Before You Close
- Run your full income mix, pension plus IRA withdrawals plus Social Security, against the destination state’s exemption thresholds. Social Security in isolation tells you almost nothing.
- Manage AGI where you can. A mix of Roth and traditional withdrawals, or shifting the timing of a large distribution across two tax years, can keep some retirees under the line without changing their lifestyle.
- Weigh the whole tax and cost picture, not just one line. Income, property, and sales taxes plus cost of living together decide what your monthly budget actually feels like.
- Talk to a tax preparer who knows the destination state before you sign a purchase contract, not after your first return arrives.
The mistake hardest to undo is buying a home in a new state and only then learning how its rules interact with your income. The move itself is often still worth it. Being near family carries a value no spreadsheet captures. Go in with clear eyes about which pieces of your income the new state can touch and which levers you still control. Rules and thresholds shift, and small differences in how your income is structured can change the answer, so treat the numbers here as a starting point for your own conversation, not a verdict.
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