Arizona Retirement Taxes Explained: What Phoenix Retirees Need to Know

Arizona is one of the more tax-friendly states for retirees, but 'friendly' is not the same as 'free.' How you draw income — and in what order — has a bigger impact on your lifetime tax bill than most people realize.

What Arizona taxes (and doesn't)

• Social Security: not taxed by Arizona at the state level.
• Pensions and 401(k)/IRA withdrawals: taxed as ordinary income at Arizona's flat 2.5% rate.
• Capital gains: taxed at the same flat 2.5%, with no special long-term rate.
• Property tax: among the lowest effective rates in the country — roughly 0.45-0.65% in most of Maricopa County.
• No estate tax and no inheritance tax at the state level.

Federal taxes are still the bigger conversation

Even with Arizona's flat rate, federal brackets, IRMAA Medicare surcharges, and the way Social Security becomes taxable above certain income thresholds usually drive the larger decisions. The order you tap accounts — taxable, tax-deferred, Roth — often matters more than the state line.

Three moves that could potentially save real money

• Roth conversions in the low-income window between retirement and age 73. Done correctly, this can shrink future RMDs and IRMAA surcharges.
• Qualified Charitable Distributions (QCDs) directly from an IRA after age 70 1/2, instead of writing checks from a checking account.
• Coordinating capital-gains realization in years your ordinary income is low — sometimes at 0% federal long-term gains.

A note on tax advice

We coordinate with your CPA rather than replace them. Strategy lives where investments, income planning, and tax planning meet. If your current advisor talks about returns but never about your tax return, that is a gap worth closing.