Retirement Taxes in New Mexico (2025)
Tax-friendly. Income tax: graduated, 1.7%–5.9%. Social Security: taxed, but exempt below $100,000 AGI (single) / $150,000 (joint). Retirement account withdrawals: same $8,000 deduction applies.
Seeded with roughly 12% — about 10% effective federal plus an estimated 2% New Mexico tax on retirement withdrawals. Change it to your own rate.
What New Mexico taxes in retirement
| State income tax | Graduated, 1.7%–5.9% |
|---|---|
| Social Security | Taxed, but exempt below $100,000 AGI (single) / $150,000 (joint) |
| 401(k) and IRA withdrawals | Same $8,000 deduction applies |
| Pensions | Taxable, less an $8,000 deduction at 65+ |
| Estate or inheritance tax | None |
| Average combined sales tax | 7.62% |
| Average effective property tax | 0.67% of home value |
New Mexico still has Social Security on the books but exempted it below $100,000 of income in 2022, which covers the large majority of retirees. Low property taxes; a broad gross receipts tax instead of a conventional sales tax.
What the state tax actually costs you
Take a $500,000 balance and withdraw $2,500 a month, rising with inflation. At an effective federal rate of 10% alone, the money lasts about 18.8 years. Add New Mexico's estimated 2% and it lasts about 18.2 years — a difference of roughly 0.6 years.
That is the honest scale of it. State income tax is real money, but for most retirees it changes the answer by months or a couple of years, not decades — and it is usually smaller than the effect of housing costs, which is why a move made purely for income tax often fails to pay for itself.
The taxes that are not income tax
Retirees feel sales and property tax more than working-age households do, because a larger share of a fixed income goes on spending and on staying in a house that is already owned. New Mexico charges an average combined sales tax of about 7.62% and levies an average effective property tax of about 0.67% of a home's value, which is well below the national average.
There is no state estate or inheritance tax, so only the federal estate tax applies and its exemption is high enough that almost no estate owes it.
Should you move for the tax?
Compare the whole burden rather than one line of it. States without an income tax raise the money elsewhere — Texas and New Hampshire through property tax, Tennessee and Washington through sales tax — so the saving is often smaller than the headline suggests. Run your own numbers in the calculator above, then look at what the same house costs in each state, what insurance costs, and how far you would be from family and from the specialists you already use.
Establishing residency is also a formal exercise, not a preference: high-tax states audit departing retirees on days present, driver's licence, voter registration, where the primary home is, and where a doctor and a dentist are. Half-measures lose.
Frequently asked questions
Does New Mexico tax Social Security benefits?
Taxed, but exempt below $100,000 AGI (single) / $150,000 (joint). New Mexico is one of only eight states that still tax Social Security at all, and the income thresholds mean many retirees pay nothing. See which states tax Social Security.
Does New Mexico tax 401(k) and IRA withdrawals?
Same $8,000 deduction applies. Pensions are treated separately — Taxable, less an $8,000 deduction at 65+.
Is New Mexico a good state to retire in for taxes?
Tax-friendly on income tax. We estimate roughly 2% effective state tax on $40,000 a year of withdrawals for a 65-year-old single filer. Average combined sales tax is about 7.62% and effective property tax about 0.67% of home value. Estate or inheritance tax: none.
Does New Mexico have an estate or inheritance tax?
No. New Mexico levies neither an estate tax nor an inheritance tax, so only the federal estate tax applies, and its exemption is high enough that very few estates owe anything.
Other tax-friendly states
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SavingsLast calculators are educational estimates. They assume a constant average return and steady inflation; real markets are volatile and sequence-of-returns risk can shorten how long money lasts. Nothing here is financial, investment, tax, or legal advice. Consult a qualified professional before making decisions.
Reviewed for the 2025 tax year. Several states are part-way through scheduled rate cuts or phase-outs, and thresholds are often indexed annually — confirm current figures with the New Mexico tax agency (listed at taxadmin.org) or a tax professional before acting. The effective-rate estimate is a planning figure, not a filing figure.