Retiring in Delaware: What the State Does and Doesn't Tax
Henry Supinski, ChFC® · 4 min read · July 2026
Delaware has a reputation as a tax haven for retirees. The reputation is mostly deserved, but the details decide how much of it you actually capture. Here is the full picture, and where the planning opportunities hide.
The Short Version
Delaware is one of the most tax-friendly states in the country for retirees, but not in the way most people assume. The state does have an income tax, and it does tax retirement account withdrawals. What makes Delaware attractive is everything around the income tax: no sales tax, no state estate or inheritance tax, some of the lowest property taxes in the region, and full exemptions for Social Security.
What Delaware Does Not Tax
Social Security benefits are completely exempt from Delaware income tax, regardless of your income. There is no sales tax on anything you buy. There is no state estate tax and no inheritance tax, which means what you leave to your children passes free of any Delaware-level tax. Compare that to Pennsylvania next door, which taxes most inheritances at 4.5% to 15% from the first dollar.
What Delaware Does Tax
Wages, business income, and retirement account withdrawals above the exclusion are taxed on a graduated scale that tops out at 6.6% on taxable income over $60,000. That is the trade-off: Delaware's income tax rates are meaningfully higher than Pennsylvania's flat 3.07%, so where you sit depends heavily on what kind of income funds your retirement.
The $12,500 Exclusion, Per Person
Once you turn 60, Delaware lets you exclude up to $12,500 per year of pension and eligible retirement income, which includes IRA and 401(k) withdrawals, dividends, interest, and capital gains. A married couple where both spouses are 60 or older can exclude up to $25,000 of retirement income per year. Under 60, the exclusion is only $2,000, which matters for early retirees planning their withdrawal sequence.
The Senior Property Tax Credit and the Ten-Year Rule
Homeowners 65 and older can claim a credit against school property taxes of up to 50%, capped at $500 per year. The catch: if you moved to Delaware after 2018, you need ten years of residency before you qualify. If a Delaware move is in your plan, that clock is one more reason to make the move deliberately rather than someday.
What This Means for Planning
The rules above are static. The savings come from sequencing: filling the exclusion every year rather than lumping withdrawals, timing Roth conversions in the window before required minimum distributions, and keeping income below the IRMAA thresholds that raise Medicare premiums. A retiree who manages income to the brackets can pay a strikingly small effective rate in Delaware; one who does not leaves money on the table every April.
We work with families across Wilmington, Hockessin, and Greenville, and our free retirement tools can show you where you stand before we ever talk.
A Hypothetical Couple, Both 62
The numbers are hypothetical. A married couple, both 62, retires to Hockessin. They collect $60,000 a year in combined Social Security and withdraw $70,000 from IRAs. Delaware taxes none of the Social Security. Of the $70,000 in withdrawals, they exclude $25,000 using both spouses' retirement income exclusions, leaving $45,000 exposed to Delaware's graduated rates. Meanwhile every dollar they spend on groceries, a car, or a kitchen renovation carries no sales tax, and whatever eventually passes to their kids faces no Delaware estate or inheritance tax.
Run the same couple with the same income in Pennsylvania and the picture inverts. Pennsylvania would tax none of the IRA withdrawals, but their heirs would owe inheritance tax at 4.5%, and sales tax applies to many of their purchases. Neither state simply wins. The mix of income, spending, and legacy goals decides it. We walk through that comparison in detail in Pennsylvania versus Delaware for retirement.
How We Approach It
The state rules are the easy part. The work is sequencing your specific accounts against them: which account funds which year, when Roth conversions make sense, how to use the exclusion every year without spilling into higher brackets, and when a move needs to happen for the residency clocks that matter. We build that as one plan, not a list of tips. Wilmington is where I grew up, and the two-state math shows up in almost every plan we build for families near the line.
Questions We Hear
Does Delaware tax Social Security?
No. Social Security benefits are fully exempt from Delaware income tax at every income level.
Does Delaware tax my 401(k) and IRA withdrawals?
Yes, above the exclusion. Once you're 60, the first $12,500 per person per year of eligible retirement income is excluded. Withdrawals above that are taxed at Delaware's graduated rates.
Is Delaware or Pennsylvania cheaper for retirees?
It depends on how your retirement is funded. Pennsylvania doesn't tax Social Security or most retirement income, which is hard to beat while you're spending down accounts. Delaware has no sales tax and no inheritance tax, which shows up in your spending and in your estate. Bigger spenders and families focused on what passes to children often lean Delaware. It's a calculation, not a slogan.
When do I need to move to qualify for the senior property tax credit?
If you became a Delaware resident after 2018, you need ten years of residency before you can claim the school property tax credit at 65. If Delaware is anywhere in your ten-year plan, that clock is a reason to make the move deliberately rather than someday.