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.