Retirement means having more time to do those things you’ve always wanted to do like travel, devote more time to a hobby or spend time with family. If you are like many other retirees, though, this period of time also means that you have a limited income. Finding ways to stretch that income means that you’ll have more money to spend on those things you love because you’re spending less on the necessities.
What Are the Best States for Retirees?
Tax-Friendly States for Retirees: Places To Consider
No one likes to pay taxes, but they are simply a part of life. Below, you’ll find the states that are most friendly to retirees in terms of taxes so you can keep more of your retirement income to spend as you like.
States With No Income Tax
Certain states already have no income tax, making them seem attractive to retirees. In addition to popular, warm weather states like Texas, Nevada and Florida, Washington, South Dakota, Alaska and Wyoming also have no state income tax. In addition, Tennessee and New Hampshire tax only interest and dividend income. While it can seem attractive to live in a state that doesn’t tax income, this advantage could be offset by steep sales or property taxes. if applicable.
Income Tax Breaks for Retirees
Even states that tax income often offers tax breaks for retirees that allow you to exclude some or part of your income — such as pensions and/or Social Security — from taxation. Currently, there are nine states that exempt all Social Security benefits, as well as military, federal and in state pensions, from income tax. These states are Michigan, Louisiana, Alabama, Mississippi, Massachusetts, Hawaii, New York, Illinois and Pennsylvania. In addition, Illinois, Alabama, and Hawaii don’t tax the income from particular types of private pensions either. Mississippi and Pennsylvania are extremely friendly to retirees because they don’t tax any retirement income, even that from 401(k) distributions or IRAs.
Property Tax Breaks for Retirees
For retirees who have a limited income, paying property taxes out of pocket can be challenging. Each of the 50 states does offer some kind of a property tax break for retirees. Most have exemptions that apply to retirees who meet age and income requirements. In addition, there are 40 states that offer “homestead” exceptions. These either provide property tax credits that can then reduce your tax bill or reduce the actual assessed value of your property.
According to the Tax Foundation, a Washington, DC-based tax research group, those living in Delaware, Louisiana, Mississippi, Hawaii, Washington DC and Alabama paid less in property taxes when compared to the value of their homes. Florida was ranked at number 24 on their list.
Nevada approaches property taxes differently than most states. Instead of taxing 100 percent of a home’s fair market value, Nevada uses only 35 percent of the property’s fair market value. If you’re over the age of 62 and meet certain income limits, you could be eligible to receive a rebate of 90 percent of your property taxes.
Sales Tax Breaks for Retirees
Five states do not charge a tax on the sales of goods within their borders: Montana, Oregon, Alaska, New Hampshire and Delaware. While Alaska doesn’t impose a state sales tax, it does give counties and cities the power to impose such taxes. These can range from one percent to seven percent.
Even if a state does charge state taxes, they could still have a low rate that makes them attractive to retirees. The Tax Foundation found that the states that charged the lowest rates of state and local taxes combined were Wisconsin at 5.42 percent, Virginia at 5.00 percent, Hawaii at 4.38 percent, Wyoming at 5.38 percent and Maine at 5.00 percent.
States to Steer Clear Of
— Linda Jensen CHFC (@ChfcLinda) December 8, 2017
Some states not only have high tax rates, they also tax pension income to the fullest extent. Perhaps not surprisingly, California tops this list with a top tax rate of 10.55 percent for those who have at least $1 million in income. Rhode Island levies a 9.9 percent tax on every form of income which includes capital gains. Nebraska at 6.84 percent, Vermont at 8.95 percent and Connecticut at 6.5 percent round out the top five least tax-friendly states for retirees.
Want to know the top 2 tax-friendly states for retirees? Watch this video from Brad Richardson:
You can choose to retire wherever you want. Though there are tax-friendly states for retirees which can never be overlooked. These tax-friendly states can benefit you in long run considering the savings in taxes you’ll get.
Do you live in a tax-friendly state for retirees? What can you say about the tax benefits? Please let us know your thoughts by leaving your comments below.