While taxes may not be the most exciting topic, retirees living in these 10 states may find the subject a little less cringeworthy, according to Kiplinger’s 2017 analysis of state taxes.
These states offer various benefits that make them tax havens: notably, lower property taxes and tax exemptions on Social Security benefits. Pensions and withdrawals from retirement plans in these states are eligible for at least partial tax exemption. And fixed-income dollars can go farther in these states in creating longer retirement security.
The rankings took into account state individual income tax rates and brackets data for 2017. The Tax Foundation, an independent tax policy non-profit, retrieved individualized tax data to highlight the extent of the tax breaks. Sales taxes, gift taxes and inheritance taxes were also factored into each state’s rank.
Tax returns were prepared for a hypothetical couple with the following criteria: They had $24,000 in Social Security benefits for the primary filer for the year and $12,000 in Social Security for the spouse; a required withdrawal from an individual retirement account for the year of $39,063; $24,000 from a pension (for a primary filer); and $5,000 in taxable dividends. The income would be evaluated using the standard deduction. This approach allowed the final bill to be calculated while highlighting the income that was sheltered from tax.
Here are the top 10 most tax-friendly states for retirees:
10. Georgia
State income tax: 1% (on the first $750 of taxable net income for single filers/$1,000 for joint filers); 6% (on taxable income over $7,000 for single filers/$10,000 for joint filers)
Average state and local sales tax: 7.01%
Estate tax/Inheritance tax: No/No
If retirees are seeking Southern charm and mild winters, Georgia is a great retirement location. While less popular then its eastern neighbor Florida, the Peach State offers a population less overrun with retirees, quaint beach towns and bustling recreation. If those amenities aren’t enticing, its tax exemption on up to $65,000 in income from IRAs, 401(k)s and Social Security income may be more persuading.
9. Kentucky
State income tax: 2% (on less than $3,000 of taxable income); 6% (on more than $75,000 of taxable income)
Average state and local sales tax: 6%
Estate tax/Inheritance tax: No/No
Kentucky offers retirees a long list of exemptions on retirement income including private pensions and annuities, while also offering an additional exclusion on military, civil service, state and local government pensions. Kentucky does have a required inheritance tax, but Class A beneficiaries (spouses, parents, children, grandchildren, brothers and sisters) remain exempt.
8. New Hampshire
State income tax: None
Average state and local sales tax: None
Estate tax/Inheritance tax: No/No
New Hampshire may have the third-highest property taxes in the U.S.; however, residents over the age of 65 who have lived in the Granite State for a minimum of five years are eligible for a property tax exemption. To sweeten the deal, New Hampshire has no state income tax, inheritance tax, state or local tax and no sales tax.
7. Nevada
State income tax: None
Average state and local sales tax: 7.98%
Estate tax/Inheritance tax: No/No
For retirees looking to settle in a location with ample geographic diversity and a low cost of living, Nevada is a top contender. Although the state is completely landlocked, retirees still have the option to live near bodies of water such as Lake Mead or Lake Tahoe, the cool mountain valleys of the Sierra Nevada or the hot Mojave Desert. There is also no state income tax, so retirement savings can be withdrawn without large tax burdens.
6. Pennsylvania
State income tax: 3.07%
Average state and local sales tax: 6.34%
Estate tax/Inheritance tax: No/Yes
Retirees who want to remain on the East Coast may want to consider the benefits of living in Pennsylvania. Virtually all forms of retirement income are exempt from taxes at the state level while Social Security benefits, public and private pensions, IRAs and 401(k)s are tax-free. The state was also ranked number 4 on WalletHub’s list of the best places to retire for its quality of life for retirees and the elderly.
5. Florida
State income tax: None
Average state and local sales tax: 6.66%
Estate tax/Inheritance tax: No/No
When it comes to retirement, Florida has long reigned supreme as a popular retirement destination. Florida was ranked the best place to retire overall and the number one most affordable retirement state in the U.S., according to a 2017 study from WalletHub. Here, retirees will enjoy lower property taxes and no state income tax.
4. Mississippi
State income tax: 3% (on less than $5,000 of taxable income); 5% (on more than $10,000 of taxable income)
Average state and local sales tax: 7.07%
Estate tax/Inheritance tax: No/No
While you may not be able to skip out on the sales tax on your grocery bill, retirees in Mississippi can look forward to freedom from income tax on Social Security benefits, on withdrawals from IRAs and 401(k) plans, on income from public and private pensions and on other forms of retirement income.
3. South Dakota
State income tax: None
Average state and local sales tax: 5.84%
Estate tax/Inheritance tax: No/No
South Dakota’s retirement-friendly tax environment makes it a great location for prospective retirees. State income taxes are non-existent, so retirement security benefits and other forms of retirement income will remain intact. This state also ranked second in health-care quality among all the states in the U.S. according to WalletHub’s 2017 report of the best and worst places to retire.
2. Alaska
State income tax: None
Average state and local sales tax: 1.78%
Estate tax/Inheritance tax: No/No
Retirees who don’t mind the consecutive days of continuous darkness and the frigid temperatures may find Alaska to be financially practical for retirement. This state has no income tax, so Social Security benefits, retirement plan withdrawals and gains from investments will remain intact. There is also no state sales tax, inheritance tax or estate tax to consider. Permanent residents of Alaska will also be eligible to receive proceeds from the Alaska Permanent Fund after one year of residency. The fund provides a percentage of royalties from oil and minerals and divides it among Alaskans.
1. Wyoming
State income tax: None
Average state and local sales tax: 5.42%
Estate tax/Inheritance tax: No/No
Wyoming residents across the board have a considerably low tax burden, according to the Tax Foundation. Folks headed for retirement can maximize this advantage. Wyoming has no state income tax, no estate tax and a local and state sales tax of 5.42%, which is below the national average. Wyoming also has the lowest tax rate in the country and is also the fifth safest state in the country, according to CNN Money. Safety is among the most important factors for retirees, according to a study by Bankrate.
Find the original article here
