What are the best states to retire tax-wise?
It’s not just Florida and Texas
Outside of housing and healthcare our biggest lifetime expense is likely taxes.
Figuring this out is critical to retiring comfortably with longevity.
Here are all the “tax” things you should be considering when evaluating where to spend your golden years.
Income Tax
The lowest hanging fruit (here) is likely income tax.
Moving to a state that has none, to very little of it (income tax), is one of the easiest ways to filter where to retire.
States like Texas, Florida, and Wyoming all deserve a Zillow query if taxes are top of mind with regard to your forever home.
Social Security Tax
Fortunately most states exempt Social Security income from taxation (although this benefit is taxable at a federal level).
That said, there are a handful of states that do (tax it), and warrant deeper consideration if you’re contemplating a move there.
These states would include: Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont.
Qualified Plan (401k, IRA, etc) Taxation
If you’re in a state that has income tax but most of your income is coming from a 401k (or similar qualified retirement plan), then you still may be able to avoid most state income taxes contingent on their treatment of retirement plan distributions.
States like Illinois, Mississippi, and Pennsylvania do not tax distributions from your 401k, so while you still may be taxed on your other forms of retirement income (Social Security, Annuities, Rentals etc), the majority of your savings would be received state income tax free.
Further there are states like Wisconsin, Arkansas, and North Dakota that offer preferential tax treatment for long term capital gains, so if the majority of your income is coming from a taxable investment account then they also might warrant inclusion in your search for a retirement home.
Property Tax
New Hampshire has no state individual income tax (for wages)…
It has the third highest property tax in the nation.
When evaluating taxation at a state level it is not uncommon for the more favorable “State-Income-Tax” states to have higher property taxes.
This “tradeoff” also needs calculation when weighing different places to settle.
Cheers