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Title: Unveiling the 13 States Exempt from Taxing Retirement Income

Optimizing your annual tax payment could offer rewards equivalent to securing a salary increase.

Unpacking Retirement Bliss in These 13 Tax-Friendly States
Unpacking Retirement Bliss in These 13 Tax-Friendly States

Title: Unveiling the 13 States Exempt from Taxing Retirement Income

Here's a revised and restructured version of the original article:

Get ready to breathe a sigh of relief, folks! Whether you're in the workforce or enjoying your golden years, dealing with income taxes isn't always a delight. Yet, it's our civic duty to help fund the government we benefit from. But if you're planning your retirement, you might be delighted to learn that a few states won't tax your retirement income. It's not a magic ticket, but it's an enticing perk to consider.

So, which states are giving retirees a break?

Retirement Income Sanctuaries

As we navigate through 2023, there are nine U.S. states that don't collect income tax on retirees' income since they don't impose any income tax on their residents in the first place. That's right—they have alternative sources of revenue, such as sales and property taxes. These nine tax-free states are:

  1. Alaska
  2. Florida
  3. Nevada
  4. New Hampshire
  5. South Dakota
  6. Tennessee
  7. Texas
  8. Washington
  9. Wyoming

And yes, New Hampshire makes the list without any footnotes. However, it's essential to remember that while moving for tax purposes might sound appealing, retirees will still be subject to federal taxation and any city or county taxes.

Now, there are four more states that impose income taxes, but they offer exemptions for retirees:

  1. Illinois: Distributions from 401(k) and other retirement accounts as well as pension income and Social Security payments are exempt from income tax.
  2. Iowa: Money drawn from 401(k) accounts, IRAs, and similar tax-sheltered vehicles, and Social Security income, is free from income tax, as long as you're 55 or older.
  3. Mississippi: Most of the usual retirement income sources also bypass taxation, but early distributions from most retirement accounts are taxed ordinarily.
  4. Pennsylvania: The state taxes work-based wages, but pension income isn't taxable if the recipient is at least 60 years old. Income from IRAs, 401(k) accounts, and even Social Security income also isn't taxable.

Social Security and State Taxes

If you're curious to know if Social Security income is subject to state income taxes, you're not alone. In actuality, only a handful of states tax this government-run program. These include:

  1. Colorado
  2. Connecticut
  3. Minnesota
  4. Montana
  5. New Mexico
  6. Rhode Island
  7. Utah
  8. Vermont
  9. West Virginia

It's essential to note that West Virginia is lowering its tax burden on Social Security income, and by 2026, all state-based taxation of these benefits will be phased out.

A Diligent Budget is Essential

In the past, avoiding state-level taxes could have made a significant difference in a retiree's budget. While it still can, in many places where retirees don't owe state or local taxes on their income, other costs have skyrocketed. Property taxes in Tampa, Florida, for example, have increased by 60% since 2019, and the median home price in Tennessee has almost doubled in the same time frame. That's quite a change.

Before making a major move, consider every factor carefully. Take an extended visit to a possible new hometown. There's always more to the story.

So, sit down and crunch some numbers. Compare what it might cost to stay where you are vs. moving to a new location. Doing the math will still be a wise investment if, like most retirees, you're keeping a close eye on your finances.

After learning about the tax-friendly states for retirees, you might be interested in managing your retirement finances more effectively. In this context, it's crucial to remember that even if you move to a state with no income tax for retirees, you'll still be required to pay federal taxes and may be subject to city or county taxes.

Moreover, while states like Illinois and Iowa offer exemptions for certain retirement income sources, it's essential to understand that only a few states, such as Colorado and Connecticut, impose income taxes on Social Security benefits, with West Virginia planning to phase out this taxation by 2026.

Therefore, when considering a retirement location, it's crucial to consider all financial factors, including not just taxes but also cost of living, property taxes, and potential increase in other expenses. A thorough budget analysis can help make an informed decision.

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