Helping You Choose the Right State in Which to Retire
Taxes are the biggest expense that retirees face, hands down. So it’s to be expected that in order to reduce this expense as much as possible, many retirees consider moving to a more tax-friendly state. But what many people don’t take into consideration are tax rate discrepancies; some states have higher personal income tax rates than others, and some have higher property tax rates than others.
It just so happens that many states with higher personal income tax rates have lower property taxes, and vice-versa – states with lower personal income tax rates have higher property taxes. Despite this, many retirees feel that their best option is to move to a state that has lower property tax rates. And this can sometimes be a good option, especially when some of those states are favored tourist destinations.
However, before you make the big move to Sunny Florida or Forever Wyoming, you have to remember that wherever you go, there will always be taxes. The best thing for you to do before you make any final decisions is to review all of your income sources during retirement, such as earned income, Social Security, pensions and unearned income. You should take into consideration all the various types of taxes you might face, such as personal income taxes, sales tax, property taxes, etc.
The Best State for You, Depending on Your Situation
Many people think that by making the move to a state with low property tax rates, or even to a state that favors retirees, they’ll never have to truly worry about taxes again. But this is not the case. For example, if you depend more on earned income than on Social Security in your retirement, you should think about relocating to a state with little to none income taxes. However, if you rely heavily on Social Security and less on earned income, moving to a state that doesn’t tax these benefits would be a much more beneficial move on your part.
Sometimes you will find that deducting certain taxes (income tax, sales tax, property taxes) on your federal return will not make a difference on your overall tax burden. For some retirees, however, it does. It’s all dependent upon your own individual situation – there are numerous factors that determine the most tax-friendly states that it’s really dependent on your own unique circumstances.
To help YOU decide whether to stay put or to move – and if you do decide to move, where to – I have put together a list of the top taxes you should assess, and which states offer the best rates for each tax:
State Taxes on Retirement Benefits: There are seven states that don’t tax individual income – retirement or earned. Those states are:
· South Dakota
Two other states impose income taxes, but only on extras and interests. Those states are:
· New Hampshire
In all other 41 states, their ways of taxing retiree benefits vary.
States That Tax Social Security: There are 14 states that tax Social Security benefits. These states either tax Social Security income to the same extent that the federal government does, or provide breaks. However, breaks are usually offered for lower-income individuals. Those 14 states are:
· New Mexico
· North Dakota
· Rhode Island
· West Virginia
State Income Tax Rates: Income tax rates can have huge financial implications on retirees if not taken into consideration. As federal income taxes grow exponentially higher, it makes sense that many retirees are looking to move to a state with lower or no income tax rates as a way to lower their tax burden. While the nine mentioned in the first category above meet this criterion, there are several other states that have relatively low income tax rates. Some of those states are:
· North Dakota
State and Local Sales Tax: Only five states do not impose sales tax or use tax at all. Those states are:
· New Hampshire
States with the highest combined state and local rates are:
States with the lowest combined state and local rates are:
State and Local Property Taxes: Even though property values have been down in recent years, property taxes have not been – and this, next to income taxes, is the next-greatest factor that retirees need to take into consideration when thinking of moving. The states with the HIGHEST state and local tax burdens in the nation last year are as follows:
· New York
· New Jersey
Residents of these states paid over 12% of their income in state and local taxes alone!
States with the LOWEST percentage of income taxed (at just 7%) were:
· Alaska (number one for nearly three decades)
· South Dakota
State Estate Taxes: While many retirees don’t really think too much about this category, if you are planning on leaving behind an estate, you might want to consider this as a factor for moving as well. While there are some federal estate tax laws in place, many rules vary from state to state. For example, 18 states mandate taxes on estates valued below the $5.25 million federal limit, while three others (Delaware, Hawaii and North Carolina) abide by the federal exclusionary amount. There are only three states that have no estate taxes at all. They are:
As the saying goes: There are two certainties in life—death, and taxes. While we all wish that there were a place we could retire to and live tax-free for the rest of our lives, unfortunately every state has its own peculiar laws, and no state is what I would call “tax-friendly.”
That said, there are ways to make certain locations throughout our great nation more tax-friendly. Though I would rely on your accountant for crunching these numbers for you, I can help you save money in other ways as well. To see how we can help you with all of your health needs during retirement and save you money, visit us online.