How Much Will Your State Tax Your Retirement Income?

Published on September 26, 2014

Did you know that some states levy higher taxes on retirees than others? Although everyone’s federal income taxes are consistent, the amount of retirement income (and Social Security income) you retain may depend on the state you live in. So word to the wise—if you are thinking at all of retiring in a different state than where you currently live, you should be aware of how this could affect how much of your income you’ll be able to retain.

You can check on which states allow tax-free retirement income and which levy taxes (and how much) at this handy website: https://www.retirementliving.com/taxes-by-state. Be sure to check your own state’s taxation guidelines regarding retirement income—perhaps it’s best to move out of state when you retire! The site also gives you breakdowns of state income tax levels and the various permutations of how (or where/if) your Social Security and retirement income may be taxed.

What States Are the Best To Retire In For Tax Reasons?

This issue is not necessarily according to region; in fact it varies all over the map. For example, in Pennsylvania and Mississippi, all retirement income is tax-free, including pension income. Most states let retirees shelter a portion of retirement income from state tax, with Georgia being the most generous—$65,000 per individual ($130,000 per couple). You might want to avoid California, Minnesota, Nebraska, North Dakota, Rhode Island and Vermont; these states offer no exclusions at all on retirement income taxation.

Some states don’t levy state income tax and others impose state taxes on dividend and interest income, with some tax breaks for people 65 and older. Just under 20 percent of all states impose state tax on Social Security income (another situation to look up on the map) and of those, a few only do so after a certain benefits level. The taxation levels and circumstances vary widely across states.

It’s Not Just the Income Tax!

It’s not only state income tax on retirement benefits that retirees should be aware of; sales tax, property tax, state income tax rates, and state estate taxes can take a big chunk out of your retirement savings as well. So you can see, there’s a lot to consider when evaluating where you should retire across the United States.

How to Build Up Your Nest Egg with a Self-Directed IRA

One way to build up a hearty nest egg and shelter your retirement savings is by investing through a self-directed retirement plan. Depending on your specific financial picture, you may want to invest through a self-directed Traditional IRA or a self-directed Roth IRA; each offers tax advantages and as self-directed accounts, they allow you to invest in a broader range of alternative assets not allowed in typical retirement accounts.

Next Generation Trust Can Help Get Your Self-Directed Retirement Plan Going

No matter what state you live in, the professionals at Next Generation Trust Services can help you get your self-directed retirement account opened and our transaction specialists can explain the various options and benefits of self-direction as a retirement strategy. Contact us at Info@NextGenerationTrust.com or call (888) 857-8058 to get started or for more information.