October 4, 2022

Planning ahead for the future of your retirement, the possibility of health care expenses in the form of long-term care planning, and passing on assets to your loved ones through your estate raises important questions about how to consider where to live in older years. When evaluating potential options for entering retirement, a state’s income tax rules can have a big impact on where you choose to go.

The perception of a state as having low taxes or high taxes could influence someone’s decision to relocate, but it’s important for retirees to remember that there may be many different tax breaks that could reduce the retiree tax burden in those states, so a thorough evaluation is important. There are four primary types of state tax breaks for retirees. These include:

• Exclusion of retirement plan or pension plan withdrawals.
• Exclusion of Social Security income from taxable income.
• No income tax at all.
• Other deductions, exemptions, and credits for taxpayers over certain age thresholds.

Every state in the country has at least one of these three kinds of tax breaks, but it’s hard to figure out the exceptions and the tax codes that may influence you. Other costs to consider in determining where to live in your golden years are medical care, housing, transportation and energy. Some states have no state income tax, making them initially appealing to move to.

These are Washington, Texas, Tennessee, Wyoming, South Dakota, Nevada, Florida and Alaska. In New Hampshire, only dividend income and interest income is taxed. These states are the friendliest to all taxpayers in terms of income taxes, but the list of states that offer the possibility of near 0% state income tax rates may include other states, especially for those that have exemptions for Social Security income.

States with the highest marginal tax rates, such as New Jersey, Hawaii, California, New York and Oregon, would require retirees to pay 0% state income tax on Social Security benefits. For more information about navigating state income taxes and other aspects of your planning, consult with an experienced and qualified financial professional today.