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Choosing the right location to spend your post-retirement years can significantly impact your overall financial well-being. In the United States, most states impose income tax on pensioners, but some have adopted a more retiree-friendly approach.
By understanding these states with no pension tax, you can make a more informed decision about where to relocate and maximize your retirement income. So, today, we will discuss about 13 U.S. states where your pension and social security remain untouched.
When choosing your retirement destination, considering the state income tax is a crucial factor. Some states have adopted retiree-friendly policies that exempt pension and social security benefits from state income tax, offering retirees a break.
Let's take a close at the top 13 states with no pension tax:
Alaska’s tax structure does not include a state income tax, making it attractive for retirees. The Permanent Fund Dividend (PFD) provides a yearly dividend from the state’s oil wealth.
Florida’s lack of state income tax makes it popular for retirees, significantly reducing the tax burden on retirement income.
Georgia’s state income tax is relatively low, making it moderately tax-friendly for retirees. The homestead exemption can reduce property taxes for homeowners.
Hawaii has no state income tax, making it attractive for retirees seeking to avoid state-level income taxation.
Idaho has no state income tax on social security benefits and offers a property tax circuit breaker program for seniors. There is also a partial exemption for pension income if certain age and income requirements are met.
Kentucky has no state estate or inheritance tax, boosting retirement savings.
Mississippi offers a homestead exemption for seniors, reducing property taxes—no sales tax on medicine and medical care.
Montana has no state income or capital gains tax and offers property tax exemptions or credits.
Nevada is known for its favorable tax climate for retirees, with no pension or capital gains tax, but it does have property and sales tax.
New Hampshire is ideal for retirees on Social Security, with no income tax and stunning natural beauty.
North Dakota is one of the states with no pension tax, as well as low-income tax. Some municipalities also offer property tax breaks for qualifying retirees.
South Dakota has no income tax, including on pensions and Social Security benefits, allowing retirees to keep their entire income.
Among the states with no pension tax, Tennessee stands out as one of the best states to retire tax-free, with an average effective property tax rate of just 0.65%.
A reverse mortgage is a financial tool designed for homeowners aged 62 or above. This tool allows them to borrow against the equity in their home. Unlike traditional mortgages, where you pay the lender, a reverse mortgage provides you with income.
Some of the benefits of a reverse mortgage include reduced financial stress and preservation of retirement savings.
When looking for retirement states with no state income tax on Social Security, also consider reverse mortgage programs. When it comes to reverse mortgage programs, consider your eligibility, loan terms, counseling, and tax implications.
When it comes to tax-free retirement, there are some of the most common myths and mistakes that you need to avoid:
Moving to one of the retirement-friendly states in 2024 can lessen your tax burden, but it’s not a silver bullet. Other things play a role, too, including:
Zero income tax is a big break, but income tax isn’t the only form of tax. Be sure you take a good hard look at the overall taxation culture of the state before moving. It might also be a good idea to factor in the cost of living, healthcare availability, and your lifestyle and preferences.
Not all states offer tax-free incentives on Social Security. Even in the 13 states where Social Security is not taxed, if your overall income exceeds a certain threshold, you might end up with some of your Social Security taxed indirectly. It’s a good idea to hire a professional and make sure your bases are covered.
All states that don’t tax pensions and Social Security benefits also do not tax 401(k) withdrawals. This includes Alaska, Florida, Georgia, Hawaii, Idaho, Kentucky, Mississippi, Montana, Nevada, New Hampshire, North Dakota, South Dakota, and Tennessee.
Your state's tax culture has a big impact on your financial plan. A more favorable taxation scheme can increase retirement income and reduce the overall burden from taxes.
Before moving to a tax-friendly state, consider the culture, living expenses, healthcare, climate, and overall livability, keeping your needs in mind. It’s better to live in a state that offers fewer benefits but is comfortable than to be stuck somewhere you hate living to save.
Many states that don't tax retirement income also offer additional senior-friendly tax benefits. For example, Florida provides a homestead exemption that reduces property taxes for qualifying seniors, and Georgia exempts seniors from sales tax on prescription medications.
To reduce federal taxes in retirement, try these strategies: convert traditional IRA or 401(k) funds to Roth accounts when in a lower tax bracket, donate directly from IRAs to charities if you’re 70½ or older, sell investments with losses to offset gains, and use tax-deferred annuities to delay taxes until withdrawal.
Selecting the right retirement destination can influence your financial well-being in the long term. Still thinking, what states do not tax retirement income? This guide includes a detailed list of 13 tax-free Social Security states in the U.S. that offer significant tax breaks for retirees by exempting pensions.
If you are still unsure of which location to choose or want a more detailed understanding, book a consultation today.
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