Why Judy Pays $9,623 in Tax and Jane Pays 0 on $80,000

, ,

This is the chapter where we show you the insane consequence of IRA distributions and how it can lead to a doubling, tripling even quadrupling of your taxes.

We use Judy as the example. She is in the 22% tax bracket. But pays 32% MORE in taxes on an IRA distribution. How could this be?

Well, welcome to the insanity of the tax code, my friends. For middle and lower income taxpayers the tax code is absolutely stacked against you when it comes to IRAs.

Here’s why. For every $1 extra dollar you take out in IRAs you are not only adding that $1 extra dollar to your taxable income, you are also adding an extra 85 cents of income because of your Social Security benefits.

In real numbers, an extra $1 actually increases your taxable income by $1.85. And that is how someone in the 22% bracket pays 32%, or more, in taxes on IRA distributions.

Crazy isn’t it??? This is why I focus so heavily on provisional income. Because once you go over a certain provision, not only will your actual income be taxed but your Social Security will be as well. Again, $1 IRA distribution means you have $1 more as income plus 85cents of your Social Security will now be subject to taxes too.

Oh, it even gets worse. That extra $1 of IRA distribution could also increase your Medicare premiums AND make you pay tax on your dividends and capital gains, whereas before they were tax free.

$1 in extra income can hit you in 4 different places for increase taxes and premiums!

But hey, Congress will fix it, right? This can’t be allowed. Yeah, keep thinking that. Congress will do the least amount of work to raise the most revenue for the government as they can.

As long as people don’t gripe about the insanity of the tax code, Congress won’t act.

WHy don’t people gripe, you may be wondering? Because they don’t know what is going on. I didn’t know what was going on, myself, until some insurance agent told me back in 2011.

Frankly, I thought he was full of it but he insisted. So, I did some research and couldn’t’ believe it. He was right! But very few people were talking about this, even the professional tax people I follow.

Hardly anyone understood the ramifications. And thus the taxpayer didn’t either.

This is why I wanted to write this book to begin with, to be a Paul Revere of sorts about how the tax man is coming and he doesn’t play fair. He relies on your ignorance to take more of your money.

The fact you are here, reading and watching this though means you can no longer claim ignorance. Now you need to do something. and that is tell others.

Avoid the quadruple tax!

 

 

Episode # 62 – Why NOW Is The Best Time To Start A Business – with Mike Kelly, CPA

,

In this episode I talk with Mike Kelly, CPA from Money And Life TV Youtube channel. And also www.moneyandlifetv.com.

Mike is a tenured CPA who has a lot to say about the new tax law, the Tax Cut and Jobs Act (TCJA).

Unfortunately, because the tax code is so complex and this is the first major change to it since 1986, there is a lot of confusion about it.

However, my friends, do not let confusion deter you from understanding as there is a lot of money at stake. It is up to you to know how YOU could be affected. You can start by watching Mike’s episode on this here.

Now, be advised, relying solely on your tax advisor or financial advisor may not be enough. Mike talks about the number of tax advisors retiring now due to the complexity of the new code. Change always causes commotion. But, again, this is YOUR money we’re talking about so it’s imperative YOU have some knowledge of how you can keep more of it!

In fact, I argue that the code will actually become a lot LESS confusing in the next year, after the dust settles and it’s been in place for a bit.  The 1040, for instance, will have a WHOLE new look to it in 2019. If you’re used to saying “Line 37 = AGI” I imagine you’re going to have to deal with some change.  Maybe AGI will be on line 18 or something? How nice would that be?

Simplification CAN lead to short term confusion but in the long run, simplification is a good thing.  So, don’t throw up your hands and say “I can’t figure this out!” and walk away from your understanding of the new code.  It’s YOUR money!  Did I say that yet???

Subscribe to Mike’s YouTube Channel. Listen to podcasts episodes such as this one.  Read as much as you can and you’ll gain a knowledge that most refuse to obtain. With that knowledge you will be much better positioned to improve your financial life.

This episode will help you do just that.

 


 

Taxes In Retirement Seminar In Milton, GA!

, ,

The NEW tax law offers huge benefits to retirees and soon-to-be-retirees alike. If you are between the ages of 62-70 you are in the Golden Years of Tax Planning.
Take advantage!

* Learn how to use your increased Standard Deductions to reduce, if not outright eliminate taxes on your retirement accounts.
* Learn how to pay NO income taxes to the State of Georgia
* Learn how to basic Social Security planning can eliminate taxes and keep your Medicare premiums as low as possible.
* Learn how to eliminate taxes on your Dividends and Long Term Capital Gains
* Learn how to leave a tax free legacy to your heirs without life insurance
* And so much more

 

RSVP NOW!  Click here.

Get The Tax Bomb Book Here! For FREE!

,

Fill Out the Pop Up for the FREE Tax Bomb Book!!

 

 

Have a pension and IRA?
 
There is a Tax Bomb waiting and most people have no clue.
Retirement accounts cause huge tax increases, especially for a surviving spouse.
Oh, it’s not just income taxes. Medicare premiums, increased taxes on Social Security and dividend and capital gains too.
 
I model it all in my NEW book “The Tax Bomb In Your Retirement Accounts – And How The Roth IRA Can Help You Avoid It”.
 
Some of the chapters include:
 
1 – How To Avoid A 50% Tax On IRAs
2 – Don’t Get Sucked Into The Widow’s Tax Trap
3 – Pay 10% Now Or 35% Later?
4 -Do This And You Won’t Pay Tax On Your Social Security Benefits
5 – How One Widow Paid 250% More In Tax Than Another Widow, With the Same Income!
6 – The Easy Way To Avoid Paying Double, or More, On Your Medicare Premiums
7 – Tax Free Wealth For A “Non-Working” Spouse
8 – Social Security + Roth = A Retirement Plan Made In Heaven
9 – You Don’t Have To Pay Taxes On Dividends and Capital Gains
10 – No Tax = MORE GROWTH
11 – How To Leave a Large Tax-Free Inheritance Without Life Insurance
12 – What’s The NIIT? And Why You Need To Care
13 – How To Keep the Governor Out Of Your Pocket
14 – Why Even Jeff Bezos Should Do A Roth 401k
 
And so much more….
 
Get it FREE. Just fill out the Pop Up Form and download it immediately!

How MISSISSIPPI Taxes Retirees (Blog)

,

Mississippi is VERY favorable for retirees when it comes to taxes.

In fact, it’s going to incredibly hard to beat the great state of Mississippi in terms of the taxes retirees pay.

Let’s start with income tax. Yes, Mississippi has an income tax. And so many people will overlook the state for retirement. BIG MISTAKE!

Mississippi exempts ALL retirement income from tax, not only Social Security but IRA, 401ks, 403bs, TSP and pensions. Are all exempt from taxation!

That is amazing. Think about it, you have $50k in Social Security and $50k in pension/IRA distributions. You pay ZERO tax. That’s right, NOTHING.

Again, just shows you have to look beyond the top line tax rate.

“Oh, but Josh, they have a high state sales tax of 7%, which is the 2nd highest in the nation,” you say.

Nope. You need to look beyond that top line rate too. Because in Mississippi only two localities have an additional tax. So, all in all, Mississippi is only the 21st highest sales tax state in the union.

Lastly, retirees have a large $75k homestead exemption for their property tax. The median value in Mississippi is all of $104k so someone with a median home value will pay property tax on only $29k. And then the tax rate is .64%.

Take the totality of income, sales and property, on top of adding low property values and like I said, it’s going to be hard to beat Mississippi when it comes to taxes for retirees.

The Ultimate Guide To State Taxes For Retirees

,

ALASKA

Wow, Alaska is VERY favorable from a tax perspective for retirees!
NO sales tax. NO income tax. First $150k of ASSESSED value of your home exempted for folks over 65 and widow(er)s over 60.
Gas tax is very low.
Property taxes aren’t low, but they’re not extraordinary like in Texas or New Hampshire.

So, other than having to deal with the cold, you’d be hard pressed to beat Alaska from a tax perspective.

Now the question is: How much does it cost to heat one’s home?? Something tells me, heat pumps and Solar panels, thermal or PV, are not going to be sufficient!

 

ALABAMA

Alabama has the 2nd lowest property tax in the United States. Which is a huge win for the residents there.

But citizens of Alabama pay among the highest sales taxes in the nation too. However, if you just looked at the state sales tax, you may think you wouldn’t pay much in Alabama.

But you’d be wrong. As the localities can put their own sales tax. And they do, more than double the state sales tax actually.

Lastly, when it comes to income tax Alabama is very favorable for retirees. Social Security is exempt. As are all government pensions AND, and this is huge, qualified private pensions.
What is a qualified private pension? Well, here is what the state says. “Payments from a Defined Benefit Retirement Plan in accordance with IRC 414(j).”
And here is a 29 page list of various companies who have NOTIFIED the state that their pension is qualified. https://revenue.alabama.gov/wp-conten…
AL says that this list is by no way exhaustive.

So, I would imagine it’d be safe to assume your private pension is free of taxes in the great state of Alabama.

What is NOT free of state tax though?

You got it! 401ks and IRAs.

So think long and hard before you roll your pension plan over to an IRA. As IRAs are fully taxed as ordinary income.

 

ARIZONA

Arizona is NOT as tax-friendly towards retirees as one might think.

Arizona, the home of Barry Goldwater, the Goldwater Institute, the birthplace of real school vouchers etc, is, well was, in many ways about as close as one could come to a libertarian dream state. But not so much anymore.

By and large, AZ is still favorable, indeed. Lots to be optimistic about in their tax code. But it is getting more and more complex. And complexity is the enemy of solid financial planning.

From a sales tax perspective you may be inclined to think Arizona isn’t that bad. After all, it’s only the 28th highest sale tax state in the nation. But throw in local sales tax and Arizona ranks #11 in total sales tax rates.

Income tax is better as Arizona does not tax Social Security benefits. , Most retirement income is fully taxed with a small exemption for government and military pensions.

However, unless you are married with over $100k TAXABLE income you’re only going to be in the 3% or so bracket. $25k of Social Security and $50k of retirement income will have a tax bill of less than $1k. Of course, proper planning can make even this small tax be minimized.

Lastly, property taxes in Arizona are quite low, in the bottom third of the entire nation at only a .70% tax rate.

So, while Arizona isn’t as favorable as it probably should be, it’s still a rather favorable state for retirees.

 

ARKANSAS

Whoa, Arkansas is not friendly at all when it comes to income taxes. Social Security is not taxed, which is good, but once your total income (Gross income essentially) breaks $75k you’re going to be a 6.9% bracket.

On top of the high bracket too, taxpayers only get $6k in total retirement account exemptions. As of 2018, military pensions are not taxed either.

Property taxes are among the lowest in the nation though.

However, sales tax is the 3rd highest in the US.

So, of the three tax buckets, income, property and sales, Arkansas fares poorly in two.

With proper planning, of course, you can minimize your income taxes. And while you’re stuck with high sales tax, having a low property tax is probably one of the smartest moves you can make in retirement.

CALIFORNIA

From a tax perspective, California, by and large, is not as punitive as one may think, especially for retirees.

The state does NOT tax Social Security income. They have no estate or inheritance tax. And believe it or not, income tax rates are not considerable for average taxpayers.

Yes, the wealthy, those making over $1mm will get hammered. But for the vast, vast majority of taxpayers CA tax rates are reasonably.

Property taxes on a percentage basis of assessed value are actually low. The problem is that the median home value in CA is over 400k. So, while the percentage of value is low the actual dollar amount is quite high.

Where CA really gets you though is in sales tax. Sales tax are HUGE in the Golden State. No getting around that.

And if you smoke or drive a car that uses an internal combustion engine you pay through the nose.

One thing you need to consider though is that CA DOES charge its own premature distribution penalty of 2.5% on IRAs, Qualified Retirement Plans and annuities.

I haven’t heard ANY state doing this. Just be careful if you’re domiciled in CA and are going to use retirement funds to start a business!

COLORADO

Colorado is quite reasonable for retirees when it comes to the taxes they pay.

I was somewhat surprised by this given what I thought was the political shift to the left in CO due to the amount of transients moving in from California.

From a property tax perspective the tax rate is VERY low. If you’ve been following my channel you know that my preference for retirees is a LOW property tax even if you’re in a state with a high income tax.

The reason for this is that the tax you pay on income can be easily manipulated, to your benefit. But your property is your property. You can’t move your home.

So, given Colorado’s favorable tax on property, this is a good thing.

Secondly, they have significant deductions and exemptions for income tax for retirees as well.

I ran a calculation for a couple born in 1953 with $25k Social Security and $25k IRA distributions and they pay all of $98 in income tax. That, my friends, is not too shabby.

Where CO really gets you is the sales tax. Not from the state perspective though. You’ve got to understand this. If you just look at the state sales tax you may be inclined to think sales taxes are low in CO.

You’d be wrong. It’s the county that gets you. So, before you relocate to CO, make sure you understand the COUNTY sales tax.

All in all, CO is quite favorable towards retirees.

 

CONNECTICUT

Military pensions and maybe some of your Social Security are exempt from taxes in Connecticut but other than those two things, EVERYTHING else is.

Too bad too because it wasn’t that long ago when Connecticut had no income tax. My how quickly things changed for the residents of that great state.

However, Connecticut’s sales tax burden looks much worse than it actually is, once you factor the local sales taxes. In fact, while the state is ranked quite high in overall state sale tax burden, once factor in local sales taxes, CT comes in rather low relative to the rest of the US.

Property tax burden as a percentage of assessed value and in terms of total dollars collected is in the top ten of highest taxed states. And there is not much of a homestead exemption or property tax credit for seniors either.

All in all, Connecticut is painful for retirees. High income taxes, high property taxes, lower sales tax with very minimal deductions or exemptions to take advantage of.

 

DELAWARE

Delaware is VERY favorable for retirees in terms of the tax they pay.

No sales tax at all. Property taxes among the lowest in the nation and a decent-sized exemption of $12,500 per taxpayer over the age of 60 on retirement income. And Social Security is exempt too.

Delaware may actually be one of the most favorable states for retirees to live in.

 

FLORIDA

While Florida has no state income tax, residents there still pay taxes in other ways. But the overall burden is low relative to most other states.

Property taxes are about 1% of assessed value. But don’t let that percentage number seem high. The median value of a home in FL is all of around $150k.

So while other states, say California, has a lower property tax rate, the median home values there are 3 times as large as in FL. Thus, in CA even with a lower rate, their residents pay more in taxes.

Sales tax in Florida is probably the largest of the tax burdens a resident pays.

All in all, NO income tax, low property tax and a moderately high sales tax, PLUS the sun, not a bad place to be.

Keep n mind though, homeowners insurance is always a challenge in FL. So, get a quote BEFORE you buy a house!!!

 

GEORGIA

Georgia is one of the most tax-friendly states for retirees. In fact, Georgia is even more tax-friendly than its neighbor to the north, Tennessee even though Tennessee has no income tax. Weird right?

And this is a perfect example of the need to look beyond just the states with no income tax as a place to retire that is tax-friendly.

For example, in GA, if you are married and have income up to $130k, there is NO TAX!

While it’s sales tax is the 20th highest in the US, the state does not tax food. Individual municipalities can though. so do your research on which county taxes food.

But, think about it, what is one largest consumption products? You got it, groceries. So, in GA, you can get by with a minimal tax on groceries, if any at all.

Property taxes average just under 1%. Which puts Georgia in the middle of all 50 states. But because the median house value is quite low, the actual dollar amount in property tax is low relative to a lot of other states in the US.

It needs to be understood that each county can allow its own homestead exemption for property taxes on top of what the state allow. I did not know this and neglected to file my own homestead exemption which cost me $3500. https://youtu.be/2V3kwpTh0cs

Once your over 65 years old, you can claim a double exemption from state property taxes as well if your income other than Social Security and pension income is less than $10k That could prove to be pretty significant.

Think about it, in GA if you’re over 65, you pay 0 income tax and 0 property tax, within certain thresholds of course You only pay sales tax on non-food items.

Finally, you will pay hefty fee to register your vehicle for the first time. Trust me, it can easily go into the $1000s. But after that, your vehicle tax is well below $100 a yer.

So, all in all, GA is quite favorable from a tax perspective. Nice climate, nice tax structure, it’s a great place to live.

 

HAWAII

Wow! Hawaii taxes for retirees are VERY favorable. From sales, property and income taxes, you’re going to have a tough time arguing with what Hawaii is doing.

I am actually stunned! Because you hear so much that Hawaii is a high cost state, and that is true. Real estate there is through the roof.

But once your mortgage is paid off, a lot of the other areas in which you get hit hard in your working career are minimized in the great state of Hawaii. At least from a tax perspective.

Their property tax rate is literally the lowest in the country. Now, don’t get me wrong, the actual dollar amount you pay in property tax won’t be the lowest in the country, due to the high property values, but even the dollar amount isn’t a huge burden.

If you follow my Youtube channel, you’ll know that of the three main taxes retirees pay, Income, Sales and Property, it’s the property tax I adhere to pay most attention to, followed by the sales, and lastly the income.

You can do a lot of work on the front end to minimize your income tax. But sales tax and property tax are perpetual. You are stuck with them.

So, you want to do what you can to find a low property tax and low sales tax state.

Hawaii fits the bill, indeed.

Who knew???

 

IDAHO

Idaho does their taxes the EXACT way I prefer, low property and sales tax and a bit higher on the income side.

Obviously, low for all three is ideal, but the state has got to get its money from somewhere.

Idaho is VERY favorable on property taxes. Now, if you just look at teh state tax rate on sales tax you may be disenchanted. Don’t do that!

You’ve got to look at the tax rate for state AND the localities! In this case, Idaho is extremely favorable.

Income tax is a bit high. Not extraordinarily high. But higher than I’d prefer. However, income tax can be manipulated with some basic financial planning.

So, Idaho, great french fries and a very favorable tax code as well.

 

ILLINOIS

Believe it or not, from a pure income tax perspective, it’s going to be hard to beat Illinois. Yes, I did just say that.

Illinois is VERY favorably in taxing income. In fact, the state does not tax ANY retirement income. So, if you’re income consists of $50k in IRA Distributions, $25k in Social Security and $25k in pension, you hav 0 income tax.

Now, don’t get me wrong. Illinois does get you in other perspectives. Sales tax and property tax are not low. In fact, those two areas are among the highest in the Union.

Unfortunately, of the 3 taxes, Income, Sales and Property, I’d rather have your income tax the higher of the three. You can manipulate your income so much easier than your sales and property tax.

So, while Illinois is favorable for income tax, it would be hard to recommend moving there for a soon-to-be retiree.

But with that said, it’s not nearly as bad, tax-wise, than what may be commonly thought. At least not for those whose income mainly comes from retirement accounts.

 KANSAS

Whoa! Kansas is NOT a tax haven for retirees no matter how how you cut.

From taxing Social Security to all private pensions, high property tax rates and top 10 in the nation for sales tax rates, Kansas leaves a lot to be desired from the tax perspective.

Here is one thing that jumped out at me regarding Kansas tax that you need to be aware of.

Your Social Security is taxed based on your AGI…NOT your taxable income. Why is that important? Well simple.

Let’s say you’re a politician in Kansas. You can say “We don’t tax your Social Security until your AGI is above $75k.” That sounds reasonable, no?

But that also means if you have taxable income above $49k you will pay tax on your Social Security benefits.

Same exact scenario. But the code discussed AGI as opposed to taxable income as a way to minimize the initial affect a citizen will have when they hear how the taxes work.

Yet, it doesn’t stop there. In other areas, Kansas DOES say explicitly they will tax you if your TAXABLE INCOME is above a certain threshold, as opposed to AGI.

Trust me, these folks knew what they were doing when they were concocting the tax code. Semantics? Yes. But if you don’t understand the semantics of the tax code in whatever state you live, you could be in for a rude awakening.

 

IOWA

Iowa is not a tax friendly state for retirees. Not in the worst quintile, but in the 2nd worst quintile.

Pretty high income tax with moderate income. Big marriage penalty too. 7.6% is the effective tax rate to married filing jointly. That’s a big tax, my friends.

But at least there are some exemptions for IRA and other retirement plan distributions about $12k if you’re married filing jointly.

High property tax though. And there is no real homestead exemption for seniors either.

There is a large inheritance tax too! Lineal family members receive inheritance tax free. All others…taxed. And the tax is not small either.

Iowa has a rather low sales tax though, when you factor in the state AND the localities.

Basically, income tax is pretty high. High property tax. Sales tax is moderately low. There is an inheritance tax too. Just keep that in mind as you plan your estate.

 

INDIANA

Indiana is in the LOWEST tax favorable quintile of all the United States. Can you believe that? Indiana is actually 2 quintiles behind…Illinois! Crazy…I know it.

Pulaski County adds 3.3% tax on top of the tax the state assesses as well. Which means you really need to look at the county you’re going to live in to get a better gauge of your total income tax in Indiana.

The state of Indiana doesn’t tax much, only 3.3%. But man, oh man, the county can hammer you. Bigly!

Not much in terms of exemptions either. IRAs, 401ks and out of state pensions all fully taxed.

Homestead exemptions is beyond my ability to comprehend here. So, if you live in Indiana DEFINITELY go to your county office and make sure you’re getting all the exemptions you are entitled!
Maybe even ask a local realtor if they know how to figure out the exemptions you may get in your county.

Cars sales tax is based on MSRP! It is NOT based on your purchase price. Crazy.

It appears there is no local sales tax though. Only the state and that is actually much more favorable in its entirety.

 

KENTUCKY

Whoa! Kentucky is VERY favorable for retirees from a tax perspective.
If you’re over 65 you can have significant income without paying a penny in income tax to Frankfort.

I model a married couple with $50k in Social Security and $50k in IRA distributions and they pay NOTHING in income taxes.

Sales tax is very reasonable too, at 6%. Now, this is where you need to look beyond the top line number. Some will see a 6% tax and say, “that’s way higher than my state.” And they’d be right.

But is it way higher than their state…and locality??? You’ve got to look at both. And this is where Kentucky shines. It’s 6% all in.

Property tax? Not a big deal at all, at around .80% of the assessed value of the home. AND folks over 65 get a sizeable homestead exemption as well.

Now there is a rather large inheritance tax in Kentucky. But we’re going to leave that for another video.

All in all,Kentucky is definitely one of the most tax favorable states in the union for retirees.

 

LOUISIANA

Louisiana is very favorable tax-wise for retirees.

State and local income tax burden is among the lowest in the nation. With lots of exemptions added to the mix too and even some of your IRA distributions are free from taxation as well.

Property tax is all of .51% and with median housing values only $143k you’re just not going to pay much in property tax in LA.

However, the sales tax they get you. 10% all in sales tax! That’s literally the highest in the nation.

But you can easily pay that tax with the money you save on low property and income taxes indeed!

MAINE

The great state of Maine is VERY favorable from a tax perspective for most retirees.

Unfortunately, unless you dive into the numbers many people will not realize this. They’ll see the state and local tax rate of 10.2% and go running for the hills!

But as we show you in the video, very few Mainah’s are going to pay anywhere near that kind of income tax rate. In fact, the vast majority of retirees in Maine won’t pay ANY income tax at all.

From a sales tax perspective, Maine is pretty good as well. Not quite as good as their friendly neighbor to the south, New Hampshire. But their 5.5% ‘all in” sales tax rate puts Maine in the top 10 of sales tax minimization of all the US.

It’s their property tax where they can get you. 1.23% on assessed value. This rate puts Mainers in the top 10 for most UNFAVORABLE property tax.

But, as I’ve said many times, of the 3 primary sources of taxation, sales, property and income, having 2 out of 3 being favorable is quite a good place to be.

And thus, Maine is a good place for retirees indeed.

If you are interested in reading material about the state of Maine, other than just Stephen King or Thoreau, do yourself a favor and get some Kenneth Roberts books. Best historical fiction of his times.
Kenneth Roberts Amazon Page. https://www.amazon.com/Kenneth-Robert…

MARYLAND

Maryland is another of these states where you need to look beyond the top line tax rates and actually dive into what your locality can add to your burden.

For instance, Maryland income tax is 5.75%. Which may or may not be reasonable depending on your perspective. Yet when you through local taxes into the mix, the overall burden is over 10%!

Sales tax though is an ‘all-in” 6% with localities adding NOTHING to that tax. So, what looks to be an expensive state sales tax is actually rather cheap when you factor what localities can add.

Property taxes are high from an overall dollars paid due to Maryland being a high cost of living state.

But from a pure percentage perspective Maryland is towards the middle in overall property tax rate.

So, all in all, Maryland is not nearly as burdensome as some might believe.
Social Security benefits are not taxed. And there is a SIGNIFICANT tax exclusion from pensions and qualified plan distributions. $29k per taxpayer is excluded from taxation on those plans.

A HUUUUUGGGGGEEEE caveat though. IRAs do not get that exclusion! Crazy as that may seem, it’s the tax code in MD.

I simply can not see the reason ANYONE who resides in Maryland should roll their 401k/TSP/403B plan to an IRA given the tax structure in MD.

You’re talking nearly $60k extra tax free income by leaving your money in your employer sponsored plan. That’s REAL money, my friends.

 

MASSACHUSETTS

Retiring in Massachusetts? You need to be doing some serious tax planning before you hang up your boots.

If you do, you can actually have a rather favorable, all-around, tax situation. If you do nothing though, you’re going to be in a world of hurt.

First off, Massachusetts does not tax any Social Security income. That right there should give you a HUGE incentive to maximize your Social Security benefits.

MA also doesn’t tax state and local government pensions. It appears they do tax Federal pensions though.

All other income is fully taxed as ordinary income. IRA distributions, 401k distributions, private pensions, annuities, etc. And these are taxed at a flat rate over 5.1%.

But it gets worse. They not only tax your income at 5.1% but they tax you on your Federal AGI. Not your taxable income!!! If you don’t know the difference you haven’t been watching my videos… 🙂

Let me give you a simple example how this works. You have $100k in Fed AGI. You must then pay 5.1% to Massachusetts, or around $5k.

However, say you also have $50k of deductions, mortgage interest, charitable contributions, property tax etc. Thus your tax to MA is actually a 10% rate, $5k on only $50k of TAXABLE INCOME! That’s huge.

However, if say you had $50k from Social Security and $50k from IRA distributions you’d only pay tax on that $50k because Social Security is not taxed.

Thus, MAXIMIZE YOUR SOCIAL SECURITY!!! I have tons of videos on how to do this exact thing,

Now, one might think Massachusetts has a high sales tax. After all they rank the 13th highest in the nation in state sales tax. BUT, in overall sales tax they are ranked 35th because localities don’t have their own separate tax.

That’s why you need to look at more than the top line rates.

Property tax has got to be high right? Well, not so much.

In terms of total percentage, Massachusetts property tax is the 18th highest at 1.15%. Overall property tax paid is quite high as Massachusetts property values are very high relative to most states.

However, if you have income less than $85k and are over 65 , with a property valued less than 700k you can qualify for a $1k credit on your property tax bill.

For some, that will be a 25% credit against property taxes! That’s a big deal.

So, all in all, you’ve got to do your homework before writing off Massachusetts as a high tax state.

Now, the pain point in Massachusetts is their estate tax. That is brutal. But we’ll dive into that in a separate video.

MICHIGAN

Once again you have to look beyond the top line numbers to factor how Michigan taxes retirees.

No tax on Social Security income. A large standard deduction of $20k per person who is over the age of 67.

So, say you have $40k in Social Security and $40k in IRA distributions, you pay 0 income tax to the state, even though it appears they are a “high tax” state.

Property tax RATE is high, but actual dollar amount of property tax will be quite low comparatively speaking because the housing values in Michigan are relatively low.

Sales tax is a flat 6%. From the state side of things that seems high. But there is NO OTHER sales tax added. No county or local sales tax.
What does that mean? Your sales tax in Michigan is pretty low.

All in all, a retiree with less than $100k income is going to do just fine in Michigan, at least in terms of taxation. The cold is a different thing altogether!

MINNESOTA

Yikes! Minnesota is tough on taxes for retirees. No other way around it.

High tax on income. High tax on property. High tax on sales too.

Factor in all three and you’re in a very unfriendly state tax-wise.

Now, again, if you are going to retire in Minnesota, it makes sense to be engaging in proactive tax planning. The source of your income stream is HUGE.

$50k in say IRA distributions plus $25k in Social Security = a tax nearly $3k

Switch those two numbers though and you have basically NO income tax!

Critically important to understand the tax code and what income is taxed.

MISSISSIPPI

Mississippi is VERY favorable for retirees when it comes to taxes.

In fact, it’s going to incredibly hard to beat the great state of Mississippi in terms of the taxes retirees pay.

Let’s start with income tax. Yes, Mississippi has an income tax. And so many people will overlook the state for retirement. BIG MISTAKE!

Mississippi exempts ALL retirement income from tax, not only Social Security but IRA, 401ks, 403bs, TSP and pensions. Are all exempt from taxation!

That is amazing. Think about it, you have $50k in Social Security and $50k in pension/IRA distributions. You pay ZERO tax. That’s right, NOTHING.

Again, just shows you have to look beyond the top line tax rate.

“Oh, but Josh, they have a high state sales tax of 7%, which is the 2nd highest in the nation,” you say.

Nope. You need to look beyond that top line rate too. Because in Mississippi only two localities have an additional tax. So, all in all, Mississippi is only the 21st highest sales tax state in the union.

Lastly, retirees have a large $75k homestead exemption for their property tax. The median value in Mississippi is all of $104k so someone with a median home value will pay property tax on only $29k. And then the tax rate is .64%.

Take the totality of income, sales and property, on top of adding low property values and like I said, it’s going to be hard to beat Mississippi when it comes to taxes for retirees.

MISSOURI

Missouri is one of the few states that taxes some of your Social Security benefits. You do need to have gross income of $85k for single taxpayers and $100k for Married Filing Jointly before your benefits are taxed.

However, ALL of your retirement income is taxed, IRAs, 401ks,, 403bs, TSPs and 457s. Now some pension income has some exemptions but you really need to have low income to qualify. Military pensions are tax-free, be advised.

So, in Missouri, just assume all of your retirement income is taxed. And once you break $9k of TAXABLE INCOME your tax rate is 6%.

State sales tax of 4.225% seems low. But when you factor in local taxes, the sales in Missouri almost double what the state tax rate is. In fact, the total sales tax in Missouri puts them in the top 15 for highest in the nation.

Lastly, property taxes are 1.02% of assessed value. Unless your income is very low there is no homestead exemption either.

So, by and large, Missouri isn’t a tax Heaven or a tax Hell. It’s smack in the middle of the US for overall tax rates for retirees.

MONTANA

Kiplinger’s rates Montana as not tax friendly for retirees. I don’t agree with this.

Yes the state does tax Social Security. But it has NO sales tax. And it also has very low property tax rate.

I’d much rather have low to no sales and property tax with a high income tax than the other way around.

If you do smart planning and maximize your Social Security benefits you can minimize your income taxes significantly.

In fact, I ran two scenarios in Montana one with $50k Social Security income and $25k retirement income. The second scenario was the opposite.

The tax difference is amazing. You pay $1000s more in tax, per year, to not only the Feds but to state of Montana when you have lower Social Security and higher retirement income.

So, if you plan right, you can have little income tax, NO sales tax in Montana and very low property tax too.

If your income is low enough you can even get a $1000 credit against your property taxes as well.

How do you get your gross income low? Roth IRAs and Social Security planning.

 

NEW JERSEY

New Jersey property taxes are the highest in the nation. On the median house value of $313k you pay a whopping $7500 in taxes. That’s just hard to comprehend for an average retiree.

Seniors, at a certain lower income, can qualify for some reimbursement, but how one does that is so convoluted it’s not possible to put describe it here.

But, property taxes aside, New Jersey is not anywhere near as bad on taxes for a retiree as one might have thought. Not only are Social Security and military pensions not taxable but folks over 65 can exclude huge amounts of retirement income from taxes too.

As long as your income doesn’t exceed $100k, married can exclude up to $100k in the tax year 2020. IF that law which only passed in 2016 stays on the books with the new Governor in office.

So, in New Jersey if your income is $50k in retirement distributions and $25k in Social Security, you will pay NO tax in 2020. Even today, you only pay a couple hundred dollars.

Sales tax in New Jersey is reasonable as well, clocking in at right at 6% statewide. This ranks New Jersey only the 30th highest in the nation in sales tax burden.

So, with average to low sales tax, huge retirement income exemptions, we simply can’t say New Jersey is high tax anymore,, other than the gigantic property taxes.

 

NEW HAMPSHIRE

If you’re from Northern New England, you are very aware that New Hampshire has no sales tax. In fact, I bet if you live in that part of the US, you’ve actually made a trek or ten to shop in NH just to avoid paying sales tax.

(When I was growing up in Maine, we’d always stop at the Portsmouth state liquor store before returning to Maine, so my folks could get their booze and other items tax free. Funny the things that stick in your mind when you’re a young kid.)

On top of having no sales tax, New Hampshire also has no income tax either. It goes without saying then that there are no taxes on Social Security, IRA distributions, pensions etc.

However, New Hampshire does saddle its residents with high property tax. The third highest in the nation as a matter of fact, at 1.99%. That property tax is a sticking point for many residents, indeed.

There is not much of an exemption to speak of either. So if you’re on a fixed income and own a home, New Hampshire may not seem as tax friendly as it is thought to be. Property values in New Hampshire aren’t cheap either.

This is why I prefer states with a low property and sales tax even if it means they have an income tax. You can work around the income tax with proper planning. Property tax? Not so much.

 

NEW YORK

In New York, if the bulk of your income comes from Social Security, pensions and IRA(401k etc.) distributions, your income tax will not be huge.

New York does not tax Social Security or public pensions, to include military pensions. And they have a $20k exemption on qualified plan distributions as well. You only have to be 59.5 to qualify for these exemptions too, which is nice.

So, it’s not hard to see a couple with gross income of say $80k not paying much in income tax to the state of New York.

However, it’s the sales and property tax that get you.

Sales tax looks small when you just look at the state sales tax. It’s only 4%, which puts NY in the bottom ten of all states for sales tax.

That’s not the full picture though. Add in localities and you’re more than double the state rate, up to almost 9%. That nearly 9% rate puts New York in the top 10 highest sales tax states in the country.

Property taxes are a major hurdle too. The 1.40% puts them in the top 15 most heavily taxes state. However, because property values are higher than average, when actual dollars are paid, New York is the 4th highest ranking state in terms of property tax.

There are a couple exemptions some could qualify that are decent actually. However, these exemptions are income based and your income needs to be quite low to qualify for the first exemption.

The second, as long as your income is less than $90k or so, you’ll have a decent chance of getting an exemption on some of your property tax.

Still, even with these exemptions, the property tax is a monster. Not two ways around it.

 

NEW MEXICO

New Mexico is one of the few states where you can easily pay more in tax to the state than the Feds. In fact, it’s not even close.

New Mexico taxes ALL retirement income, to include Social Security.

They do offer a small exemption of $8,000 if you meet certain LOW income thresholds.

So, for simplicity, if you are planning on retiring to New Mexico, just assume ALL of your income will be taxed. The rates aren’t low, either.
Gross income of $50k puts you in the 4.9% bracket.

New Mexico also has the 15th highest sales tax in the nation when factoring in state and localities.

But property taxes are among the lowest in the nation.

So, high income tax, moderately high sales tax, but low property tax.

I like the low property tax. That’s for sure. Property tax planning can minimize to some degree your income tax too.

 

NORTH CAROLINA

North Carolina has a flat tax of 5.49% and basically everything is subject to taxation, except for Social Security.

If you are retiring to North Carolina you should be doing some proactive tax planning indeed. Roth IRAs and Social Security maximization strategies should be your first order to business.

State and local sales tax puts North Carolina smack dab in the middle of the rest of the nation. Not low, but not high either. Groceries are not taxed by the state but can be by the localities.

Property taxes are pretty low. Only the 30th highest property tax in terms of percentage but because median house value is pretty low te actual dollar amount citizens pay in property tax put the state in the top 10 for lowest burden.

NORTH DAKOTA

North Dakota is not a “tax free” state. It also taxes some Social Security benefits as well as all IRA, 401k etc distributions plus pension income.

Yet, the amount of income tax you’ll pay to the state is minimal because the brackets are very low. If you’re married you’ll pay all of 1.1% on Gross Income up to $90k. Of that amount, that which is from Social Security will be taxed even more favorably, similar to how the Feds tax it.

So essentially, you’re going to pay a couple hundred bucks in income taxes in North Dakota unless you’re making huge income.

Sales tax is middling. When state and local sales tax is accounted for, North Dakota is smack in the middle of the nation for taxable burden.

Property tax is in the middle of all states too, at 1%. Given the median value of homes in North Dakota is $155k, the actual dollar amount you pay in tax will be on the lower end.

All in all, you’ll pay some tax in retirement to live in North Dakota, but it won’t be oppressive.

OREGON

Oregon has NO sales tax! Let’s state that again, Oregon has NO SALES TAX! That’s huge my friends.

Now, income tax is a whole different story though. But not having a sales tax is a big deal. Don’t minimize that.

While income tax rates are very high, 9% on Taxable Income over $17k for Married Filing Jointly, Oregon does not tax Social Security income.

Thus to reduce your taxable income, you really need to maximize your Social Security benefits. THere is a retirement pension exclusion but you really need to have little income to qualify. I’ve attached the link below. Look at page 101.

Property taxes are about the norm in the US and while there is a small homestead exemption, most won’t qualify.

Now Oregon does have an estate tax which is rather restrictive too. I’ll get into that on future videos.

So, all in all, moderate property tax, NO sales tax, and while a high income tax but one that can be addressed with proper planning, Oregon is actually quite favorable to retirees.

 

OKLAHOMA

Oklahoma is very favorable tax-wise for retirees. For some reason Kiplinger’s has the Sooner state as not very tax friendly. I don’t get it.

Oklahoma doesn’t tax Social Security first of all. On top of that, Oklahoma allows a $10k exemption of income, per person, from various retirement accounts. And Military retirement recipients can exclude 75% of their benefits from taxes too.

So, if you have large Social Security, military pension and some retirement income, you won’t pay much in terms of income tax.

Sales tax is quite high in Oklahoma, ranked #6 highest in the nation when you include both state and locality sales tax.

However, property taxes are among the lowest in the nation. In fact, when you factor the actual dollars that the state collects in property tax, Oklahoma is the second lowest property tax in the country.

All in all, lots of income exemptions, incredibly low property tax can offset the high sales tax to make Oklahoma quite favorable for retirees.

 

OHIO

Ohio doesn’t tax Social Security benefits. And they provide a tax credit of up to $250 against your taxes if your adjusted gross income is below $100k. Remember a credit is a simple dollar for dollar reduction in taxes. So credits are a good thing.

Ohio’s sales tax puts them in the top 20 of the country. While not oppressive the sales cost is over 7%.

The property tax is among the highest in the nation. But given the value of homes in Ohio is lower than the national average the actual dollar amount Ohioans pay in property tax is lower than half of the US states.

By and large, Ohio falls smack dab in the middle of overall tax burden for retirees.

 

PENNSYLVANIA

Pennsylvania is very good to its retirees in terms of the taxes they pay.

In fact, ALL retirement income is excluded from taxation!

So, just say you have $40k in Social Security and $60k in IRA, pension and 401k distributions. You will pay 0 in tax. That is a big, fat Goose Egg, my friends.

Now, you may think PA has a high sales tax. And you’d be wrong. The state plus local sales tax rate puts PA in the bottom third of all the US for sales tax.

Lastly, the property tax rate is pretty high at around 1.50%. There is not much of a homestead exemption either. But the median property value in Pennsylvania is not extraordinarily high either. So, while you pay a high percentage, relative to the rest of the US, the total dollar you pay is closer to the middle of the average US state

From an income tax perspective alone, PA is very favorable for retirees. Moderately low sales tax add to the allure. The property tax is a bit high but nothing that should drive you away from the great Commonwealth of PA.

 

RHODE ISLAND

Whoa! Rhode Island has really done a good job at reducing the burden on their retirees. You may not even realize this because some of the primary websites that analyze state taxes on retirees miss the boat (I am looking at YOU Kiplinger’s and Smart Asset!!!)

I ran a simulation for a retired couple in Rhode Island with $50k in Social Security income and $50k in 401k or pension income… they’d pay all of $2k in taxes.

That’s not too bad, my friends. Why so low? Because Rhode Island has a new benefit that allows retirees with income under to exempt $15k per person from qualified plan distributions.

BE ADVISED IRAs ARE NOT INCLUDED!!!

And if income is below $100k Rhode Island doesn’t tax Social Security either.

This is all good.

Sales tax is in the middle of the pack when TOTAL sales tax are included, state and locality.

Property taxes are high with little exemptions, clocking in at over 1.50%.

But give credit to the new Democratic governor for getting these tax bills through that are definitely favorable to retirees.

http://www.tax.ri.gov/notice/Pub.%202…

 

SOUTH CAROLINA

South Carolina is quite favorable to retirees.

Property tax rate is among the lowest in the nation. But sales tax is relatively high.

However, income tax is VERY favorable for retirees. A $30k exemption on retirement income for married couples. Plus Social Security is not taxed.

So, a married couple with $100k will pay little to NO income tax in South Carolina.

Low income tax, low property tax and a moderately high sales tax, makes South Carolina VERY favorable for retirees.

SOUTH DAKOTA

South Dakota has no income tax. Thus ANY income is not taxed.

South Dakota also has a moderately low sales tax too, clocking in at around 6.40%.

Property taxes are on the high end, around 1.21%. Not extraordinarily high but in the top 20 nationwide.

However, South Dakota median property isn’t overly expensive so the actual dollars residents pay in property tax are in the bottom half of the country.

All in all, no income tax, low sales tax, middling property tax, South Dakota is very favorable for retirees.

 

TENNESSEE

Tennessee is one of the few states with no income tax. So, right there alone the good folks in Tennessee are going to be taxed very favorably when it comes to retirement.

However, sales in Tennessee is the second highest in the nation, clocking in at 9.46% on average when you factor in local sales tax.

But, a high sales tax is the only sore spot for retirees in Tennessee because property taxes are also among the lowest in the country at .75%.

Factor in Tennessee’s lower median home value with the low property tax rate and you have a winning scenario for retired home owners.

Overall, Tennessee comes in very favorably for retirees.

 

TEXAS

Texas is such a great state. Southern, Mexican, Cajun, German culture all thrown into one place. Plus the diversity in landscape.
Arid in South Texas. Green rolling hills in the east. Deserts, beaches, mountains. Can it get any better? Absolutely fantastic.

Just to set the record straight, there “ain’t no saguaros in texas” https://www.youtube.com/watch?v=mg5Vw…. You need to go to AZ to see those.

But taxes in Texas are not nearly as favorable as one would think. Yes, no income tax. That’s awesome.

But property and sales taxes are high.

I remember when we lived in South Texas getting hammered by property tax. We had come from Virginia where property taxes were low.

All of sudden having these huge property taxes was a shock to the system for sure.

Texas definitely offsets it with its NO income tax. But then you throw a high sales tax in the mix and you realize Texas is not nearly the panacea many make it out to be from a tax perspective.

Ideally, you’d want to retire to a place that is low in sales and property tax, even if they had an income tax. You can do a lot of proactive planning to minimize the income tax. But there is little you can do from a property and sales tax perspective.

Still Texas is better than most. You can get

 

UTAH

Look out! Utah is not very favorable at all to retirees, from an income tax perspective. In fact, Kiplingers ranks it in the bottom quintile for least favorable taxed states for retirees.

First off, ALL of Social Security is included in taxable income. Yes, there is a retirement tax credit of $900 but it begins to get phased out if your AGI is over $32k for married couples. (Remember AGI is BEFORE you take standard deductions so AGI of $32k is not much income at all.)

It goes without saying that if Social Security is fully taxed than all other forms of income will be fully taxed as well.

Property taxes are low, at .65%. So that’s good. Not much of a homestead exemption though. You can’t have more than $32k of income to qualify. Whether this is gross or taxable income I do not know however.

Lastly, sales tax is moderately low, coming in at 29 for all 50 states. Food is taxed in Utah too.

A couple things to keep in mind, UTAH hammers you on income tax. However, as I’ve stated time and again, income tax planning is something you CAN do to prepare.

I know it’s a broken record, but maximizing Social Security and Roth IRAs are what you need to be looking at NOW to reduce your income tax burden in the future.

However, other aspects that are out of your control, sales and property taxes, are actually quite reasonable if not outright low in Utah.

I’d rather be in a low property and sales tax state with a high income tax than the other way around. Thus in my mind Utah comes in favorably, even though Kiplinger’s disagrees.

VERMONT

Vermont ranks low in terms of tax friendliness for retirees by Kiplingers. In fact, it ranks among the 10 worst.

But, once again, I don’t get it.

Yes, Social Security is taxed, but only to the extent its taxed at the Federal level. If you’ve been following my Youtube channel at all you’d know that Social Security is favorably taxed by the Feds.

So, while Vermont includes some Social Security in its tax calculation it’s not nearly as bad as Kiplingers would make you think.

In fact, I ran a calculation for a Vermont retired couple who had $50k in Social Security and $50k in IRA distributions. This couple paid all of $2k to the state in tax. That’s not too bad, actually.

On top of that Vermont has a moderately low sales tax, coming in at the 36th highest in the nation.

Finally, Vermont does have an extraordinarily high property tax coming in at the 5th highest in the nation from a percentage basis and the actual dollar amount homeowners pay.

For retirees with income less than $99k there is exemptions though.
However, property tax will be a retirees biggest expense, without question.

So, all in all, low sales tax, moderate income tax and high property tax puts Vermont in the middle of the US in terms of taxation, in my opinion.

 VIRGINIA

Wow, Virginia is VERY favorable to its retirees, just don’t own an expensive car as they charge nearly 5% a year on assessed value for property tax(depending on the county you live).

But lots of great income exemptions on retirement income. Qualifying couples can exclude up to $24,000 of retirement income, so long as their total AGI doesn’t exceed $75k.

Now remember the difference between taxable income and gross income. AGI of $75k means you can’t have taxable income more than $48,400 if you’re married filing jointly and over the age of 65.

Now, with that said, even if you break that $75k AGI threshold, you still can get an exemption but you will lose the entirety once you hit $87k.

Social Security is tax exempt as well. So, you can have a lot of income essentially tax free.

In fact, I ran a calculation of $50k in Social Security income and $50k in IRA distributions. Total tax for that $100k gross income? $770. That’s it.

Sales tax is quite favorable too. Virginia falls in the top 10 in terms of the lowest sales tax in the nation. Food is taxed but only 2.5% or so. So not too bad

Lastly property tax rate is quite low at .84%. Now, Virginia does have fairly expensive property so the overall dollar amount that goes to Richmond is rather high. But that primarily is from Northern Virginia where the property values are sky high.

All in all Virginia is VERY favorable for for retirees in terms of taxation.

 

WASHINGTON

A few years ago, Bill Gates Sr. and others put a ballot initiative for voters to approve a state income tax. It was voted down, by a rather large percentage, and so Washington remains one of the 7 US states with no income tax.

They make it up with one of the highest sales taxes in the union though, clocking in at over 9%. But groceries and prescription drugs are exempt. Which is a very good thing.

Property taxes are right in the middle for overall burden.

So all in all, Washington is definitely on the tax friendly side.

But be advised Washington does have a pretty significant estate tax.
I’ll do other videos on that. So be on the lookout.

WEST VIRGINIA

West Virginia Taxes retirees on income to the same extent as the Federal Government does. But, and this is big, in West Virginia taxpayers over 65 can exclude $8,000 of retirement income from their taxable income.
Thus a married couple filing jointly over 6 has $26,600 in standard deductions from the Feds PLUS another $16k from the state. That’s good.

In fact, if you have $25,000 of Social Security income and $25,000 of IRA distributions you will pay all of $250 or so in state tax.

Sales tax is moderately low as well. Even better is that the state does not tax prescription drugs and groceries.

Lastly, are the property taxes in West Virginia. Property tax in West Virginia is among the lowest in the nation not only from a percentage but given the lower home values too.

Once again, I disagree with the Kiplinger’s assessment. West Virginia is actually quite favorable for taxes in retirement.

WISCONSIN

UGH! Wisconsin is NOT GOOD for retirees.

Income tax for retirees ranks the 4th highest in the country, first of all. The Tax Foundation puts the state at 11% for its total tax burden. Yikes!

They have some exemptions but your income needs to be VERY low to qualify. At least Social Security is not taxed though. That’s a win indeed. But once you break $15k in taxable income as a Married Couple you’re in the high 5% bracket.

Sales tax is very low. So that’s a win. It’s offset by a HUGE property tax rate though of 1.77%. Given that the average house in Wisconsin in on the high end that high property tax rate costs a lot of money.

Interesting is that Wisconsin taxes capital gains at its ordinary income rates. So, that’s just another tax on top of the Feds capital gains rate.

WYOMING

It’s going be AWFUL hard to beat the state of Wyoming when it comes to taxes for retirees.
No state income tax.
LOOOOOWWWWW property tax.
And LOOWWWWW Sales tax too.

Also a freedom loving state.

Really not much more to say on this. Almost perfect from a tax perspective.

Now, from my understanding it’s downright windy in this great state. But if you can handle the wind and some cold, Wyoming might just be your place.

 

 

Why Your Teen Should File A Tax Return (Video)

,

Way back in the day when I was in High School, I had a small ‘side hustle’ of sorts, where I did taxes for some of the local kids I worked with washing dishes.

They were amazed that I was able to get them a couple hundred bucks back a year. And they paid me accordingly.

Well, the reason for this was simple, they were having income taxes withheld from their paychecks but their Adjusted Gross Income was less than the standard deduction. This means that they had NO taxable income yet had taxes withheld.

So, when they filed taxes they got ALL the withheld income taxes back. All of it! Now, they didn’t get their FICA back, only income taxes.

The same thing can happen for your child too. If Joanie made $10k being a host at the local Japanese Steakhouse she owes NO income tax. Why? Because her standard deduction in 2018 is $12k. Any amount that was withheld is her money.

But she needs to file a return to get it back. No return, no refund!

Again, the 7.65% she had withheld due to FICA will not be refunded. But the income tax will.

So, file away! It’s your money, go get it!

The 10 Worst States For Retired Taxpayers

,

After breaking down the 8 best states for retired taxpayers and the 7 states with tax quirks you MUST know before you settle there, I had to share what I believe are the most taxed states for retirees.

Property Tax Is Most Important

Now please be advised, my list revolves first and foremost on property tax. Property tax is one area that can not be controlled or planned for. It simply is what it is.

You live in a state with a 1% property tax and no homestead exemption you pay 1% of your home value to the state and/or county in property tax. Other than moving there is nothing you can do.

Sales Tax Is Next In Order of Importance

The second concern is sales tax. Sales tax can be dealt with a bit differently than property tax. You can go over the line to buy goods in a state with no sales tax for instance. You can grow you own food to avoid sales tax. Etc. So there are things you can do to minimize, if not outright avoid sales tax.

Income Tax Can Be Worked Around

Lastly, is income tax. Income tax is MUCH less prevalant for retirees than most people think. Without question it is a concern, but first priority needs to be focusing on the first two mentioned above.

Income tax can be worked around with smart planning techniques, maximizing Social Security, Roth conversions and asset location strategies too. But like most things, if you do nothing, you’ll probably pay more. So, proactive tax planning is a must.

The 10 Worst States For Retirees

In no particular order:

1. Connecticut – High income taxes. High property tax. High gas tax. Moderate sales tax, but groceries are not taxed. Income over $20k tax rate is 5%. Not much of a homestead exemption, have to have income below $43k to qualify. Connecticut has an estate tax too.

2. Vermont – High income tax, high property tax, sales tax is moderately low. Groceries are exempt. High gas tax. Income needs to be below $47k to qualify for homestead exemption. Social Security partially taxed.

3. Illinois – High sales tax. High gas tax. #2 highest property tax in the nation. But income tax not nearly as bad as some other states.  Property tax is bad, real bad. Not much of a homestead exemption either

4. Wisconsin – 4th highest income tax. 4th highest property tax. Low sales tax though. Social Security not taxed. Gas tax is high. Taxable income over $30k and your marginal rate is a steep 6.27%. Basically no homestead exemption either.

5. Nebraska – Middle sales and gas tax. Groceries exempt. Property tax in top 10 and Social Security is taxed as well as all other retirement income. Taxable income over $60k puts you at the 6.84% bracket, which is steep. Not much homestead exemption.

6. Minnesota – Top 20 for income, sales and property tax. Social Security is partially taxed. Retirement income taxed. Not much of a homestead exemption. Taxable Income greater than $37k puts you in the very high 7.05% marginal rate.

7. Kansas – Sales tax #6 and property tax is the 15 highest. Social Security mainly exempt. Taxable Income greater than $60k puts you in the 5.7% marginal rate. No real homestead exemption.

8. Rhode Island -HIGH income tax… but just did recently add some nice exemptions as long as gross income is below $100k. High gas tax, high property tax, estate tax too. To get the homestead exemption you need income less than $30k. Sales tax not so high and groceries are exempt.

9. New Jersey – Highest property tax in the nation, by far. High income tax. Now high gas tax. Sales tax moderate and groceries are exempt.

10. New York – Maybe worst in the nation. High income tax. High property tax. High sales tax. Income greater than $23k puts you in a 5.25% bracket and quickly creeps up.

How WISCONSIN Taxes Retirees (Blog)

,

UGH! Wisconsin is NOT GOOD for retirees.

Income tax for retirees ranks the 4th highest in the country, first of all. The Tax Foundation puts the state at 11% for its total tax burden. Yikes!

They have some exemptions but your income needs to be VERY low to qualify. At least Social Security is not taxed though. That’s a win indeed. But once you break $15k in taxable income as a Married Couple you’re in the high 5% bracket.

Sales tax is very low. So that’s a win. It’s offset by a HUGE property tax rate though of 1.77%. Given that the average house in Wisconsin in on the high end that high property tax rate costs a lot of money.

Interesting is that Wisconsin taxes capital gains at its ordinary income rates. So, that’s just another tax on top of the Feds capital gains rate.

Click here for video.

How WEST VIRGINIA Taxes Retirees (Blog)

,

West Virginia Taxes retirees on income to the same extent as the Federal Government does. But, and this is big, in West Virginia taxpayers over 65 can exclude $8,000 of retirement income from their taxable income.
Thus a married couple filing jointly over 6 has $26,600 in standard deductions from the Feds PLUS another $16k from the state. That’s good.

In fact, if you have $25,000 of Social Security income and $25,000 of IRA distributions you will pay all of $250 or so in state tax.

Sales tax is moderately low as well. Even better is that the state does not tax prescription drugs and groceries.

Lastly, are the property taxes in West Virginia. Property tax in West Virginia is among the lowest in the nation not only from a percentage but given the lower home values too.

Once again, I disagree with the Kiplinger’s assessment. West Virginia is actually quite favorable for taxes in retirement.

Click here for the video.