Top 8 States For Retired Taxpayers (Blog 2018)

Thinking about rolling over your pension to an IRA in Alabama?  You might want to read this.

Thinking about NOT rolling over your 401k to an IRA in Utah?  Probably should read this.

Forgetting to keep track of your employer contributions to your retirement plans in Hawaii? Yikes. Read

These are just 3 of the odd rules that could creep up on you if you aren’t prepared.

In my 50 video marathon of how each state taxes retirees I came up with 7 very unique tax rules that can set you back if you are unaware.

ALABAMA Tax Quirk

Pensions are exempt from tax. The state literally could not be clearer when they say “For tax years beginning January 1, 1991, any benefits received from a defined benefit plan are not taxable. “

So if you’re thinking about rolling over your pension to an IRA – DON’T!  See here.

HAWAII Tax Quirk

“If an employee invests his or her money in a tax-deferred annuity or an individual retirement account (IRA), a distribution from the annuity or from the IRA is considered to be a return from an individual investment and is not considered to be an excluded pension.”
Yet your employer contribution ARE excluded. So, keep track of each!  See here.

MICHIGAN Tax Quirk

Retirement plan distributions qualify for large exemptions except:
” All distributions from 457 plans
Distributions from 401(k) or 403(b) plans sourced to employee contributions and the earnings from those contributions if the contributions were not matched by the employer”
Again, like in Hawaii, keep track of your employer contributions.  See here.

MISSOURI Tax Quirk

If your AGI is below $32k(MFJ) your pension is not taxed.
No way to get your AGI that low, you say? You haven’t been following my channel long have you?

MARYLAND Tax Quirk

IRAs, even ROTH IRAs, are fully taxed. Whereas ALL other retirement income qualifies for HUGE exemptions. See here.

RHODE ISLAND Tax Quirk

If you are MFJ and AGI is below $100k you can $15k of retirement income per person tax free…as long as that retirement income is NOT an IRA.  See here.

UTAH Tax Quirk

You can qualify for a $900 retirement tax credit within certain income limits as long as your retirement income is NOT from a 401k or 457 plan. See here.

Remember, tax laws change every year. Kentucky, for instance, just lowered their exemption amount by overriding the Governor’s veto. Rhode Island just enacted there new rules in 2017.

You’ve got to keep track of this stuff or else it really could cost you.

After doing a 50 video marathon of how each state taxes retirees, I had to do a wrap of the best states for retirees to consider, at least when it comes to the taxes they pay.

How I decided these were the top 8 states were based on their income, sales and property taxes.

Be advised, I favor LOW property tax, even at the expense of a higher income tax. Why? Because income tax can be manipulated with good tax planning, i.e, maximizing your Social Security benefits and converting to Roth IRAs when your tax brackets are low.

Unfortunately, there is not much you can do when it comes to property tax. Hopefully, your state or county has a decent homestead exemption to reduce the property tax burden.

Sales tax is second tax I want to see low. Again,, I’d rather have a low sales tax than a low income tax if I had to choose between the two. Unfortunately there are only 4 states in the US with no sales tax and none of them appear on this list.

New Hampshire doesn’t have a sales or income tax but its property tax is so high, it can’t rank in the top in terms of tax favorability.

Also, when it comes to sales tax, I want to find states that don’t tax groceries. This may be my bias with a family of 6 but we spend a HUGE amount on groceries. So, to avoid that, is a huge tax cut and it will be for many retirees too.

Lastly, comes the income tax. But I didn’t want to simply say “Texas has no income tax thus it’s tax favorable. Georgia HAS an income tax thus it’s not.” There is so much more to the picture than just whether or not a state has an income tax.

Did you GA allows you to exempt $130k in income if you’re married filing jointly and over 65? That means if you have income of say $100k, you have no state income tax. Yet, you wouldn’t have known that if you just looked at the states with no stated income tax.

So, let’s dive into the top 8 in alphabetical order.

1. Alaska – No sales tax(at the state level) no income tax, large homestead exemptions for homeowners over 65 years old.

2. Delaware – (This may be my #1 state actually from a tax perspective.) No sales tax, top 5 lowest property tax in the nation and huge deductions on retirement income for retirees plus Delaware doesn’t tax Social Security.

3. Georgia – No sales tax on groceries, basically no income tax for most retirees and relatively low property tax too with homestead exemptions

4. Hawaii – stunned when I saw this. Lowest property tax with a huge homestead exemptions. Top 5 lowest sales tax. No tax on Social Security or pensions.

5. Kentucky – Bottom 10 sales tax, groceries are exempt. Huge retirement income exemptions. Social Security not taxed. Low property tax with a decent homestead exemption too. Low cost of living.

6. Mississippi – Exempts ALL retirement income from tax. Social Security not taxed. Incredibly low property tax with huge homestead exemption. Moderate sales tax. Low cost of living.

7. Tennessee – No income tax. Low property tax. High sales tax but groceries are exempt. Large homestead exemption. Cost of living pretty low.

8. Wyoming – No state income tax. Low property tax rate. Low sales tax too. Groceries are exempt from sales tax. Lowe cost of living.

Of course, this list is always subject to change. Kentucky just reduced their retirement income exemption from a HUGE $41k per taxpayer to a still HUGE $31k per taxpayer.

You’ve got to keep your eyes open for changes. And some states have done good work in the past few years to make their states more receptive, New Jersey and Rhode Island come to mind.

Of course, you may disagree with my assessments or think I missed a state. Put it in the comments notes and tell me why.

 

See the video here.

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