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.