Taxes can be a notable burden at any stage of life. But they can be particularly stressful for retirees.
Many retirees inevitably end up with less income than they had when they were working. And as such, it’s important for seniors to stretch that limited income as far as it can go.
Also Read– Microsoft Sees No Activision Deal Without Call of Duty
One way to do so is to retire in a state that won’t tax your retirement income. But you’ll need to look at the big picture before deciding to move to a state that falls into this category.
Which states won’t tax your retirement income?
There are eight states that do not have a state income tax, so whether you’re retired or are in your 40s and earning a paycheck from work, state taxes won’t apply. These states are:
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Meanwhile, New Hampshire also doesn’t have a state income tax on wages. But it does tax interest income and dividends. So if a portion of your retirement income is coming from investments in your brokerage account, your retirement income may be partially taxable in New Hampshire.
Now there are some states that do have an income tax but offer special benefits to retirees. Illinois, in many cases, does not tax distributions from pensions or retirement accounts like IRAs. Mississippi also does not tax retirement plan distributions, and the same holds true for Pennsylvania.
Georgia, meanwhile, allows residents aged 65 and older to deduct up to $65,000 of retirement income for state tax purposes. So if your income doesn’t exceed that threshold, you can avoid state taxes there.
Also Read– Stellar Weed Lifehacks: 3 Overlooked Ways To Enhance Your High
Which states won’t tax your Social Security income?
Social Security is commonly a big source of retirement income for seniors. The good news is that most states do not impose a tax on Social Security benefits (though taxes on that income can apply at the federal level).
However, these 12 states do tax Social Security income:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
Some of the states on this list, however, offer an exemption for lower or moderate earners.
Should you move to a state that won’t tax your retirement income?
Avoiding taxes on your retirement income could help you better manage your money at a time when it may be limited. But state taxes on your income shouldn’t be the only factor you consider when deciding where to settle down during your senior years.
Also Read– Zelle Tax ‘Loophole’ Utilized by Small Businesses Costs IRS Billions Annually
Some states without an income tax have a higher cost of living, like Alaska. And others, like Wyoming, may come with winters that are too harsh for your liking.
There’s also proximity to amenities, family, and friends to consider. Florida offers the benefit of warm weather and no state income tax. But if you don’t have any sort of social network in the state, you might get lonely or have a difficult time living there.
Similarly, moving to rural Texas might put you far away from healthcare facilities. And the heat might get oppressive during the summer.
Also Read – 3 Dividend Stocks That Should Pay You the Rest of Your Life
So while you may be motivated to retire in a state that won’t tax your income, before you uproot your life, make sure to look at the big picture. Not having to pay state taxes on your income is a nice thing, but you don’t want to sacrifice factors like your comfort and quality of life in the process.
