Reduce your retirement tax bills.
Retirees can help their savings last longer by moving to a place with lower taxes. These states don’t tax Social Security or pension income. However, they have very different property and sales tax rates, which should also be taken into consideration, according to data from Wolters Kluwer Tax & Accounting, the Tax Foundation and the U.S. Census Bureau. Check out these low-tax places to retire.
Alaska
America’s northernmost and largest state by area has a different tax structure than any other state. Alaska is the only state with no state income tax and no state sales tax. However, the state does need revenue to provide services and chooses to collect those funds in the form of high property taxes. Homeowners pay a median of $3,570 for real estate taxes. Citizens of Alaska also receive a unique financial perk: Residents who have lived in the state for at least a year receive an annual payout from an oil wealth trust fund, which was $3,284 in 2022.
Florida
Most people know about Florida’s picturesque beaches and sunny winter weather. But year-round warm weather isn’t the only perk of retirement in Florida. The state doesn’t levy an income tax, which means retirees who continue to work part time get to keep more of their earnings. You also don’t have to worry about paying state taxes on your Social Security or pension income. Real estate taxes are a median of $2,338 across the state. The state sales tax rate is 6%, and there could be an additional local sales tax.
Hawaii
Many people dream of retirement on a tropical island. The cost of living in Hawaii can be high, but the state tax rates for retirees could help your retirement budget stretch further if you are relocating from a higher-tax state. Hawaii doesn’t tax Social Security income or funds drawn from employer pensions or defined contribution plans. Real estate taxes cost a median of $1,971. The state sales tax rate is 4%, and local sales tax rates are usually modest.
Illinois
The state of Illinois has an income tax, but exempts many types of retirement income. Retiree residents are allowed to subtract their Social Security and pension income from their federal adjusted gross income, including income from employee defined benefit plans, IRAs, SEPs, government retirement income and military retirement income. However, retirees may still be taxed in other ways. Real estate taxes are high, costing homeowners a median of $4,800. Shoppers also pay a 6.25% sales tax on many purchases, and there is often an additional sales tax at the local level.
Mississippi
Many types of retirement income aren’t subject to Mississippi’s state income tax. Pension and Social Security payments can be subtracted or excluded from state taxable income in Mississippi, including public and private pension payments and withdrawals from IRAs and 401(k) plans. Mississippi’s property taxes are also generally low. Median real estate taxes are just $1,097. However, Mississippi retirees should watch out for the relatively high state sales tax rate of 7%.
Nevada
The casinos and nightlife could be what draws you to Nevada, but you might stay for the low tax rates. Nevada doesn’t have a state income tax, so you don’t have to worry about paying state level taxes on earnings from a part-time retirement job or your retirement income from Social Security or a pension. Property taxes are also generally low. The median real estate tax bill is $1,807. However, the state sales tax rate is high at 6.85%.
New Hampshire
Residents of New Hampshire don’t have to pay state income tax on Social Security benefits, pensions, distributions from retirement accounts or income earned from a retirement job. The only forms of income New Hampshire taxes are dividends and interest. There is also no state sales tax, so retirees can shop freely without an extra tax burden. However, property taxes are among the highest in the country. Homeowners pay a median of $6,097 for real estate taxes.
Pennsylvania
Social Security benefits are not included in taxable income in the state of Pennsylvania. Distributions from 401(k)s and similar types of workplace retirement accounts and IRA withdrawals taken after age 59 1/2 are also generally exempt from state income tax. But Pennsylvania retirees will have to pay a 6% sales tax on their purchases. The median property tax bill is $3,018.
South Dakota
South Dakota is another state that doesn’t have an income tax. Retirees don’t need to pay a state tax on Social Security benefits, pension payments, retirement account withdrawals or income earned from a part-time job. However, South Dakota does levy property and sales taxes. Property owners pay a median of $2,370 for real estate taxes. South Dakota’s state sales tax is among the country’s lowest at 4.5%, but there may be additional taxes at the local level.
Tennessee
The state of Tennessee doesn’t tax Social Security or pension income or earnings from a job. Dividends and interest are the only forms of income that are taxable in Tennessee, and taxpayers age 65 or older with low incomes are exempt. Property taxes are also low. Homeowners pay a median of $1,317 in real estate taxes. But watch out for the 7% sales tax while shopping.
Texas
There is no state income tax in Texas, which means retirees don’t have to worry about paying state taxes on Social Security income, pension payments, or 401(k) and IRA distributions. But the state raises revenue in other ways. The property tax bills can be significant in many parts of the state. Property owners face a median of $3,797 in real estate taxes. There’s also a 6.25% sales tax applied to many purchases.
Washington
Washington state won’t tax your income. No matter how much you bring in from Social Security, retirement account distributions, a pension or a retirement job, you don’t have to worry about a big state income tax bill in Washington. However, Washington state will tax your property. Homeowners pay a median of $4,061 for property taxes. There’s also a 6.5% sales tax added to many purchases.
Wyoming
Wyoming doesn’t levy an income tax. So, there’s no state tax bill for any types of retirement or earned income. Retirees won’t encounter a large tax burden when making purchases. The state sales tax is a relatively low 4%. You also won’t pay high property taxes to own a home. Property taxes cost a median of $1,452.
States without pension or Social Security taxes include:
— Alaska.
— Florida.
— Hawaii.
— Illinois.
— Mississippi.
— Nevada.
— New Hampshire.
— Pennsylvania.
— South Dakota.
— Tennessee.
— Texas.
— Washington.
— Wyoming.
More from U.S. News
The Best Places to Retire in 2021-2022
The Most Affordable Places to Retire
10 Tax Breaks for People Over 50
The Most Tax-Friendly States to Retire originally appeared on usnews.com
Update 01/31/23: This story was published at an earlier date and has been updated with new information.
