We spend years of our life working and saving for that retirement dream, and as you get closer, it's important to take all steps to preserve your nest egg. Perhaps a move across state lines will help in that endeavor. Some states don't tax Social Security or pension income but could have very different property and sales tax rates. Take a look at these or go online here for the complete list.
- Alabama doesn't tax Social Security benefits. Traditional pension payments are excluded from taxable state income, including private defined benefit plan payments and retirement income for teachers, law enforcement officers, firefighters, and government and military employees.
- Illinois has an income tax but exempts many types of retirement income. Retired residents can 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.
- In Mississippi, pension and Social Security payments can be subtracted or excluded from state taxable income, including public and private pension payments and withdrawals from IRAs and 401(k) plans. Mississippi's property taxes are also generally low; however, the state sales tax rate of 7% is relatively high.
- There's no state income tax in Texas, which means retirees don't have to worry about paying state taxes on Social Security income, pension payments, 401(k), and IRA distributions. But property tax bills can be significant in many parts of the state.
- 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 hefty state income tax bill. However, they'll tax your property, and there's also a 6.5% sales tax added to many purchases.
- Wyoming doesn't levy an income tax. So, there's no state tax bill for any type of retirement or earned income. Retirees won't encounter a significant 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.
Perhaps you've already moved to your final state and are still looking for ways to keep your money secure. As financial professionals, we can provide ideas!
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[1] https://money.usnews.com/money/retirement/baby-boomers/slideshows/the-most-tax-friendly-states-to-retire