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.
The state of Alabama doesn't tax Social Security benefits. Traditional pension payments are also 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. Property taxes are also low. Property owners in Alabama paid a median of just $609 in real estate taxes in 2019. The state sales tax rate is among the lowest in the country at 4%. However, there may be additional local sales taxes in some areas of the state.
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 paid a median of $3,325 for real estate taxes in 2019. 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 $1,606 in 2019.
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 were a median of $2,035 across the state in 2019. The state sales tax rate is 6%.
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 $4,527 in 2019. Shoppers also pay a 6.25% sales tax on many purchases.
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 were just $1,009 in 2019. However, Mississippi retirees should watch out for the relatively high state sales tax rate of 7%.
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 was $1,695 in 2019. However, the state sales tax rate is high at 6.85%.
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 paid a median of $5,768 for real estate taxes in 2019.
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 was $2,887 in 2019.
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 paid a median of $2,256 for real estate taxes. South Dakota's state sales tax is among the country's lowest at 4.5%.
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 paid a median of $1,220 in real estate taxes in 2019. But watch out for the 7% sales tax while shopping.
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 faced a median of $3,390 in real estate taxes in 2019. There's also a 6.25% sales tax applied to many purchases.
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 paid a median of $3,601 for property taxes in 2019. 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 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 were a median of $1,352 in 2019.
States without pension or Social Security taxes include:
-- New Hampshire.
-- South Dakota.