Social Security Cuts: Best States To Move If Benefits Are Reduced
Many look forward to the day they can start taking Social Security benefits. Some people take it as early as age 62 when they’re first eligible, while others wait for maximum benefits until around age 70.
Factors that reduce your benefits include earning additional income after starting Social Security, taxes and having your Medicare premiums withheld. Whatever the reason, if your Social Security benefits are reduced and you still need to make the most of them, you should consider moving to a tax-friendlier state.
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Every state has different rules on how they tax Social Security benefits. Here, experts explain the best states to move to if your benefits are reduced.
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Not These States
Although all retirees collecting Social Security are subject to taxation at the federal level, according to Martha Shedden, president and co-founder at the National Association of Registered Social Security Analysts, only nine states — Colorado, Minnesota, Rhode Island, Connecticut, Montana, Utah, Kansas, New Mexico and Vermont — currently tax Social Security income.
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Knowing which states to avoid is as helpful as which ones to move to.
Florida
According to Larry Zhong, founder of the financial startup Yield Alley, Florida is a good choice for those with reduced Social Security benefits.
“Florida has no state income tax, including no taxes on Social Security benefits or pensions. Its affordability, combined with a warm climate, makes it a top choice for retirees,” said Zhong.
Iowa
Chad Gammon, a financial planner at Arnold and Mote Wealth Management, feels Iowa would be a great place to retire with reduced Social Security benefits as the cost of living is fairly low, especially in housing, and doesn’t tax your benefits.
“Iowa has become notably retiree-friendly in terms of taxation on retirement income,” said Gammon. “Iowa does not tax retirement income for eligible taxpayers who are 55 years of age or older. Iowa also recently established a homestead tax exemption for seniors age 65 years and older.”
This makes Iowa an appealing state for retirees, especially those concerned about Social Security benefits reduction, cost of living and the impact of taxes on their retirement income, Gammon explained.
Kansas
Ethan Keller, president of Dominion, suggested Kansas as another good option.
“Kansas law protects Social Security income from state taxes. This protection is in place for beneficiaries,” said Keller.
He hopes that more states will follow through with similar protections.
“During this session, lawmakers discussed two initiatives that would raise the income level, beginning with the tax year, to ease the burden of paying taxes for senior citizens. It is quite obvious that older [citizens] on fixed incomes are more susceptible to the effects of inflation than the rest of us,” said Keller.
According to Keller, states assist retirees in making the most of their hard-earned money by providing them with tax relief from Social Security.
Nevada
Known for its tax-friendly environment for retirees, Zhong said Nevada has no state income tax, meaning Social Security benefits and other retirement incomes remain untouched.
South Dakota
South Dakota is another state with no income tax, including no taxes on Social Security benefits, Zhong explained.
“It has a relatively low cost of living and offers various tax breaks for seniors,” said Zhong.
Texas
Additionally, Zhong said Texas has no state income tax, which extends to Social Security benefits and other retirement income.
“However, it’s essential to consider the property taxes, which are relatively high, though there are exemptions for seniors,” said Zhong.
Wyoming
Wyoming also doesn’t have a state income tax, Zhong explained. On top of that, it boasts one of the lowest sales tax rates in the country.
“Social Security benefits and other retirement income are not taxed, making it financially appealing,” said Zhong.
States with Medicaid Expansion
Health insurance is also a key concern in retirement, and there are some state-to-state differences that retirees should be aware of. According to Louise Norris, health policy analyst for healthinsurance.org, Medicare payments are typically withheld from Social Security payments.
Norris explained that most can transition to Medicare when they turn 65. While original Medicare has the same premiums and benefits in all states, she explained that there are state-to-state variations in Medicare Part D and Medicare Advantage plans. The concern is with the nine states that have a coverage gap because the state hasn’t expanded Medicaid.
“In those states, premium tax credit eligibility in the Marketplace starts at the poverty level. In most states, however, Medicaid expansion has been implemented,” said Norris. “This means Medicaid is available to applicants with household income up to 138% of the poverty level, and premium tax credits in the Marketplace start above that level. In 2024, 138% of the poverty level is $20,782 for a single adult and $28,207 for a household of two.”
While there are a lot of factors to consider when moving besides Social Security benefits, seniors will want to do everything they can to make the most of their benefits, should they get reduced.
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This article originally appeared on GOBankingRates.com: Social Security Cuts: Best States To Move If Benefits Are Reduced
