States Exempt from Taxing Retirement Income: 13 States Revealed
Headline: A Guide to Tax-Friendly States for Retirees in the U.S.
Subhead: Discover the states where retirees may save on income taxes, and learn about the qualification requirements.
The recent passage of legislation has brought about significant changes for Social Security beneficiaries, with 90% no longer needing to pay federal income taxes on their benefits. However, it's important to note that the federal government still taxes retirement income, even if it is not taxed at the state level.
In the U.S., a total of 41 states and Washington D.C. do not tax Social Security payments. Among these, nine states do not impose taxes on any retirement income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
For those considering a relocation to a state with lower income taxes, it's essential to understand the qualification requirements. In states like Illinois, Iowa, Mississippi, and Pennsylvania, retirees may not pay income taxes on their retirement income, but certain conditions apply. For instance, in Iowa, retirees must be at least 55 years old to be eligible for tax-free income from IRAs and pension plans. In Mississippi and Pennsylvania, both retirees and their retirement plans must meet specific qualification requirements for income to be tax-free.
It's also crucial to consider the comparative costs and savings, including changes to major budget items like housing or transportation, before making a decision to uproot your life for less expensive pastures. Sitting down with a pencil and paper to calculate the potential savings is recommended.
Moreover, it's worth mentioning that there are states that tax ordinary work-based income but not pension income, distributions from individual retirement accounts, and the like. However, these states were not specifically mentioned in this article.
The average middle-class household may save between a few hundred and a couple thousand dollars annually due to changes in taxation. A relocation to a state with lower income taxes may result in savings for some retirees, making it an attractive option for those looking to stretch their retirement dollars further.
In conclusion, understanding the tax implications of retirement income in different states can help retirees make informed decisions about where to live. It's always advisable to consult with a financial advisor or tax professional to fully grasp the potential savings and any qualification requirements before making a move.
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