6 Places To Retire For Low Income Taxes
Unless you're getting all of your post-retirement income from a Roth IRA, you are going to be expected to pay income taxes. After retirement, you will generally have less income than you did before retirement, which may mean that you will pay less in income taxes than you did while you were working. With taxes expected to increase, however, it is important to plan for this expense just as you would any other. (We'll show you how to choose between Roth IRAs, Traditional IRAs and 401(k)s. Check out Which Retirement Plan Is Best?) One of the ways you can make the most dramatic difference in your post-retirement income taxes is by moving to an area that has low state income tax requirements. Here are six different locations that are perfect for seniors who are concerned about post-retirement taxes.
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Alaska is state income tax free for all residents. In order to supplement the lack of state income tax, Alaska has instituted a sales tax on certain retail purchases. But in Juneau, the 5% sales tax is exempted for seniors age 65 and older who hold a tax exemption card. In order to get the card, a senior must have lived in Juneau for 30 days and have plans to remain there. And residents of Alaska aged 65 and over may also be exempt from paying property taxes on the first $150,000 of assessed value for their properties.
Like Alaska, Texas is an income-tax-free state. Texas does have a state sales tax, which can vary by county, but there is one town in the state that has added another benefit for seniors that more than makes up for sales tax. The town of Stafford has had no property tax requirement since 1995, which can save seniors a lot of money if they own their own home.
In Tennessee, seniors age 65 or older meeting certain income limits can freeze their property taxes in Nashville-Davidson County. In addition, the state only taxes interest and dividend income when it exceeds an income limit. In contrast, many areas tax the full amount of dividend income.
New Jersey exempts all Social Security retirement benefits from their state income tax requirements. And, if you are 62 or older and have an income of less than $100,000, you may be permitted to exclude up to $20,000 of private pension income from your state income taxes.
New York State also exempts Social Security retirement benefits from their state income tax requirements. In addition, residents aged 59.5 or older have the ability to exclude up to $20,000 of the money they receive from the pensions of private companies or other states from their taxes, regardless of the amount of their total retirement income. (Don't let these simple errors take the luster off your golden years. See 5 Tax(ing) Retirement Mistakes.)
Not only does New Hampshire have no state sales tax, it also limits the taxes paid on interest and dividend income. If your retirement income is below a certain amount, you will not need to pay taxes on the dividend and interest income you receive.
The Bottom Line
There are many considerations that you must make, as you head into your retirement years. Preserving your retirement savings in order to ensure that they last as long as you do is just one of them, and it's one of the single most important steps you can take. When you consider all the angles, like reducing your living expenses, adjusting your disposable income spending and getting rid of debt to reduce interest payments, you are just nudging the tip of the iceberg. By also relocating to take advantage of senior tax incentives and state tax lenient locations, you have an even better chance of maximizing the life of your retirement savings. (For additional reading, refer to Finding A Retirement-Friendly State.)