Where you live can have a significant impact on your retirement savings strategy. States with low taxes and high income offer an ideal setting for growing your wealth base.

Recently published regional price parity data from the U.S. Bureau of Economic Analysis shows where workers are bringing in the most in terms of real income per capita. Essentially, this is a measure of how much purchasing power residents have when the inflation rate is factored in. When compared to state income tax data from the Tax Foundation, it becomes easier to see which states score the best marks if you’re looking to earn more but hand over less in taxes. (For more, see The Best and Worst States to Retire to in 2016.) 

​Top 5 States with Low Taxes and High Income

  1. North Dakota The Peace Garden State easily rose to the top of the list, with a real per capita income of $55,969. Between 2013 and 2014 residents saw their real personal income increase by 1.3%. They’re able to keep more of their take-home pay, as the marginal income tax rate tops out at just 2.9%. That rate applies if you earn more than $411,500 annually. The sales tax rate is set at 5%, while homeowners pay $1,140 in property taxes per capita. 
  2. Connecticut Overall, the Constitution State had one of the highest per capita incomes in 2014, coming second only to Washington, D.C. When you factor in inflation and purchasing power, however, it falls to second on the list, with a real per capita income of $54,703. In terms of taxes, the maximum marginal tax rate is 6.99%, but that applies to single filers earning more than $500,000 annually or married couples taking home more than $1 million. If you’re bringing in a salary that’s closer to the $55,000 mark, you’d fall into the 5.5% tax bracket.
  3. Wyoming The Equality State is a great place to make a home on the range and earn a decent living while you’re at it. For 2014 real per capita income averaged $52,059, a 3.2% increase over 2013. Wyoming is one of a handful of states that has no individual income or corporate tax, which means all the money you’re earning at your job or through your own entrepreneurial ventures goes straight into your pocket. Sales tax is low, at 4%, but residents do tend to pay more in taxes if they own property. The per capita collection rate for property taxes is $2,173. 
  4. Massachusetts T​he Bay State is another bright spot for workers who are hoping to snag a bigger paycheck. Per capita income came to $58,737 in 2014. After adjusting for inflation, real personal income was still a generous $50,330. Incomes increased by 2.3% over the previous year. Massachusetts has a flat tax rate of 5.1%, so workers pay the same percentage to the tax man across the board. The corporate tax rate is higher, at 8%, which is something to keep in mind if you’re thinking about starting a business. (For more, see Top 8 States for Starting a Business in Retirement.) 
  5. Nebraska Fifth is the Cornhusker State, where residents earned a real per capita income of $48,157 in 2014. The marginal tax rate is similar to that of Connecticut, with single taxpayers earning more than $29,590 and married couples earning over $59,180 falling into the 6.84% tax bracket. Still, that puts Nebraska roughly in the middle for income tax nationwide. Sales tax is 5.5%, so you’re not handing over as much money when you shop, and the per capita rate for property tax collections is $1,649.

The Bottom Line

​The five states included here offer the best combination of low taxes and higher incomes. Washington, D.C., actually reported the highest per capita income of all, with workers earning $69,838 before adjusting for inflation, but it didn’t make the list because of its marginal tax rate, which maxes out at 8.95%. If you’re trying to stash away more money for retirement or just looking for a break on your cost of living, relocating to any of these states could prove to be a smart move for your bottom line.
 

 

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