Think warm weather is the only requirement for golden years that gleam? Unless you want to see your nest egg cracked, consider how states tax retirement income.
Sunshine long has made Florida one of the most popular places to spend your golden years. A lack of taxes on retirement benefits and estates can make it a smart destination, too.
The amount of taxes retirees pay varies widely depending on where they choose to settle.
Following are four types of taxes you should consider when selecting a place to retire. All tax statistics come from the findings of the Federation of Tax Administrators (FTA).
1. State taxes on income
Some states have a relatively low income tax rate across all brackets.
For example, the rate is less than 5 percent for even the highest income bracket in North Dakota (3.22 percent), Arizona (4.54 percent), Kansas (4.6 percent) and New Mexico (4.9 percent).
Other states have a low flat income tax rate of 5 percent or less. They include Pennsylvania (3.07 percent), Indiana (3.3 percent), Illinois (3.75 percent), Michigan (4.25 percent), Colorado (4.63 percent) and Utah (5 percent).
Seven states don’t tax individual income at all:
- South Dakota
Two states — New Hampshire and Tennessee — tax only income from dividends and interest.
For more details on your state or the one you’d like to retire in, check out the state-by-state income tax breakdowns from the Federation of Tax Administrators.
2. Sales tax
Five states have no sales tax, according to the FTA: Alaska, Delaware, Montana, New Hampshire and Oregon.
In the other 45 states, rates vary from 2.9 percent (Colorado) to 7.5 percent (California).
The types of goods and services that are taxed also vary from state to state. Items taxed in some states — but not others — include barber services, landscaping, prescriptions, clothing and food.
For details, check out the FTA‘s state-by-state breakdown of sales tax rates, which also lists which states exempt food, prescriptions and over-the-counter medications.
3. State and local property taxes
Because property taxes can be significant, you should learn not only an area’s current property tax rate, but also the history of how it has changed over time.
To learn more about rates in a specific state or county, try this search engine formula: [state/county] + property tax. That should lead you to the appropriate revenue department’s website.
While reading up on a state’s property tax rate, don’t forget to check for tax breaks, too. Some states and local jurisdictions offer some form of property tax exemption, credit, abatement, deferral, refund or other benefit to homeowners or renters who are senior citizens.
4. State estate tax
Wealthier retirees also must consider a state’s estate tax. Fifteen states and the District of Columbia have an estate tax, according to the nonprofit Tax Foundation.
If the state in which you are interested does tax estates, find out both the rate and whether the likely dollar value of your estate qualifies it for taxation.
To learn more about a state, try this search engine formula: [state] + state estate tax.
In addition to these steps, if you’re preparing to retire, you may also want to check out the following:
- “Retirement Is Coming: Make These Money Moves in Your 50s“
- “Behind on Retirement Savings? Here’s What to Do“
- “7 Reasons You’ll Retire Poor“
Where do you plan to retire? Share your thoughts in our Forums. It’s a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.