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When choosing which state to retire in, taxes may have crossed your mind. Knowing which states are the most tax-efficient for retirees, you can make a decision. Just keep in mind that no state has 0 taxes. So where are some taxes low, others would possibly be high.
Considering the pros and cons of state taxes during retirement will provide you with the most productive overall tax picture. In addition, the way the IRS taxes different types of retirement income sources can reduce your tax burden.
(Note: This classification only takes into account the tax burden of the states. You may need other factors, such as standard of living, political climate, and crime rates, before deciding where to move. )
The ranking of the states that favor taxes the most for retirees is based on two main factors. Only states that do not tax pension benefits were considered. Of those thirteen states, the 10 with the lowest median taxes on paid assets were chosen. Property tax bill amounts are based on the maximum recent knowledge that can be obtained from the U. S. Census Bureau. U. S.
Texas ranks as the tenth easiest state to tax retirees. This is largely because the government does not impose taxes on the source of income. So, not only will Texas not tax your retirement benefits, but the state will possibly not tax any others. type of source of income, if any.
And while asset taxes in the state are high, with an average tax bill of $3,872, they’re lower than in other states that don’t tax retirement income.
Another plus point of retiring in Texas is that there are no estate or inheritance taxes, so your heirs probably won’t end up with a hefty state tax bill.
Potential Disadvantages of Retiring in Texas
Alaska’s average asset tax bill is lower than Texas’s at $3,687. While this number is still higher compared to most other states, Alaska’s lack of an income tax source still puts the state in ninth place.
Alaskans can also receive a payment for living in the state, thanks to the Alaska Permanent Fund dividend. For fiscal year 2023, the dividend amounts to $1,312.
Also, Alaska may not collect taxes on your loved ones once you are gone, as there are no estate or estate taxes in Alaska.
Potential Disadvantages of Retiring in Alaska
Pennsylvania is on the list of tax-advantaged retiring put options because it doesn’t tax retirement benefits. And even if you have a taxable source of income (such as a salary), the Commonwealth has a flat tax rate of 3. 07%, which is a decrease. than the maximum of states that impose taxes on the source of income.
And while the average asset tax bill in Pennsylvania is more than $3,100, asset taxes are still lower than in some states that may not receive their retirement benefits.
Possible Disadvantages of Retiring in Pennsylvania
Median asset tax expenses eventually fall below $3,000 in Iowa, the seventh most tax-friendly state for retirement. Between taxes on more moderate assets and no state tax on classic retirement benefits, Iowa may be an affordable position to live out your retirement.
And even if the state taxes other types of revenue sources, the tax brackets are capped at 6% and the state will move to a flat income tax rate of 3. 9% in 2026.
Possible Disadvantages of Retiring in Iowa
The absence of an income tax source in South Dakota is attractive, especially if you have a non-traditional bureaucracy of retirement income sources as a source of investment income.
At $2,496, the average asset tax bill is still high, though lower than several other states that don’t impose income source taxes.
South Dakota can also be a good option for retirees who don’t want to leave family members with a tax bill. There are no inheritance or inheritance taxes in the state.
Potential Disadvantages of Retiring in South Dakota
Florida is a popular retirement destination, but the warm weather is the only explanation for why other people retire in Florida. There is no source of income tax in the Sunshine State, which means you can continue to work, get your retirement benefits, and enjoy your dividends. all without worrying about a state cut.
At $2,386, the average asset tax is too high compared to other states. Additionally, some Floridians are eligible for an asset exemption up to the full assessed price of their assets. However, owners will have to meet certain criteria, adding (but not limited to) having lived in the asset for at least 25 years.
Florida has no estate or estate taxes, so your loved ones probably don’t want to share their inheritance with the state.
Potential Disadvantages of Retiring in Florida
Las Vegas comes to mind when many people think of Nevada, however, the state has a lot more to offer than just standout casinos and entertainment. For starters, there is no source of income tax in Nevada. This means that all of your income sources are protected from state taxes, rather than just your pension benefits.
The average asset tax bill in Nevada is lower than in many other states, at $1,884. And with an average effective tax rate of 0. 5%, even with a higher asset price they can see their tax expenses low.
There are no estate or estate taxes in Nevada, making it a very tax-efficient position for those who enjoy and will one day leave behind.
Potential Disadvantages of Retiring in Nevada
Wyoming is another retirement destination with no income tax source, already making it a tax-friendly state for retirees. And with an average asset tax bill of $1,567, Wyoming is even more affordable, at least when it comes to taxes.
If you’re in favor of tax breaks by opting for Wyoming as a retirement destination, you’re in luck. There are no estate or estate taxes in the state, so your heirs will not inherit a state tax bill.
Potential Disadvantages of Retiring in Wyoming
Tennessee, another state with no source of income tax, ranks second among the most tax-friendly states to live in your retirement. With an average tax bill of less than $1,400, Tennessee is one of the most retirement-friendly states for homeowners.
One of your tax advantages of living in the Voluntary State is the absence of inheritance and inheritance taxes. This way, even if you have a giant estate, your heirs will have to share it with the state.
Potential Disadvantages of Retiring in Tennessee
Of all the states that can’t cut traditional retirement income, Mississippi has the lowest income taxes, with a median tax bill of $1,145. Therefore, Mississippi deserves its position as the most tax-friendly state in the U. S. pensioners.
It’s also not possible for you to pass a giant state tax bill to your loved ones when you’re gone. Like most of the other states on this list, there are no estate or estate taxes in Mississippi.
Possible Disadvantages of Retiring in Mississippi
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Katelyn has over six years of experience in the tax and finance field. While she specializes in tax content, Katelyn has also written for online publications on topics such as insurance, retirement and money planning and has received commissioned financial advice through national print publications. She believes that wisdom is the key to good fortune and she enjoys helping others achieve their goals by providing content that educates and informs.