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The analysis found that state tax policies can significantly affect how much money is kept in retirement.
Americans looking to reduce their tax bills in retirement may find relief in a growing number of states that exempt retirement income or do not levy a broad-based state income tax, according to Investopedia.
The analysis found that state tax policies can significantly affect how much retirees keep from pensions, Social Security benefits, and retirement account withdrawals. While federal taxes still apply in many cases, state rules vary widely, making location an important financial consideration for retirees.
The report also identified nine states that do not impose a broad-based state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Because those states do not tax wage income, most retirement income is also exempt from state income tax. Washington is an exception in that it levies a tax on certain high-value capital gains but does not tax wages or most retirement income.
Beyond those state-specific policies, Investopedia reported that 41 states do not tax Social Security benefits, 37 states exempt most military retirement pay, and 16 states offer at least partial tax exemptions for pension income. Those policies can produce meaningful differences in annual tax liability depending on how retirees receive their income.
The analysis noted that retirement taxes represent only one component of the overall cost of retirement. Property taxes, sales taxes, housing costs, healthcare expenses, and estate or inheritance tax laws differ by state and may influence where retirees choose to live. As states continue to take different approaches to taxing retirement income, those policies remain a key factor for Americans evaluating where to spend their retirement years.
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Source: Black Enterprise
