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MONEY MATTERS > Money Matters 4 > MMO 11

The Best States to Move to for Tax Purposes 

Federal income taxes can take a big bite out of your income, but they aren’t your only tax concern, particularly if you’re about to retire. Don’t forget to take state and local income taxes into account. For instance, if you’ll be relying less on Social Security and more on investment income during retirement, you might move to a state that doesn’t have an income tax or that has relatively low tax rates. Conversely, if you expect to depend heavily on Social Security, consider moving to a state that doesn’t tax these benefits. Here are a few key areas to ponder.

  • State income tax rates: Currently, seven states—Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming—don’t tax income of individuals at all. Two other states—New Hampshire and Tennessee—impose income tax only on dividends and interest. Those favorable taxation rules have made several of these states very popular with retirees.
  • In addition, some states have a relatively low income tax rate across all income levels. For example, the highest marginal income tax rates for Arizona, New Mexico, Kansas and North Dakota are below 5%. Other states charge a relatively low flat rate regardless of how much you make. These include Pennsylvania (3.07%), Indiana (3.4%), and North Dakota (3.99%). On the other hand, retirees may shy away from notoriously high-tax states such as California (10.55%) and New York (8.97%).
  • State income tax on retirement income: In the 41 states that do tax income, as well as the District of Columbia, the tax treatment of retirement benefits varies widely. For example, some states don’t tax any income from qualified plans such as 401(k)s or Social Security, some states provide a partial exemption, and finally some states tax all retirement income. The two states that currently exempt retirement plan income from taxation are Mississippi and Pennsylvania.

Of course, all of these rules are subject to legislative changes, as revenue-hungry states look for new ways to fill their coffers.

  • State income tax on Social Security benefits: According to tax publisher CCH, more than one quarter of all states (14) impose income tax on Social Security benefits. The states are Colorado, Connecticut, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. These states either tax Social Security income in the same way the federal government does or they provide breaks, usually for taxpayers at lower income thresholds.
  • State and local sales taxes: 45 states and the District of Columbia impose a state sales-and-use tax. Only Alaska, Delaware, Montana, New Hampshire, and Oregon do not. You may want to consider combined state and local sales taxes when figuring out where to retire. For instance, CCH says that Tennessee (9.44%), Arizona (9.16%), Louisiana (8.87%), Washington (8.86%) and Oklahoma (8.67%) have the highest combined state and local sales tax rates. Among states with sales taxes, the lowest combined rates are in Alaska (1.11%), Hawaii (4.35%), Maine (5%), Virginia (5%), and Wyoming (5.17%).

  • State and local property taxes: While property values have declined over recent years in many areas, property taxes haven’t necessarily gone down, too. According to the Tax Foundation, residents of New York, New Jersey, and Connecticut had the highest tax burdens in 2010. In those states, residents forked over more than 12% of income in state and local taxes.

Residents of Alaska, which has been the least-taxed state for more than a quarter of a century, paid the lowest percentage of income in 2010 at 7%, followed by South Dakota, Tennessee, and Louisiana.
  • State estate taxes: Estate taxes also may influence where you want to retire. The rules can differ widely from state to state and in several cases, state laws don’t follow federal estate tax rules. As of January 1, 2013, 17 states and the District of Columbia collected estate tax and had varying exemption thresholds. (Some other states have inheritance taxes.) In several states, the threshold is $1 million or less. Only Delaware, Hawaii, and North Carolina use the current federal exclusion amount of $5 million (indexed to $5.25 million in 2013). Certain other states have neither an estate tax nor an inheritance tax. But these rules, too, are subject to change.
Remember that this is just a brief summary of state taxation rules. Of course, other factors also will come into play, but it pays to consider state and local tax consequences in choosing a location for your retirement years.

Source: www.AspenCross.com

For more information - CONTACT:


Richard Parnigoni, CRPC ®
Senior Associate

AspenCross Financial Group
100 Trade Center, Suite G-700
Woburn, MA 01801
Phone  617-755-1812
Fax      508-898-3097
Email  Richard Parnigoni
https://www.aspencross.com/richardparnigoni