March 1, 2023

The Most Tax-Friendly States to Retire In

Retirement is a time to enjoy the fruits of your labor. You finally have the chance to travel, relax, and spend time with loved ones without the burden of work. But before you can fully enjoy retirement, there are some important decisions to make - like where to live.

Choosing the right state to retire in can be tricky, but it's worth taking the time to consider all your options. And although we do love our Land of 10,000 Lakes... you might have something warmer in mind;) After all, where you live could have a big impact on your quality of life and how long your hard-earned savings will last.

Why Taxes Matter When you Retire

When you retire, your tax situation suddenly changes. You are no longer earning a regular salary and have to be aware of tax brackets and tax breaks that will help you maximize the amount of money you can keep for your retirement funds. Depending on what state you retire in, these tax breaks can vary drastically; certain states are much more tax-friendly for retirees than others.

That’s why researching tax-friendly states before retiring is important – it helps ensure your retirement income is protected from potential tax drags that some less tax-friendly states may impose. Knowing what states offer the tax advantages that best suit your needs is important if you want to make sure that your retirement savings last as long as possible.

The States with the Lowest Taxes for Retirees

If you're looking for a tax-friendly retirement destination that won't drain your wallet one state at a time, there are several states in the US to consider. To name a few... Alaska and Wyoming to Mississippi and Florida - each of these states offers various advantages when it comes to earning money from Social Security, retirement income, and other taxable sources.

United States Map
  • Alaska: In Alaska, you do not have to pay tax on your Social Security money or pension. You also don't need to pay taxes when you buy things and when you give property away after someone dies.
  • Wyoming: In Wyoming, you do not have to pay income tax. This means retirement money like Social Security is safe and won't be taxed. Property taxes and sales taxes are also very low in Wyoming compared to other states.
  • Mississippi: Mississippi will not tax any money you get from retirement. This includes Social Security, IRA, 401(k) and pension payments. Mississippi also has low taxes on things like property and sales.
  • Florida: In Florida, you don't have to pay taxes on money from Social Security, pensions, or IRAs and 401(k)s. And there's no tax on things that you inherit or own. The taxes on buying things and owning property are also close to the national average.

With personal income taxes hovering around 0% in some areas, retirees can enjoy lower overall taxation compared to other states that pile on more than their fair share. In addition, many of these states possess year-round warm temperatures, home to miles of shoreline or even friendly communities willing to make all retirees feel welcome.

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States with the Highest Taxes for Retirees

When it comes to taxes, retirees are in a unique position and can benefit from certain tax deductions or exemptions. Unfortunately, not all states offer equal tax breaks for senior citizens. For example, some states impose high-income taxes on retirees which can drastically reduce their savings if they were expecting to one day retire there. The highest taxing states include:

  • California: California taxes money that you get from retirement plans and pensions. They have some of the highest tax rates in the United States. Social Security retirement benefits are not taxed by California, but in addition they have high sales taxes.
  • Connecticut: All types of income you get when you retire are taxed in Connecticut, except for Social Security for some seniors. The state also has a sales tax that is a bit lower than the average and some of the highest property taxes in America.
  • Minnesota: In Minnesota, you have to pay taxes on Social Security and other retirement plans. The sales taxes are higher than in some places but the property taxes are about the same as other places.
  • Vermont: In Vermont, you have to pay taxes on money from retirement accounts and Social Security. These taxes are usually between 3.35% and 8.75%. You also have to pay property taxes which are higher than in other states, but the sales tax is lower than usual.

Therefore it’s important to research the specific taxation laws around an area before deciding where you want to retire; it could mean the difference between being able to afford that dream cruise ship vacation or being left with just enough money to buy tickets for a rowboat ride.

How to Pick the Right State for You

When it comes to choosing a state to retire in, the options can be overwhelming. However, thankfully there are some clear criteria that you can use when considering which state might best fit your needs. Most importantly, you want to look for states that have a lower tax rate on income and retirement savings so that you can make the most of your retirement fund. Other factors may include the cost of living, climate, healthcare system, availability of recreational and cultural amenities, proximity to family and friends, and whether or not your target state offers any tax deductions for seniors.

Retired couple on beach

Additionally, if you plan on branching out and starting your own business after retirement, finding a state with lenient business regulations will prove invaluable to helping you succeed. Ultimately with all these considerations in mind, you can use this information to help narrow down the search until you find the right fit for your unique situation.

Questions to Consider when Choosing your Final Destination

Knowing which states are the most tax-friendly can be tough when you’re ready to retire, and even more daunting when it comes to figuring out how taxes may impact your retirement. With many variables at play, here are some frequently asked questions to consider as you make decisions about your future:

  • How do state taxes affect retirement income?
  • What kind of tax filing requirements must retirees follow?
  • Are there deductions or credits available for retirees?

Understanding the answers to these FAQs can help you decide which state is best for retirement, and ultimately make sure your money stays in your pocket.

As discussed, taxes should be an important factor to consider when deciding where to retire. When choosing a state to settle down in post-retirement, you must weigh the advantages and disadvantages for yourself. Taxes are one important area to consider, but other factors such as climate and cost of living should also be taken into account. Once you've configured the pros and cons, then move forward with confidence knowing you've chosen the perfect place for the retirement of your dreams!

If you're nearing retirement and looking for ways to make your dream retirement a reality, check out our blog to make it happen!

Making Your Retirement Dreams a Reality

This page is a publication of Fiat Wealth Management, LLC. The firm is registered as an investment adviser and only conducts business in states where it is properly registered/notice filed or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.

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