In order to save money on taxes, would you consider moving to a less expensive state?
Lots of our clients do.
But where might you go?
When it comes to taxation in retirement, what 3 states grade out the best?
While there are myriad things to consider, here are 3 states where, generally speaking, the tax burden for retirees could be thousands,or even many tens of thousands of dollars less than in places like California and New York.
1) Mount Rushmore State
Congratulations if you knew that the Mount Rushmore State is actually South Dakota. Likewise, kudos if you could withstand average January temperatures that hover around 14 degrees.
But there’s an upside to life on the plains, and it’s a good one.
Taxes are incredibly low in South Dakota, where residents enjoy:
- No pension income taxation
- No Social Security taxes
- No inheritance tax
- Only a 4 percent state sales tax
By comparison, some cities in California have sales tax rates of 9.25% (and various fees can drive that figure even higher).
While I wouldn’t enjoy South Dakota’s brutal winters, I can say that seeing Mt. Rushmore and saving thousands of dollars a year in taxes is obviously appealing.
2) The Keystone State
This one might be a little tougher, but of course the Keystone State is Pennsylvania, which is nicknamed such, in part, because of its central location among the 13 original colonies, along with the number of famous documents (the Declaration of Independence) that were signed there.
But other than an incredible amount of history, what’s so great about Pennsylvania?
Low tax rates for retirees, of course. Retired Pennsylvanians generally:
- Pay no Social Security tax
- Typically pay no tax on pension income
- Aren’t subject to taxation on IRA distributions on payments received after they’ve turned 59½
Unfortunately for those residents who expect a future windfall (or are leaving money to kin), Pennsylvania does have an estate tax, though it’s pretty lenient when compared to some places. Pennsylvania’s state sales tax comes in at 6 percent, which is about the national average.
3) The Cowboy State
Cowboy State? If you immediately thought Texas and the Dallas Cowboys, I don’t blame you, but it’s actually Wyoming, the least populated state in the country.
Perhaps because there are so few people (just over 550,000), the state can offer its retired residents some of the most agreeable tax rates you’ll find anywhere.
Retirees who live in Wyoming are:
- Exempt from any Social Security tax
- Exempt from any pension tax
- Exempt from any estate tax
- Liable for only a 4% sales tax
Thinking of moving to Wyoming to enjoy all that space, fresh air and famous national parks like Yellowstone and Grand Teton? Sounds like a fine idea.
The next question I would ask you is: What are you going to do with all the money you save on your taxes?