The Best States For Retirement Taxes
What are the best states to live for the best tax rates during retirement? Why are they good states to live in?
When the time comes for you to retire, part of the decision might be where to live. You may have lived in many places, making “where” an important factor; but even if you have lived in the same place all your life, if you look at retirement from a tax standpoint, relocation might be something to consider.
To begin, there’s no escaping Federal Income Tax. But not all states have income tax. California, New York and Massachusetts do and it’s high. Nine states do not: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. However, some of these have other taxes. Florida calls theirs in “intangibles tax,” 1% to 2% on stocks and bonds. New Hampshire and Tennessee tax interest and dividends.
A number of other states have sales tax, but the rates differ considerably. Five states do not: Alaska, Delaware, Montana, New Hampshire and Oregon.
If you live in one state, but are collecting a pension earned in another, prohibits the residential state from taxing you. In New York, you do not have to pay income tax on the $20,000 of pension income.
Some states impose an estate tax (on the person’s estate), some have an inheritance tax (directly on the heirs), and some have a “pick up” estate tax (the amount of the federal death tax credit used to reduce the federal estate tax). Many states have a low death tax because they rely on the pick up: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Maine, Minnesota, Missouri, Nevada, New Hampshire, New Mexico, North Dakota, Oregon, Rhode Island, South Carolina, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
Some states have high tax costs at death. New York’s runs up to 21%.
Other taxes to look into before making your decision are property taxes and gift taxes.
Income tax states impose it on their residents, which means physical presence. Maintaining a home and physically present in it for more than 183 days qualifies for residency. When you decide where to locate, try
to time it so you will be a resident in the lower-tax state. Should you choose to maintain two residences, spend your 183 days in the lower-tax state.
Death taxes will be determined based on “domicile,” the state you call home. Domicile is determined by such things as voter registration, car registration, church membership, etc. Consider filing a declaration of domicile with the town or county. This might prevent two states from
making a claim on your estate.