Blog Home

Most and Least Friendly States For Retirees’ Finances

When you’re talking to your clients about retirement planning, there are a lot of options on the table. While they certainly trust you when you recommend a Roth IRA over a traditional one or let them know what they need to include in their estate plans, what about the choice of where to live?

Even though many retirees choose to move during retirement to chase warm weather or stay put to be near family, they may need to consider moving to a state that makes financial sense.

Kiplinger, a Washington, D.C.-based business and finance publication, recently took a look at the most and least tax-friendly states in the country. And though your clients may not want to pick up and move to Mississippi just for the tax breaks, the information it found may help retirees and those getting ready to leave the workforce make difficult decisions regarding where to live.

Income tax 
As The Chicago Tribune points out, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming all lack income taxes for their residents, which makes it an appealing place to live for those looking to avoid such expenses. Similarly, New Hampshire and Tennessee only tax on dividends and interest, though the latter exempts taxpayers 65 and older who have a total annual income of less than $33,000 for single filers or $59,000 for joint filers.

It’s important to note that even the 41 states and District of Columbia that do have income taxes, the majority protect their retirees through some form of tax breaks. Pennsylvania and Mississippi, for example, charge no taxes for retirement income, pensions or any other distributions from retirement accounts. Similarly, Georgia offers the largest retirement income exclusion, allowing retirees to shelter $65,000 or up to $130,000 for couples.

On the other side of the coin, California, Minnesota, Nebraska, North Dakota, Rhode Island and Vermont offer no safe haven for retirement income, while Connecticut excludes 50 percent of military retirement pay from taxation, though there are no additional retirement income breaks to add to that.

Social Security

How states tax retirees’ Social Security income is another important factor for many. According to Kiplinger’s data, these benefits are tax free in 36 states and the District of Columbia, though that doesn’t exempt them from federal taxes, which can tax up to 85 percent of Social Security benefits.

The states with the most severe taxes include Rhode Island and West Virginia, both of which tax the same amount of Social Security benefits as the federal government, while Connecticut, Kansas and Missouri all tax benefits after the retiree’s income exceeds certain amounts.

Military retirement pay

While not all states offer breaks specifically for military retirement pay, it’s worth noting that Kentucky allows exclusions of up to $41,110 in such pay, as well as certain private pensions, annuity income, and civil service, state and local government pensions. Connecticut excludes half of military retirement pay from tax, though it does not offer any other retirement income breaks.

Best and worst states to for retirement

While many states have pros and cons when it comes to retirement, Kiplinger compiled the 10 most tax-friendly states and the 10 least tax-friendly states:

Most tax friendly

These states include those with no or limited income taxes for taxpayers over 65 and those that do not charge state taxes on Social Security or military retirement pay:

  • Alaska
  • Arizona
  • Delaware
  • Florida
  • Georgia
  • Louisiana
  • Mississippi
  • Nevada
  • South Carolina
  • Wyoming

Least tax friendly

The least friendly states when it comes to taxing the income of retirees and Social Security benefits may be places your clients should avoid if they have concerns regarding paying too much in taxes:

  • California
  • Connecticut
  • Minnesota
  • Montana
  • Nebraska
  • New Jersey
  • New York
  • Oregon
  • Rhode Island
  • Vermont
Print Friendly, PDF & Email
Highland Capital Brokerage

Highland Capital Brokerage

Highland Capital Brokerage is committed to developing client-focused relationships with financial advisors using our core competencies of life insurance, annuities, and long-term care. We distinguish ourselves by providing point-of-sale support, advanced marketing, and creative estate and business planning techniques.
Highland Capital Brokerage

Latest posts by Highland Capital Brokerage (see all)

Other Posts