Because you will not have much more income after you retire, an important thing to consider is what states you can live in, and save as much as possible on taxes. Here is a review of the most friendly retirement states as far as taxes are concerned. The object is to give you enough information to help you decide where to spend your retirement years, and hopefully you can pick a good state with plenty of fun things to do.
Louisiana has the lowest property tax in the country and the state sales tax is 4%, except for in New Orleans where it is 9%. There is also no estate tax, but there is an inheritance tax. Louisiana gives additional breaks to retirees by giving any kind of government or civil service pension a completely tax free status. Also, the first $6,000 of any pension payments is tax free for anybody else.
Things look a little better for Delaware in this top ten tax friendly states for retirement list. Citizens of Delaware enjoy 2.2% income tax for people who make under $60,000 per year. There is also no sales tax, or inheritance tax, but there is an estate tax. Though only Railroad and Social Security retirement plans are tax free, retirees can enjoy a few other friendly perks included in the Delaware tax policies. People over 60 can count $12,500 in investment income as tax free, and retirees over 65 can get an additional $2,500 tax credit when filing their state income taxes.
In South Carolina, the only retirement benefits that are tax exempt are Social Security benefits. Beyond that, there is a $15,000 per person deduction for retirees and a $10,000 deduction for retired military personnel. Taxable income is taxed between 3 and 7 percent for income taxes. Retirees that qualify for homestead exemption can even take $50,000 off the value of their property value for taxes. Some counties charge 8% sales tax, though the state only requires 6%. The best thing about South Carolina is that they do not charge estate or inheritance taxes.
Oklahoma comes in at number 7 on the list of most tax friendly states for retirement. Citizens in Oklahoma enjoy no taxes on Social Security or federal pension payments. Beyond that, all residents can exclude $10,000 in retirement income as a tax break then the rest is taxed at a rate of 0.5 to 5.5%. Property taxes based on 11% of value. Though the sales tax is set at 4.5%, some cities can raise income tax to 8%. There are also no inheritance or estate taxes in the state of Oklahoma.
Georgia is another retirement friendly state when it comes to taxes. Social Security benefits and up to $35,000 of any retirement income is considered tax exempt for people 62 and older. In 2012, there will be no taxes on any retirement income. Beyond that, the sales tax is 4% but other cities can raise it to 8%. There are also no inheritance or estate taxes passed on to the residents of Georgia.
Retiring in Alabama is a little better because, all pensions are tax free, and remaining income is taxed as 2% – 5%.Retirees are exempt from state property taxes, but local taxes have to be paid. While the normal sales tax rate is only 4%, some counties can raise the sales tax to 14%, so you will want to stay away from them. Alabama also does not charge any estate taxes, or inheritance tax.
If you are considering retirement in Kentucky, here are a few things you need to know. Social security benefits are tax exempt, and so is the first $41,110 per person of other retirement income. The remaining income is taxed between 2 and 6 percent. State sales tax is 6% everywhere in the state and retirees can also enjoy homestead tax breaks on their property taxes. There actually is an inheritance tax, but immediate family members are exempt from this tax, and there is no estate tax.
Flat rate income taxes make budgeting for retirement a lot easier for residents of Pennsylvania, which comes in at number 3 for the most tax friendly states for retirement. They are also more retirement friendly than most because they do not tax any kind of retirement income. Sales taxes are also locked at 6%, similar to Kentucky. Be aware that there is an inheritance tax and an estate tax, but the estate tax does not apply unless there is 5 million dollars or more at stake.
There are no taxes on retirement benefits in Mississippi, and other income beyond normal retirement income is taxed at 5%. Retirees qualify for homestead on property taxes which take $75,000 off the market value of their property. This lets them enjoy a very hefty tax break. State wide sales tax is a bit higher than some states, at 7%, and some counties can charge up to 10% on items you purchase.
Wyoming is by far the most tax friendly state for retirement, and everybody else. There is no state income tax, and sales tax is only 4%, though other counties can charge up to 5%. Property taxes are only based on 9.5% of their assessed value. Beyond that, there is no inheritance tax or estate tax charged to residents of Wyoming.