1. Retirees: Tax-Friendly States
Submitted by Larry Frank Sr. on Thu, 04/04/2013 - 3:00pm
What states tax retirees the least? That’s something to ponder as you
plan where to retire to. It’s not the predominant factor, but an important
consideration.
Kiplinger’s put together an interactive map that shows tax friendliness for
retirees. The magazine has links to states with no sales tax, or low sales
taxes, no income tax and more.
Five of its top 10 are in the South, a band stretching from the Atlantic to
the Gulf Coast: South Carolina, Georgia, Alabama, Mississippi and
Louisiana. Then there is Alaska and two in the West, Nevada and
Wyoming. Perhaps surprisingly, two states in the Northeast are in that
roster, Delaware and Pennsylvania.
In Alabama, for instance, Social Security is not included in state income
tax. Seniors do not pay state property taxes and may be exempt from
local property levies. Plus, Alabama has no state inheritance or estate tax.
Pennsylvania is also generous to retirees, with Social Security and all
types of pensions excluded from state taxation. Plus, the state does not
tax distributions from 401(k)s and individual retirement accounts.
Neighboring New York is on the list of the 10 least tax-friendly. According
to the Tax Foundation, cited in the magazine, New Yorkers pay 12% of
their income in state and local taxes. It has some of the highest property
taxes in the nation. On the positive side, it does not tax Social Security
and authorizes localities to grant property tax breaks to seniors.
Montana, right next door to tax-friendly Wyoming, also is on the 10 worst
list. While it does not have a general sales tax, it nicks most forms of
retirement income, including Social Security. It does permit exemptions of
up to $3.760 per person on pensions and annuities.
The magazine notes that four states have no sales tax, in addition to

2. Montana: Delaware, Vermont, Alaska and Oregon.
However, I post this with reservations because such an approach to
making decisions has the tax tail wagging the decision dog. More
important than taxes in choosing a retirement locale, I think, are
the weather, the prevalence of natural disasters (lots of hurricanes or
tornados?), other family members’ locations, hobbies, work, among other
factors.
Governments need some source of revenue to fund themselves. If they
don’t tax one thing, it is likely they tax something else. Thus, you need to
look at how your affairs are currently structured, or would be if you
moved.
See if you are leaving a place where taxes are structured one way (say
income taxes on retirement income) only to find they are higher
elsewhere. Maybe your new home state has no income tax, but property
taxes are so punitive that they outweigh the lack of an income levy.
Finally, in light of tax revenue shortfalls in many states and localities,
taxes are likely to rise everywhere.
Another handy website for tax comparisons is the Federation of Tax
Administrators. The Tax Foundation’scalculators and data tools sections
may also be helpful.
Follow AdviceIQ on Twitter at @adviceiq.
Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California)
in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has
an MBA with a finance concentration and B.S. cum laude in physics with
which he views the world of money dynamically. He has peer-reviewed
research published in the Journal of Financial
Planning. www.blog.BetterFinancialEducation.com.
AdviceIQ delivers quality personal finance articles by both financial
advisors and AdviceIQ editors. It ranks advisors in your area by
specialty. For instance, the rankings this week measure the number of
clients whose income is between $250,000 and $500,000 with that
advisor. AdviceIQ also vets ranked advisors so only those with pristine
regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012,
by veteran Wall Street executives, editors and technologists. Right now,
investors may see many advisor rankings, although in some areas only a
few are ranked. Check back often as thousands of advisors are
undergoing AdviceIQ screening. New advisors appear in rankings daily.
Topic:
Taxes
Inheritance Taxes
Reduction Strategies