Alaska and Wyoming are the most tax-friendly states for retirees. This is according to a study released earlier this year by Kiplinger, a personal finance publisher. The report, State by State Guide to Taxes on Retirees, details which states are best for retirees based on multiple tax factors.
The remaining top ten states consist of Nevada, Arizona, South Dakota, Louisiana, Mississippi, Georgia, Florida, and Delaware. Common factors among the top scoring states include state tax exemptions for social security benefits, tax exemptions for portions of other retirement income, such as 401(k)s, IRAs, or pensions, and no income tax. Additionally, Delaware is the only state in the top ten with an estate tax.
New components in this year’s report were income taxes and capital gains taxes, which are often an important component of retirement income. In many states this income is taxed as ordinary income, which the report says “adds to the appeal of states with no income tax, which are attractive to seniors with sizable nest eggs.”
The Top Ten States for Retirees
- Alaska is the most tax-friendly state for retirees according to Kiplinger. Alaska has no state income tax or sales tax, though many localities impose local sales taxes. There is no estate or inheritance tax in Alaska, either.
- Wyoming ranks as the second most tax friendly state. Wyoming has no state income tax, the fourth lowest state and local sales taxes in the country, and no estate or inheritance tax.
- Nevada has no state income tax and does not tax social security benefits or other types of retirement income.
- Georgia has no estate or inheritance taxes, a top state income tax rate of 6 percent and a state sales tax of 4 percent, though localities may add up to an additional 4 percent. Also, there are plans to phase-out state property taxes by 2016.
- Arizona has a top income tax rate of 4.54 percent on income above $300,000, a state sales tax rate of 5.6 percent, no estate or inheritance tax, and some of the lowest property taxes in the nation.
- Mississippi has a top marginal income tax rate of 5 percent, but exempts social security income and qualified retirement income from income taxes. While the state has a sales tax rate of 7 percent it exempts the first $75,000 of value for homeowners 65 and older.
- Delaware has no state sales tax and exempts social security from state income taxes, but it has a top income tax rate of 6.6 percent and imposes an estate tax rate of 16 percent.
- Louisiana exempts social security benefits from tax and excludes from tax up to $6,000 of annual retirement income from traditional retirement accounts. The state is also home to a 6 percent top income tax rate, a 4 percent state sales tax rate, and the third lowest property taxes in the nation.
- South Dakota does not impose a state income, exempts residents from tax retirement and social security taxes, and has no estate or inheritance taxes. It also has a state sales tax rate of only 4 percent, on which localities can add up to 2 percentage points.
- Florida is famous for its lack of an income tax, which means retirement income also goes tax free. The state also goes without a state estate or inheritance tax, but has a state sales tax rate of 6 percent that localities can add on to up to 7.5 percent.
Now, for the flip side of the coin: the worst states for retirement. According to the report, the least friendly states for retirees are Rhode Island, Vermont, Connecticut, Minnesota, Oregon, Montana, California, Nebraska, New Jersey, and New York.
For more information on the best states for retirees, read the entire report.
Andrew Lundeen works in tax policy in Washington, DC.
Photo by Josh Kellogg
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