Retirement Tax Burdens
If you want to retire somewhere with a low cost of living, you need to consider the tax burden imposed in that location. Many people think only about state and local income taxes but the picture is much bigger than that.
Retirement Taxes: Factors to Consider
If you plan on buying a home where you intend to retire, property taxes become important. Of course, you will be spending your money in stores where you live, so sales taxes are a significant factor. For example, some states tax purchases of food and medicines. Other states do not.
As for income taxes, you cannot just look at the tax rates. You must focus on whether the income tax system in that state provides special tax benefits to retirement income, such as Social Security and pension income and even withdrawals from retirement accounts.
Retirement Tax Burdens: the Best Locations
Putting all of the data together to find the states and cities with the lowest taxes on retirees is not easy. Fortunately, others have done a lot of the work for us.
According to data compiled by Kiplinger’s, these are the state capitol cities with the lowest taxes on retirees who own homes:
|
City |
Income Tax |
Property Tax |
Sales Tax |
Total Tax Burden |
|
Dover, DE |
$0 |
$543 |
$0 |
$543 |
|
Juneau, AK |
$0 |
$1,032 |
$0 |
$1,032 |
|
Frankfort, KY |
$0 |
$274 |
$840 |
$1,114 |
|
Columbia, SC |
$0 |
$518 |
$1,000 |
$1,518 |
|
Albany, NY |
$0 |
$912 |
$1,120 |
$2,032 |
|
Lansing, MI |
$0 |
$1,312 |
$840 |
$2,152 |
|
Jackson, MS |
$423 |
$362 |
$1,400 |
$2,185 |
|
Cheyenne, WY |
$0 |
$1,007 |
$1,200 |
$2,207 |
|
Carson City, NV |
$0 |
$1,346 |
$980 |
$2,326 |
|
Denver, CO |
$248 |
$1,141 |
$1,008 |
$2,397 |
|
Atlanta, GA |
$66 |
$1,388 |
$980 |
$2,434 |
|
Baton Rouge, LA |
$225 |
$600 |
$1,680 |
$2,505 |
|
Boise, ID |
$399 |
$1,424 |
$1,000 |
$2,823 |
|
Richmond, VA |
$26 |
$1,964 |
$870 |
$2,860 |
|
Springfield, IL |
$0 |
$1,761 |
$1,105 |
$2,866 |
|
Sacramento, CA |
$148 |
$1,669 |
$1,085 |
$2,902 |
|
Phoenix, AZ |
$479 |
$1,309 |
$1,134 |
$2,922 |
|
Salem, OR |
$777 |
$2,160 |
$0 |
$2,937 |
|
Indianapolis, IN |
$1,013 |
$1,236 |
$700 |
$2,949 |
|
Honolulu, HI |
$1,274 |
$939 |
$800 |
$3,013 |
Note: The property tax data is based on the median home price in that city. The sales tax data assumes that the retired person will spend $20,000 annually on taxable items.
Dover as the winner surprised me. There is no state sales tax in Delaware, which helps. Also, Social Security benefits are not taxed and up to $12,500 per person of other retirement income is tax-free. That is a fantastic deal if you want to live in the northeast corridor.
I’m not even going to talk about Alaska. Nothing against it as a state but I don’t see a lot of folks moving there to retire.
As for Frankfort and Columbia, Kentucky and South Carolina have an income tax but provide large retirement-income tax exemptions. Moreover, Kentucky excludes food from its 6% state sales tax and has very low property taxes.
Here is the complete list of retirement tax burdens in all of the states.
I have also written about how to compare retirement cost of living in different locations. This will give you an even more complete picture.
Good luck in your search for low tax retirement living!
Image credit: dee gee
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