Find out how your retirement income is taxed and in which places you won’t have to pay any taxes at all by reading this guide.
Withdrawals from a 401(k) or an individual retirement plan (IRA) are considered taxable income. Retirement income earned in Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming is exempt from state income tax.
States That Don’t Charge Retirement Income Taxes
Like with the other eight states, New Hampshire doesn’t impose an income tax, but it does tax dividends and interest payments, which are common components of retirement portfolios.
This tax could be avoided by holding income-producing assets in a tax-advantaged plan, like an IRA, and subsequently withdrawing from the plan. You won’t be subject to taxation in New Hampshire because the distribution would be considered income.
Four states do not tax retirement benefits: Illinois, Iowa, Mississippi, and Pennsylvania, in addition to the nine above states with no income tax at all.
On whatever source of benefits, eleven states do not impose any income taxes.
Others grant resident retirees varied degrees of exemptions from paying taxes on Social Security, payouts from retirement accounts, pension payments, and other forms of benefits.
Given some of the significant exclusions, many retirees in those states won’t have to pay any income tax.
When moving to a different state to reduce taxes, it’s necessary to verify with the state tax office for details because things like the retiree’s income matter and differ by state.
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Get Matched with Top Financial Advisors
A financial advisor can assist you in balancing the tax implications and other factors while deciding where to retire.
Finding a reliable financial advisor shouldn’t be hard. With the free service provided by SmartAsset, which connects you with up to three local financial advisors, you can speak with your advisor matches in person to determine which one is best for you.
Avoiding all state taxes on benefits is only one aspect of retirement planning for a safe and comfortable lifestyle. While some states do not tax retirement benefits, they do so elsewhere. Get more tax information for retirees.