While searching for the best place to retire, savvy active adults begin looking for ways to stretch their savings. Choosing a tax friendly state as a retirement destination is a smart way to make the most of a fixed income, but finding the best location can take a bit of research.
Federal taxes are about the same regardless of where you choose to live. However, the amount of state and local taxes you pay can vary widely. When searching for the best place to retire, be sure to look into the individual community’s entire tax burden, including income tax, property tax, sales tax, and taxes on pension plans. Many states also offer special tax programs for seniors, which can save you money after reaching a certain age.
Which other tax-friendly states make great retirement locations? The tax benefits from one state to another will predominantly depend on your personal financial situation. For example, someone with a military pension may prefer a state with pension-friendly tax laws. While the answer will be different from one retiree to the next, here are five states to consider:
1. Tennessee
There are no broad-based income taxes in Tennessee, which means no taxes on salaries, Social Security benefits, IRA distributions, or pension income. There are, however, taxes on stock dividends and interest income from investments. With rural beauty and a low cost of living, Tennessee is gaining popularity as a retirement destination.
2. Delaware
This small state is a tax-friendly location for retirees. There is no sale tax and limited income taxes. Social Security benefits are exempt from state income taxes. Older residents may also qualify for special tax credits and tax relief programs.
3. Alabama
In addition to being tax-friendly, Alabama enjoys a warm climate that appeals to many retirees. This beautiful southern state offers state income exemptions for Social Security benefits, as well as military, civil service, and government pensions. There is a 4-percent sales tax statewide, however additional local sales tax rates do raise this to up to 12-percent in some areas. Residents over the age of 65 are exempt from county property taxes.
Before making the final decision on where the best place to retire is for you, be sure to research your potential tax burden and to consider state and local taxes, including specific county and city taxes. Most states provide tax information online, which makes it easier than ever to find your own tax-friendly retirement destination. Think you know of some great tax havens, tell us about it in the comments section below.
