5 Tax Friendly Retirement States

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Del Webb\'s Lake Providence in Tennessee is a popular 55+ community known for its amazing amenities, elegant homes and fantastic state tax benefits.
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Del Webb’s Lake Providence in Tennessee is a popular 55+ community known for its amazing amenities, elegant homes and fantastic state tax benefits.

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.

Can you spot the $207,744 difference between these identical homes?

Financing is the difference!

Get the details in The 62+ Loan Homebuyers Guide.

55places Mortgage is a joint venture between Mutual of Omaha Mortgage and 55places.com.
Details here.

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I agree that 55places and its affiliates, partner providers or agents may call, text, or email me about my inquiry, which may be made with automated means. I understand that my consent is not a prerequisite for buying a property. I may revoke my consent at any time by contacting optout@55places.com. Message/data rates may apply. I also agree to 55places.com’s Privacy Policy and Terms of Use.

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