Taxes are unfortunately an unavoidable part of life.
Even in retirement, you will probably owe a fair share of taxes. If your retirement savings is in a 401 (k) or traditional IRA, you will generally have to pay income taxes on your payouts each year. You are also usually responsible for federal taxes on your social security benefits, and depending on which state you live in, you may also have to pay state taxes on your monthly checks.
Taxes may take a big bite If you have to relinquish a significant portion of your income to Uncle Sam, it can make life in retirement even more difficult.
Sometimes, however, choosing the right pension target can help you ease the tax burden in your golden years. Some states are more tax-friendly for retirees than others, and these seven are among the best in the country if you want to retire.
The most tax-friendly states for pensioners.
Seven of the tax-best states for retirees are: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
Why these states? First and foremost, because none of them have any income tax, which is probably one of the highest taxes you will have to pay in retirement – especially if most of your income comes from a 401 (k), traditional IRA or pension.
But moving to one of these seven states has an additional advantage: they also do not tax social security benefits. This is good news for people who depend on their monthly checks to receive a significant portion of their retirement income. The more benefits you can keep to yourself, the more comfortable your retirement will be.
Note that this is not the case This does not mean that you can completely escape taxes in retirement. For example, you may be required to pay federal taxes on up to 85% of your social security benefits (unless your benefits are your only source of income – then you may avoid federal taxes altogether).
It's important to include the overall tax bill, as you're also responsible for sales and property taxes – and higher taxes in some states than others. The good news is that all seven of these countries have lower total taxes than the average compared to the national average. In particular, Alaska has the lowest tax burden in the country, with only 6.5% of income flowing into state and local taxes (compared to the US average of 9.9%), the Tax Foundation said.
Before you move, check the state and local taxes you have to pay in your new home, and consider how it affects retirement. Are you paying exorbitant property taxes in your new city? In this case you can choose a different location or simply rent instead. Or if sales tax is sky high, this could dampen your retirement if you plan to spend a lot of money.
Is it worthwhile to retire to reduce taxes?
If you live in a state that is not particularly tax-friendly. Does that mean you should retire to save money? The short answer is: it depends.
Before making any important decisions, look at the big picture and weigh the pros and cons of moving. Taxes are not the only expenses incurred by you when you retire. So make sure you know what you're getting into financially before you move. For example, Washington may be tax-friendly for retirees, but many state-owned cities have above-average living costs. You may save taxpayers' money, but depending on where you call home, you can pay more.
The same is true for any state, since the cost of living will probably be very different the city you choose. Before you start packing your bags, you should do some research to see how your potential new city behaves in relation to your current city – both in terms of taxes and overall living expenses. If you find that this step could lower your taxes and overall spending, you could save a lot of money in retirement and make your golden years much more enjoyable.
Another Factor You Should Not Consider Include your finances, but how moves affect your quality of life. Really think about whether it's okay for you to leave friends and family behind to start a new city. For some people, the thought of such a big change in life is frightening, no matter how much money they save. For others, moving to a new state could be the adventure of a lifetime.
Choosing the right age district can have a significant impact on your financial future. You could potentially save thousands of dollars a year in taxes by moving to a more tax-friendly state. However, it is important to make sure that this is the right choice for you. If you have done your homework and decided to move, this could be one of the best decisions of your life.