Unfortunately, taxes are an inevitable part of life.
Even in retirement, you probably owe your fair share of the tax. If your retirement savings are set in a 401 (k) or traditional IRA, you generally have to pay income tax for the withdrawals each year. You will also usually be liable for federal taxes on your Social Security benefits, and depending on your state of residence, you may have to pay state tax on your monthly checks.
Taxes can potentially take a big chunk of that from your retirement budget, and if your savings are thin at first, having to give a significant portion of your income to Uncle Sam can make it even more challenging to afford retirement .
However, sometimes choosing the right retirement plan may help to 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 make a retirement pension.
The Most Tax-Friendly States for Retirement
Seven of the top states for retirement are: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Why these states? Mainly because none of them have income tax, which is probably one of the most hefty taxes you will be subject to in retirement – especially if most of your income comes from a 401 (k), traditional IRA or retirement.
But moving to any of these seven states is an added bonus: They also do not tax social security benefits. This is good news for people who will depend on their monthly checks for a significant portion of retirement income because the more of the benefits you can keep for yourself, the more comfortable retirement life will be.
Remember this does not mean that you will not be able to escape taxes entirely in retirement. For example, you will probably have to pay federal taxes of up to 85% of your Social Security benefits (unless the benefits are your only source of income – you may be able to avoid federal taxes altogether).
It is important to take into account the overall tax picture, since you will also be responsible for sales and property taxes – and some states have higher taxes than others. The good news is that all seven of these states have lower-than-average taxes compared to the national average. In particular, Alaska has the lowest tax burden in the country, with only 6.5% of state revenue going toward state and local taxes (compared to the US average of 9.9%), according to the Tax Foundation.
Before you move, be sure to look at the state and local taxes you can expect to pay in your new home, and then think about how it will affect retirement. Are you paying exorbitant property taxes in your new city? If so, consider choosing a different location or just renting instead. Or if the sales tax is sky-high, it could put a damper on your pension if you plan to spend a lot of expenses.
Is it worth moving to retirement for lower taxes?
If you & # 39; Do you currently live in a state that is not the most tax-friendly, does that mean you should retire to save money? The short answer is that it depends.
Before making any big decisions, you must look at the big picture and weigh the pros and cons of moving. Taxes are not the only expense you will face when retiring, so make sure you know what you are getting into financially before moving. For example, Washington may be tax-friendly for retirees, but many cities in the state have a higher than average cost of living. So you can save money on taxes, but depending on exactly where you decide to call home, you may end up paying more overall.
The same can be said for any state, as the cost of living is likely to vary widely depending on the city you choose. Before you start packing your suitcases, consider how your potential new city compares to the current one – both in terms of taxes and overall cost of living. If you find that you can lower your taxes and your general expenses by making a deduction, it could end up saving you a lot of cash on retirement and making your golden years much more enjoyable.
Finally, there is another factor you should not consider involving your finances, but rather how moving will affect your quality of life. Really think about whether you're good at potentially leaving friends and family to start in a new city. For some people, the idea of making such a big change in life is scary, regardless of how much money they could save. For others, moving to a new state can be the adventure of a lifetime.
Choosing the right retirement goals can have a big impact on your financial future. You could potentially save thousands of dollars a year in taxes by moving to a more tax-friendly state, but it's important to make sure it's the right choice for you. If you have done your homework and decided to do it, it may be one of the best decisions of your life.