Great places for retirees to settle
These are the 5 most tax-friendly states
During your working years, you may not have a lot of choice about where you live. Once you retire, the world is your oyster. But as you consider your options, don't ignore the impact of state taxes on your bottom line.
Here are the five most tax-friendly states for retirees. Results are based on the estimated state and local tax burden in each state for a retired couple with a mixture of income from Social Security, an IRA, a private pension, interest and dividends, and capital gains. We also gave them a $400,000 home (with a small mortgage) and $10,000 in deductible medical expenses.
Income thresholds are for 2019 and will change in states that index them to inflation. For a complete breakdown of state taxes on retirees, go to Kiplinger.com/ links/retireetaxmap. Wyoming
Thanks to Wyoming's revenues from oil and mineral rights, residents shoulder the lowest overall state and local tax burden in the United States, according to our calculations. There are no income taxes, and sales taxes are low, too. You won't pay high property taxes to own a home on the range, either. For a $400,000 place in Wyoming, the statewide average annual property tax bill is $2,540, the ninthlowest amount in the country.
There is no state income tax in Nevada, so you can cash in your retirement plans and collect Social Security checks without worrying about a big state tax bill. The average annual property tax bill on a $400,000 home is about $2,771 per year, considerably below the national average. However, sales taxes are on the high side. The average combined state and local sales tax rate is the 14th-highest in the country.
This is one of a handful of states with no sales tax, and property taxes are low, too. The average annual property tax bill in Delaware on a $400,000 home is just $2,414, the sixth-lowest amount in the nation. Residents age 60 and older can exclude up to $12,500 of pension and other retirement income, including dividends and interest, capital gains, and IRA and 401(k) distributions.
Social Security benefits and most pensions are exempt from state taxes, and property taxes are modest. Average annual property tax bill on a $400,000 home here runs about $1,729 per year, the second-lowest amount in the country. However, Alabama's average combined state and local sales tax rate is the fifth highest in the nation. Alabama is also one of the few states that taxes groceries.
Taxpayers who are 65 or older can exclude up to $10,000 of retirement income from state taxes. Seniors can also deduct $15,000 of other taxable income ($30,000 for joint filers). Plus, in 2020, veterans who are age 65 or older can exclude up to $30,000 of income from a military retirement plan (up to $17,500 for veterans younger than 65). The statewide average property tax on a $400,000 home is only $2,404, the fourth-lowest amount in the country. Sales taxes are on the high side in South Carolina. There's a 6% statewide levy, and local governments can add as much as 3%.