Best Tax Friendly States for Retirees

After working their whole life, the decision to pick a place to retire to is often a complicated one for many seniors.  Most son-to-be-retirees will spend hours looking at cost of living, proximity to relatives, and availability of health care and activities.  Very few people, however, will spend much time considering the tax implications of where they choose to live.

The amount of taxes that is paid by the residents of various states in the United States varies widely.  The average tax burden of a household in California, for example, is nearly 20% of net pay after federal taxes.  In Florida, the tax burden of a household is closer to 8% (data from The Tax Foundation).  These percentages include state income taxes, property taxes, sales tax, and other fees such as car registration.

Retirees should consider the following states which have low taxes or special tax rates and restrictions for retirees.

 Florida – This state has no income tax, a sales tax that hovers around 7.5% in most counties, and a $50,000 homeowner’s exemption on property tax.  Given the very low values for many Florida condos, it is entirely possible to not pay any property tax and still live on the beach.  Florida also has laws which protect homeowners from seeing their property tax bills rise more than 3% a year regardless of the assessed value of the home.  In other words, if real estate prices rise again, property owners in Florida will not be shocked by a high tax bill.  While the lack of personal income taxes may not affect some retirees, many retirees who would like to remain semi-employed during retirement appreciate a state that charges no income tax.  Texas – Another state with no income tax, a sales tax rate around 6.5% in most counties, and very low property taxes.  The state was not nearly as affected by the recent boom and subsequent bust of the real estate market, and the cost of living in this state is much lower than others.  The only complaint by some retirees is that the state does not offer a lot of services for the elderly.  If you move here, expect to fund home health care and other activities on your own. Pennsylvania – This state made it to Kiplinger’s Top Ten Tax Friendly States for retirees, and for good reason.  Pennsylvania does not tax Social Security benefits or any type of public or private pensions.  It also does not tax distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts. While property taxes can be steep in some communities, the state does have programs which exempt households which make less than $35,000 a year from paying property tax.