Friday, January 30, 2009

Retiring on the Cheap - Part II

In Retiring on the Cheap - Part I, I reported one solution to saving on expenses when retired -- get a roommate. By sharing expenses such as housing and transportation, one could reduce living expenses.

Part II offers another approach - Move to a state with lower taxes. Here are some tax related information for states obtained from Retirement Living Information Center.
  • No sales tax. Alaska, Delaware, Montana, New Hampshire and Oregon, have no sales tax. States with the highest sales tax (including county and city rates) are: Tennessee (9.4%), Louisiana (8.7%), Washington (8.5%), New York (8.25%), Arkansas (8.15%), Alabama (8.05%), Oklahoma (8.05%), and California (8.0%).

  • No income tax Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) do not tax personal income.

  • Don't tax retirement accounts. Among states with broad income taxes, Pennsylvania, Illinois and Mississippi exclude all retirement payouts (public, private and IRAs) from state taxes. Seven other states exclude payouts from federal, state or local pensions: Alabama, Hawaii, Kansas, Louisiana, Massachusetts, Mississippi, and New York.

    The states that do not tax retired military pay are: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Kentucky*, Louisiana, Massachusetts, Michigan, Mississippi*, Missouri*, Nevada, New Hampshire, New Jersey, New York, North Carolina*, Ohio (tax year 2008), Oregon*, Pennsylvania, South Dakota, Tennessee, Texas, Washington, Wisconsin and Wyoming.(*With conditions)

  • Don't tax social security. The District of Columbia and 26 states with income taxes provide a full exclusion for Social Security benefits -- Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, and Virginia

  • Have low property taxes. The five states with lowest real estate taxes based on median real estate taxes paid are: Arkansas ($469), Mississippi ($437), West Virginia ($422), Alabama ($328), and Louisiana ($179). The top five states are: New Jersey ($5,772), New Hampshire ($4,136), Connecticut ($4,049), New York ($3,031), and Massachusetts ($3,195).

  • Of course, while a lower tax state is financially appealing, there are other reasons for choosing a retirement location. As a story on retirement relocation by Nightly Business Report points out, other considerations, such as being close to family, will sometimes be more important than the financial aspects.

    Related article: 10 Great Low-Tax Places to Retire in US News & World Report.

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC

    1 comment:

    Anonymous said...

    Tennessee has no personal income tax except for the 6% Hall Income Tax, which applies only to certain stock dividends and bond interest, with a $1250 per individual exemption. In fact, Tennessee is fortunate in that a tax on wages is prohibited by the state constitution.