Affording to retire can be difficult enough, and having your retirement income taxed can leave you with less money.
To start, the federal government taxes income from a 401(k) retirement plan, traditional IRA or pension, along with taxing Social Security benefits. In addition, most states tax at least some part of retirement income.
However, there are a dozen states that dont tax the most common types of retirement income: 401(k)s, IRAs and pensions. Below are some quick highlights of how those 12 states handle such funds:
Alaska. This is the only state that doesnt collect state sales tax or levy an individual income tax, so even people who arent retired can benefit. Alaska also doesnt tax Social Security benefits, and it doesnt have an inheritance or an estate tax.
Florida. The Sunshine State doesnt tax basic retirement income, nor does it have an income tax or tax Social Security benefits. There are no inheritance or estate taxes either.
Illinois. This is the only state in the Midwest that doesnt tax 401(k), IRA and pension income. Illinois has an estate tax for estates worth more than $4 million.
Mississippi. The state wont tax retirement income for retirees who are at least 59.5 years old, but people who retire early will have such income taxed. Mississippi doesnt have inheritance or estate taxes.
Nevada. Known for gambling, Nevada doesnt tax retirement income or have an income tax. In addition, Nevada doesnt tax Social Security benefits, nor does it have inheritance and estate taxes.
New Hampshire. This is the only state in New England that doesnt have a general income tax. It does, however, tax interest and dividends. Retirement income isnt taxed.
Pennsylvania. Pension income isnt taxed in Pennsylvania if received from an eligible employer-sponsored retirement plan. While payments from a 401(k) or IRA arent taxed unless you retire early, the state does have an inheritance tax that ranges anywhere from 4.5 to 15 percent.
South Dakota. Situated in the Midwestern region of the United States, South Dakota doesnt tax retirement income, and it doesnt have an income tax.
Tennessee. The heart of the country music scene, the state’s income tax is limited, taxing only interest and dividends. Additionally, retirement income isnt taxed.
Texas. The Lone Star State doesnt have a personal income tax, and it doesnt tax retirement income.
Washington. This Pacific Coast state doesnt have an income tax and doesnt tax retirement income. It does have an estate and inheritance tax, though.
Wyoming.This Western state doesnt tax retirement income or have an income tax. It also doesnt have an inheritance or estate tax.
Whether youre already retired or planning ahead, calling one of these 12 states home could help you keep more money in your pocket.
This article is intended for informational purposes only and should not be construed as professional or legal advice.
Published with permission from RISMedia.