Retirement planning is a crucial aspect of financial planning. While you plan, it’s important to consider the tax implications of where you retire. Some states have higher taxes than others; taxes significantly impact your retirement income and lifestyle.
Understanding states’ tax landscapes helps you make informed decisions about where to retire and how to manage your finances .
Whether you’re just starting to plan for retirement or are close to retirement age, it’s never too a bad time to consider the tax implications of your retirement location. Avoiding high-tax states helps you save thousands of dollars in taxes, increasing your retirement income.
1. New Jersey
The Garden State has the highest property taxes and estate taxes in the country. Not only that, it also has taxes on pensions. Estate taxes in New Jersey have an exclusion starting at $675,000.
Additionally, New Jersey has one of the highest marginal tax rates at 8.97% for incomes above $500,000. The cost of living in this state is also among the highest, ranking 46th out of 51.
Illinois is well-known for having the second-highest property taxes in the country. This property tax rate can be a significant burden for residents and potentially impact retirement planning. In addition to property taxes, Illinois also has an estate tax, which can affect the transfer of wealth to loved ones upon death.
The state also has the fifth-highest gas tax in the nation, which can add to the cost of living and potentially impact retirement income. All of these factors should be considered when planning for retirement in Illinois.
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Wisconsin has some of the highest property taxes in the country, ranking fourth nationally. Additionally, retirement income is taxable in Wisconsin, which means that you may need to pay taxes on your retirement income. The state also has a relatively high marginal income tax rate at 7.75% for the highest bracket — incomes above $225,000.
Nebraska has some of the highest property taxes as a percentage of home value. The state ranks sixth in the country. This can be a significant burden for homeowners. Moreover, Nebraska taxes social security and pension income.
The marginal tax rate in Nebraska is 6.84%, starting at a relatively low income of $29,000. This means that a significant portion of income may be subject to taxes. There is also an inheritance tax in Nebraska, which can affect the transfer of wealth to loved ones upon death.
Michigan is one state to avoid because of high property taxes as a percentage of home value, which rank seventh in the country. Furthermore, those born after 1952 will no longer be exempt from taxes on pension and retirement income.
Vermont is not ideal for retirees due to its high property taxes and taxes on social security and pension income. Vermont also has a high marginal tax rate of 8.95% on incomes over $105,100, meaning a significant portion of your income will be subject to taxes. The cost of living in Vermont is relatively high, ranking 41st in the country.
Connecticut has some of the highest property taxes in the country, ranking as the 10th-highest. This can be a significant burden for homeowners because homes in Connecticut are generally expensive. In addition to high property taxes, Connecticut also has the fourth-highest gas tax in the country, which can add to the cost of living.
The state’s estate tax rate is also among the highest in the country, with a rate of 16% on estates over $2 million. The top marginal tax rate in Connecticut is 6.7%, and social security and retirement income are taxable for higher-income residents. The cost of living in Connecticut is also relatively high, ranking 48th out of 51.
According to retirement income expert and author of the “Retirement Planning Guidebook,” Wade Pfau, in an online New York Times post, careful planning can help reduce your tax burden in retirement. Pfau states that “being efficient about taxes can have a pretty substantial impact.” This highlights the importance of considering the tax implications of your retirement location and planning accordingly in order to potentially save thousands of dollars in taxes and increase your retirement income.