Will your retirement income be subject to state income taxes? It depends. Because the rules for taxes on retirement income differ from state to state. If you’re considering relocating when you retire, there are eight states that don’t tax personal income no matter what the source of that income may be: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming. Starting in January, 2025, a ninth state will join the ranks: New Hampshire. However, when it comes to the rest of the states, it gets complicated.
11 States Will Tax Your Social Security Income
Though most states do not impose an income tax on your Social Security benefits, these 11 states do: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont. But it’s important to check each state’s laws to see if taxes on Social Security are reduced or exempt based on your adjusted gross income (AGI). For example, in Kansas, if your AGI is $75,000 or less, you don’t have to pay state taxes on your Social Security at all. Of course, the good news is that the other 39 states in the union don’t tax your Social Security income.
“However, four of these states will tax income from 401(k)s and similar plans: Alabama, Hawaii, New Hampshire and New York.”
Understanding State Income Taxes On Your FERS Pension
The majority of states will tax at least a portion of your FERS annuity. But it’s important to check your state tax law to see if any exemptions or income thresholds apply.
For those who live in these nine states, there’s no state tax your FERS annuity (pension): Alabama, Hawaii, Illinois, Mississippi, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont. However, four of these states will tax income from 401(k)s and similar plans: Alabama, Hawaii, New Hampshire and New York.
Other State Taxes To Consider
States like Florida and Texas may be good for retirees because there’s no state income tax but there are other taxes to consider. As reported in the news, Florida experienced a spike in property taxes due to rapidly rising real estate values. And, though Texas is also tax-free when it comes to personal and retirement income, the Lone Star State has some of the highest property taxes in the US.
This is why it’s important to do your research before you move to another state simply to avoid income taxes in retirement. For example, though Colorado taxes Social Security, it has a flat state income tax of only 4.40% and real estate taxes are less than half of what they are in Texas. To learn more, connect with an FRC® trained advisor.
