As you know, your FERS annuity, Social Security and traditional Thrift Savings Plan (TSP) distributions are all subject to federal income tax. However, have you considered the impact of state taxes when you retire?
Many people assume states like Florida and Texas are good for retirees because there’s no state income tax. Then again, zero income tax is only part of the equation. Virtually all states offer some type of income tax break for retirees. Before you retire to another state for tax purposes, research all the taxes you’ll pay, including property taxes and sales taxes.
Real Estate Taxes & Homeowners Insurance Rates
Florida is a popular choice when relocating for retirement because the Sunshine State is one of seven states that do not tax personal income at all – this includes wages and every type of retirement income. The other six include: Alaska, Nevada, South Dakota, Texas, Washington and Wyoming.
However, in 2022, Florida experienced a spike in property taxes due to rising real estate values. Add to this, as recently as 2024, it’s been reported that homeowner’s insurance in Florida as increased 102% in the last three years.* Though Texas is also tax-free when it comes to personal and retirement income, the Lone Star State has some of the highest sales taxes and property taxes in the US.
As Ben Franklin famously said in 1789, “… in this world, nothing is certain except death and taxes.”
Other State Income Taxes To Consider
The next best thing after no state income tax may well be flat income tax. Colorado, Illinois, Indiana, Michigan and Pennsylvania, each have flat tax rates below 5%. Add to this, many either fully exempt retirement income or partially exempt a portion of retirement income.
Most states do not tax Social Security benefits at all, but there are 12 that do depending on your total income: Colorado, Connecticut, Kansas, Minnesota, Missouri Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. However, a few of these states are in the process of passing new laws that exempt Social Security from state income taxes.
State & Local Sales Taxes
State and local sale taxes can also get expensive when you’re on a fixed income. For example, Florida’s sales tax rate is 6% but there’s also an average of 1.05% local tax added to transactions. This brings the average sales tax in Florida up to 7.05%.
As Ben Franklin famously said in 1789, “… in this world, nothing is certain except death and taxes.” With a little help from professionals, you can develop a tax plan for retirement that lowers the burden. To learn more, connect with an FRC® trained advisor.
Source:
https://www.fox13news.com/news/florida-home-insurance-crisis-cost-price-premium-institute-rates
