5 Tax Factors to Consider When Choosing Where to Retire

8:02 pm Retirement Planning

Kiplinger’s Retirement Report recently posted an article that reminds retirees of the importance of keeping the tax consequences in mind when choosing a place to retire.  Taxes loom larger for retirees living off fixed incomes, and should not be discounted when planning for your final retirement destination.

Here is a U.S. map showing the best and worst (California!) states for taxes in retirement:

retiree tax map e1378238475715 5 Tax Factors to Consider When Choosing Where to Retire

According to Kiplinger’s, these five key tax factors should be taken into consideration before you make a move:

Retirement plan distributions – Most states that have state income taxes exempt at least some of pension income; they also tend to treat private and public pensions differently.   A few states exempt all retirement income from taxation, including from qualified retirement plans like IRAs and 401(k)s.  If you are planning to move to another state, be sure to check that state’s stance on taxing retirement plan distributions.

Social Security benefits – Only 14 states now tax Social Security benefits; California does not tax these benefits.

Sales taxes – Most states have a state sales tax and also allow counties and cities to impose their own taxes.  There are 5 states with no sales tax:  Alaska, Delaware, Montana, New Hampshire and Oregon.

Property taxes – If you plan to own your own home in retirement, property taxes can take a chunk out of your retirement budget, especially if you live in a state like Texas that offsets its lack of state income tax with high property taxes.  Before you purchase a retirement home, be sure you understand what your property taxes will be each year and how they may potentially escalate over time.

Estate and inheritance taxes – There are 16 states with state estate taxes (California is not one of them), with exemptions that range from $675,000 (New Jersey) to $5.25 million (Hawaii) in 2013, and 8 states that levy an inheritance tax on the recipient.

For expert help with your retirement planning, contact our Newport Beach law firm.

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