The 10 Most Tax-Friendly States for Retirees
byNov 22nd 2012 6:00AM
Deciding where to live in retirement involves important decisions about climate, cost of living, proximity to friends and family, and an ideal location to enjoy favorite activities. State and local taxes play a critical role, too, because they can increase or decrease the amount of spendable income you'll have to enjoy life in retirement.
These ten states impose some of the lowest taxes on retirees in the U.S., according to Kiplinger's analysis of state tax rules plus research by the Tax Foundation, a nonprofit organization in Washington, D.C., and CCH, a leading provider of tax information and software. We give special preference to states that offer tax incentives to attract retirees.
All of these tax havens exempt Social Security benefits from taxation (and some impose no state income tax at all). Many of them exclude government and military pensions from income taxes, and some exempt private pensions, too. A few offer blanket exclusions up to a specific dollar amount of retirement income from a wide variety of sources, which is important if you depend on distributions from IRAs and 401(k) plans rather than traditional pensions. Review all of your sources of income before you decide which state may be the best fit for your retirement home.