States with No Tax on Retirement Savings: Monday, January 29th, signifies the commencement of the 2024 tax filing season, during which millions of Americans commence the occasionally unwelcome endeavor of organizing their documents. Probably, you are already cognizant of the fact that federal income tax is levied on Social Security benefits, pension payments, and IRA and 401(k) distributions when the total income exceeds the threshold established by the United States government. In addition, under Social Security Administration (SSA) regulations, recipients will be subject to income-based taxation at a rate between fifty and eighty-five percent. As always, complete and current information is available on the IRS website for seniors and retirees.
The tax obligations for retirement savings exhibit significant variation among states. Our objective is to provide clarity regarding which states eliminate this burden and which merely provide partial reductions. This may influence the location in which certain retirees choose to spend their golden years, and it will undoubtedly be a significant factor in the overall financial planning of all.
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State-sponsored tax-free retirement savings
While the aforementioned benefits and plans for retirement income are subject to federal income taxes, Roth IRA and Roth 401(k) distributions may qualify for exemptions. It is worth noting that federal income taxes on Roth contributions are resolved before the commencement of the contributions. Upon completion of a five-year waiting period and attainment of 59 and a half years of age, withdrawals of both the initial contributions and any investment gains are exempt from federal income taxation.
The local income of the eight states listed below is exempt from local income tax. This exemption extends to interest, wages, dividends, salaries, Social Security retirement benefits and pension payments, distributions from retirement accounts, and income from non-retirement brokerage account securities.
- Alaska
- Florida
- Nevada
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Notably, although New Hampshire currently levies taxes on dividends and interest, unlike the aforementioned eight states, it imposes no state income tax on wages, salaries, and the like. Similar to other tax circumstances, this one is subject to change; for instance, New Hampshire has already initiated preparations to eliminate its 5% tax on interest and dividends by January 2027.
State-mandated minimal retirement taxation
Although certain states do not explicitly exclude retirement income from taxation, they nonetheless provide significant tax advantages for retirees.
Georgia exempts Social Security benefits from taxation and permits an individual deduction of up to $65,000 on other retirement income.
Pennsylvania exempts from taxation Social Security benefits, IRA and 401(k) earnings, and pension disbursements for individuals aged 60 and older.
Absence of Social Security tax
Including the jurisdictions listed above, the following do not tax SS benefits:
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Mississippi
- Nevada
- New Hampshire
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- South Carolina
- South Dakota
- Tennessee
- Texas
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
When confronted with the complex terrain of tax ramifications for retirement income, it is imperative to acknowledge the distinct intricacies of individual states and the dynamic characteristics of tax legislation. Although this article does offer valuable insights, readers are strongly encouraged to seek the guidance of a well-informed financial advisor. A specialized tax advisor can provide individualized guidance by considering specific circumstances and guaranteeing a comprehensive comprehension of the most recent tax regulations. Through the consultation of professionals, one can optimize the advantages derived from their retirement income by making well-informed choices that are customized to their specific financial objectives.
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