The active retirement years can be among the best years of your life if you take the right financial steps along the way to prepare yourself. If you are in a position to choose your ideal retirement lifestyle, you may consider relocation.
Mild weather is a priority for many people, and there are other quality of life factors that enter the picture. These would include the dining scene, access to recreation and culturally enriching activities, and a highly rated health care system.
On a practical level, you should definitely take taxation into consideration. We will take a look at the subject in this post, and we will emphasize a particular type of taxation that many people overlook.
Income Taxes on Retirement Income
You see articles in various publications about “tax friendly retirement destinations.” They list the various states that do not levy state income taxes on retirement income.
While they are accurate, with a few exceptions, it really boils down to a single factor. There are nine states in the union that don’t have state level income taxes at all. If there is no income tax, it can’t be imposed on retirement income, and that’s what these charts and lists are based on.
These are the nine states that do not have state level income taxes:
- South Dakota
- New Hampshire
Pennsylvania, Illinois, and Mississippi do have income taxes, but pension income and 401(k) and IRA distributions are exempt. Pensions are not taxed in Hawaii and Alabama, but these states do tax IRA and 401(k) distributions.
State-Level Estate Taxes and Inheritance Taxes
In addition to the federal estate tax, there are state-level estate taxes in 12 states and the District of Columbia.
An estate tax exclusion is the amount that can be transferred before the tax would be applied on the remainder. The federal exclusion is $11.58 million at the present time, but state-level exclusions are typically much lower.
For example, there are estate taxes in Oregon and Massachusetts, and these states have $1 million state estate tax exclusions.
It is logical to assume that the term “inheritance tax” is another way of describing an estate tax, but this is not the case. An inheritance tax can be imposed on transfers to each individual inheritor when a single estate is being administered.
There is no federal inheritance tax, and there are just six states with state-level inheritance taxes: Maryland, New Jersey, Iowa, Kentucky, Pennsylvania, and Nebraska.
Access Our Free Estate Planning Worksheet!
If you explore this website, you will see a variety of written materials that you can access free of charge. One of the resources that we highly recommend is our estate planning and nursing home asset protection worksheet.
You will come away with a more complete understanding of the process and why it is important if you take the time to go through it. To get your copy, cruise over to our worksheet access page and follow the simple instructions.
Need Help Now?
We gladly provide all of this information on our site so you can build on your knowledge, and we also offer estate planning and elder law webinars on an ongoing basis. You should certainly explore the site and take advantage of any of the resources that interest you.
At some point, it will be time to take action on your estate plan. If that time is now, we are here to help.
You can schedule an appointment at our office in Oklahoma City if you call us at 405-843-6100. Our Overland Park, Kansas office can be reached at 913-385-9400, and there is a contact form on this site you can use if you would like to send us a message.