July 16, 2015
The 10 most tax-friendly states for retirees
What are the most income tax-friendly states for retirees? That would be the seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — that don’t tax personal income; and the two states — New Hampshire and Tennessee — that collect income tax only on interest and dividend income. Then there are 36 states, Pennsylvania among them, that allow retirees to exclude all or part of their retirement income from their taxable income. “From purely an income tax perspective, leaving aside other issues such as estate and gift tax, real estate taxes, cost of living, and the like, those seven states with no income tax are a great start,” said Michael Jackson, a partner with Grant Thornton in Philadelphia. And that’s true regardless of your mix of retirement income, said Jean-Luc Bourdon, a principal at BrightPath Wealth Planning, Santa Barbara, Calif. and a member of the AICPA’s Personal Financial Planning Executive Committee.
It’s easy to identify the most income-tax friendly states based on the National Conference of State Legislatures’ (NCLS) report, State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2014 .
But since retirees likely have to pay other types of taxes in the states in which they reside — property, sales, and the like — we ranked the states based on their respective overall tax burden, as measured by the Tax Foundation . Plus, since retirees have to spend money to live in these states, we also ranked the states based on cost of living as measured by the Missouri Economic Research and Information Center (MERIC).
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