Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
One of the things to watch out for in states with no state income tax (for all) is that they have to find a way to make up their revenue needs somehow. In states that have a state income tax yet give specific IRA/401K breaks to seniors, there is a much higher chance that you are actually getting that proverbial free lunch
From Retirement Living:
"Currently, seven states do not tax individual income – retirement or otherwise: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states – New Hampshire and Tennessee – impose income taxes only on dividends and interest (5 percent flat rate for both states)
Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
Quote:
Originally Posted by Broknrekord3
I would hope that $5000 a year isn't the determining factor in where you choose to live out the rest of your life. The money isn't going with you!
For me, $5K per year wouldn't make or break me. But for some, it most definitely does. And not because they want to take it with them but because they NEED IT to live on. Again, you do not want to look at that metric in a bubble, but if a few states are appealing to you and one costs $5K more per year to live, and that $5K means the difference between spending $400 more per month in groceries or being able to turn the AC up in your house or perhaps being able to take a trip to see your grandchildren across the country once per year, which would you pick?
Go read the retirement forum some time. And you will see that many people are living on very limited retirement incomes and every dollar helps. North Carolina is an OK state for retirees, but there are cheaper nearby states (and more expensive ones, too). The subject of the thread was Triangle COL, and income taxes are part of that, and I thought it worth mentioning. What you do with that information is your decision.
For me, $5K per year wouldn't make or break me. But for some, it most definitely does. And not because they want to take it with them but because they NEED IT to live on. Again, you do not want to look at that metric in a bubble, but if a few states are appealing to you and one costs $5K more per year to live, and that $5K means the difference between spending $400 more per month in groceries or being able to turn the AC up in your house or perhaps being able to take a trip to see your grandchildren across the country once per year, which would you pick?
Go read the retirement forum some time. And you will see that many people are living on very limited retirement incomes and every dollar helps. North Carolina is an OK state for retirees, but there are cheaper nearby states (and more expensive ones, too). The subject of the thread was Triangle COL, and income taxes are part of that, and I thought it worth mentioning. What you do with that information is your decision.
I know for some it does. If you're planning on having two homes, then obviously it's not significant. Just curious then why you're using that as part of your decision-making when it doesn't have to be, that's all.
Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
Quote:
Originally Posted by Broknrekord3
I know for some it does. If you're planning on having two homes, then obviously it's not significant. Just curious then why you're using that as part of your decision-making when it doesn't have to be, that's all.
I'm looking at taxes overall as part of my decision-making. And spending winters in Florida has always been a goal of mine. The fact that it is retirement friendly may likely tip the scale into making that our permanent residence (6 months + 1 day) rather than our "summer state" up north, depending on what that state is. If our northern state is Pennsylvania, it probably won't matter much which state we choose as our permanent home. But if that state is New Jersey, it makes a lot of sense to spend a bit of extra time in Florida and make that our residence due to the favorable tax treatment of retirement income, the homestead exemption, etc.
North Carolina isn't an option for us for retirement, so whatever their taxes are are inconsequential to me, but others may not know. It can certainly be significant for a retired school teacher from New York who has a large pension and is thinking of retiring "down south." Georgia, South Carolina, or Tennessee may be a better option for them.
Again, the problem with these no income tax states is that they make up for that tax revenue by much higher property and sales taxes. If you are on a low, fixed budget, you very well could come out worse. This article details much of this. Note that Florida has the 2nd highest "taxes as a percentage of income" rate among the poorest citizens. What the no income tax thing does is let the 1% in that state pay very little, shifting the burden to the poorest citizens.
Those are only the states that do not tax EITHER individual income or retirement income. There are many states that do not tax retirement income or only tax portions of it (even though they do tax regular income which generally isn't a concern for retirees). For example, on the east coast (didn't look at the rest of the country), the following states do not tax retirement income or only tax portions of it:
Delaware (401K and IRA not taxed up to $12.5K)
Florida (401k and IRA not taxed at all)
Georgia (401k and IRA not taxed up to $65K)
Kentucky (401k and IRA not taxed up to $41K)
Maryland (401K not taxed up to $29K)
New Jersey (401k and IRA not taxed up to $40K)
New York (401k and IRA not taxed up to $20K)
Pennsylvania (401K and IRA not taxed at all)
South Carolina (401K and IRA not taxed up to $30K)
Tennessee (401k and IRA not taxed at all)
West Virginia (401k and iRA not taxed up to $16K)
So, if in retirement, you will be living primarily off your 401K and will be withdrawing say $65K per year from it to live on, then you are paying about $3K in income taxes to the state of NC, not including federal taxes. Of course you don't want to look just at that metric alone because as you said, the state can get you in other ways. However, some states give much better breaks to seniors. There is a reason many retirees call Florida home, even if it's just for 6 months and 1 day.
North Carolina is not a tax-unfriendly state to retirees per se, but it's not particularly friendly to retirees either. You have to know where your income is coming from (public pension? 401k, etc.), how high it will be (does state give breaks below a certain threshold?), how large of a house you want (what will property taxes be?, any breaks for seniors?), etc. and then decide which state meets your needs best. Of course, if everything else about North Carolina appeals to you like weather, east coast, near beach, etc. you probably won't pick Wyoming over it. But you might pick South Carolina or Georgia, which have similar amenities but more favorable tax laws for retirees.
Here is Kiplinger's guide to retiree taxes in all 50 states. It is very informative. My husband and I are in the thick of retirement planning and have found this chart very useful (although I don't care much for the comparison tool which is a bit too simplified):
Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
Quote:
Originally Posted by Dire Wolf
Again, the problem with these no income tax states is that they make up for that tax revenue by much higher property and sales taxes. If you are on a low, fixed budget, you very well could come out worse. This article details much of this. Note that Florida has the 2nd highest "taxes as a percentage of income" rate among the poorest citizens. What the no income tax thing does is let the 1% in that state pay very little, shifting the burden to the poorest citizens.
For sure, Florida might not be good for everyone. When looking where to live (particularly in retirement when there is no job attracting you somewhere specifically), you need to evaluate the COL based on your unique situation. For us, we have a large amount of savings in 401ks and IRAs. Being in a state that doesn't tax retirement accounts is attractive. Of course, it has to be considered with the COL and other taxes that the state DOES have. It is only one of many metrics to consider when deciding where to live.
Our long term goal is house in FL for primary residence and house/cabin in mountains of NC for the summer.
Wife works from home, no kids, and I can live anywhere.
Just did a tour in Boone/Blowing Rock and like it a lot up there.
ZERO reason to pay NC 5.75% if you don’t have too.
That sounds nice!
A few years ago our state tax was 7.75% for any income over $12,750 (individual) and $21,250 (couple). No way I'd retire here then or now, when a bulk of our savings are/will be held in taxed retirement accounts. I still have 20-25 years left to think about that though, lol.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
