Bill I was surprised that Hawaii came out on top as most tax friendly for retires. Also Unclewest in Idaho looks to have some tax problems as it ranked third highest overall. I happy to be earning my salary in Washington State.
From morningstar.com:
news.morningstar.com
Do You Live in a Tax-Friendly State?
The best and worst states for taxing salary and retirement income.
Although most of the time we focus on minimizing federal taxes, understanding state taxes is also important when you're trying to keep as much of your wealth as possible. Part of what makes this a complicated process is that not all states have the same kinds of tax. Some tax personal income, while others don't. Some tax retirement benefits; some don't. Some have high property taxes, and so forth.
If you are working and you have a terrific job, chances are you will not uproot yourself and your family to move to a state that has lower taxes. However, many doctors who are finding malpractice insurance ridiculously expensive are considering relocating to a state where that expense would be lower (in addition to lower overall state taxes). And as more and more people find ways to work electronically, moving to a more tax-friendly state may become an option.
Keeping More of Your Earnings
Bloomberg completed a recent study that compares how states stacked up on various criteria. The study used Quicken's TurboTax to calculate state income tax for varying levels of salary. Here are the top 10 best states for wealth in salary and the 10 worst:
Best States for Keeping Salary
1. Wyoming
2. Alaska
3. Nevada
4. New Hampshire
5. Washington
6. Tennessee
7. South Dakota
8. Florida
9. Texas
10. Alabama
Worst States for Taxing Salary
1. District of Columbia
2. California
3. Oregon
4. Idaho
5. Maine
6. New York
7. Rhode Island
8. Vermont
9. North Carolina
10. Nebraska
To come up with their rankings, Bloomberg created a hypothetical family with $500,000 in AGI (adjusted gross income) including $10,000 in long-term capital gains, $2,000 in ordinary income (presumably from investment income), and $5,000 in muni-bond interest (national tax-free only). This family has a home value of $500,000, expenses of $80,000, two children ages 10 and 12, and a 1-year-old car that they paid $50,000 for. (This is certainly not typical America, but this magazine targets financial advisors.)
Keeping More of Your Retirement Income
While you may not want to move during your peak earning years, you may find it more feasible to consider living in a different state once in retirement. Not only may the climate be more hospitable, but you may end up saving money, too. Here are the best and worst states per Bloomberg for taxing retirement income:
Best States for Retirement
1. Hawaii
2. Wyoming
3. Delaware
4. Alabama
5. Louisiana
6. Nevada
7. Alaska
8. Colorado
9. Washington
10. Arizona
Worst States for Retirement
1. Wisconsin
2. Nebraska
3. Kansas
4. Idaho
5. New York
6. Maine
7. Illinois
8. Minnesota
9. Missouri
10. Texas
This hypothetical family has no earned income, $20,000 in annual capital gains, $5,000 in ordinary income, and $20,000 in muni income (national only). They take $10,000 a year from an IRA, $50,000 a year from a defined benefit pension plan, $34,312 in Social Security income, and own a $500,000 house. Their expenses are $50,000 a year, and they have a 1-year-old car they paid $50,000 for.
Of course, taxes are only one of many considerations in deciding where to retire. Here are a couple of Web sites that can help you weigh other factors that may be important to you:
bestplaces.net
findyourspot.com
Overall Wealth Friendliness
This measure from the Bloomberg study took into account not only the tax repercussions for income and retirement benefits, but also the tax on real estate and personal property. Here are the results for overall wealth:
Best States Overall
1. Wyoming
2. Nevada
3. Alaska
4. Alabama
5. Washington
6. Louisiana
7. Tennessee
8. Colorado
9. Delaware
10. Arizona
Worst States Overall
1. New York
2. Wisconsin
3. Idaho
4. Nebraska
5. Rhode Island
6. Maine
7. Vermont
8. Ohio
9. California
10. Kansas
If you are considering a move at some point, your best bet is to go to that area and rent for a while. You want to experience the lifestyle firsthand. Renting also gives you a chance to look around and really find the ideal area for you to buy in.
Keep in mind that many states are in financial distress as they try to balance their budgets. In those states, don't be surprised to see any number of changes to tax rates. It pays to stay on top of these developments. For a more comprehensive guide to state taxes, you can purchase CCH's 2005 State Tax Handbook.
To learn more about taxes in any state, you can also go to: bankrate.com. |
