Some states offer attractive tax benefits for retirees, others don’t. Kiplinger runs through the worst (or “tax hells,” as the magazine bluntly states). Many are in the Northeast United States (wait, what?). If your clients are looking for a nice—cheap—place to “perform their second act,” they’d do well to avoid the following. (If you need to find a good city to retire, check out our previous list.)
The state continually re-elects the only socialist in Congress, so what did you think would happen? There are no exemptions for retirement income in the Green Mountain State, except for Railroad Retirement benefits (which are exempt in every state). The magazine reports out-of-state pensions are fully taxed. It imposes a 9% tax on prepared foods, restaurant meals and lodging, and levies a 10% sales tax on alcoholic beverages (for shame) served in restaurants.
We were hoping to make fun of their accents, but alas, Kiplinger wisely sticks to weather. Minnesota offers retirees cold comfort on the tax front. Social Security income is taxed to the same extent it is taxed on your federal return. Pensions are taxable regardless of where your pension was earned. Income-tax rates are high, and sales taxes can reach 9.53% in some cities.
After switching from the Big 12 to the Big 10 (those that matter will know what it means), we thought Nebraska could go no lower. We were wrong. The magazine reports there are no tax breaks for Social Security benefits and military pensions in the Cornhusker State. Real estate is assessed at 100% of fair market value. Nebraska imposes an inheritance tax on all transfers of property and annuities.
First, says Kiplinger, the upside: There’s no state sales tax in the Beaver State. But it shares the distinction with Hawaii of imposing the highest tax rate in the nation on taxable income of $250,000 or more. Oregon has an inheritance tax that applies even to intangible personal property located anywhere, such as investments and bank accounts.
Honestly, is anyone surprised? If so, maybe dispensing financial advice isn’t the profession for you. The Golden State has lost its luster for many retirees (understatement). Although Social Security benefits are exempt from state income taxes, all other forms of retirement income are fully taxed. Californians pay some of the highest income taxes in the U.S., with the top rate of 9.55% kicking in at $46,767 of taxable income.