by Burke Speaker | February 28, 2014 9:49 am
While you’re on the lookout for the best places to retire, it’s good to also be aware of the least tax friendly states to retire.
From inheritance taxes to real estate taxes to social security taxes, these states are ranked as the worst for retirees — if finances are an important factor in selecting a retirement destination.
And if you think it’s California or New York making the top of the list, think again. You may be surprised at which states are hankering to take the largest chunk of your retirement money.
The list is culled from Kiplinger’s annual ranking of state tax rates.
Check out the 5 least tax friendly states to retire.
Not that you’re very eager to retire to Montana without a good reason, but the state certainly doesn’t want to provide you with one.
While the state does not impose a general sales tax, it more than makes up for that in other areas. The state taxes most forms of retirement income and its top tax rate hits taxable income of more than $16,400. The state’s taxes aimed to tourists also hit residents, with accommodations, campgrounds, and rental vehicles (great for retirees out exploring) all taxed at a higher rate.
With a state sales tax of nearly 7% and state income tax of up to 9.8%, you’d think the hard cold winters of Minnesota would cause government officials to lighten the load on seniors. Not so. The state taxes Social Security income as much (or more) as the federal government does — up to 85%.
More bad news for retirees in the North Star State? Pensions are taxable, be it military, government or private.
State income tax (6.7%) and state sales tax (up to 7%) are just the beginning of the tax fun (sarcasm!) awaiting you in Connecticut. Real estate taxes are the second-highest in the nation, according to the Tax Foundation.
And pensions and other retirement income doesn’t get a break. As Kiplinger points out, “the state taxes a portion of Social Security benefits for single taxpayers with federal adjusted gross income of more than $50,000 and married taxpayers filing jointly with federal AGI of more than $60,000.” Then there’s taxes after death: Connecticut taxes estates valued at $2 million plus beginning at 7.2%, with a maximum rate of 12%.
Just as in Minnesota, Vermont taxes most retirement income — with the state government eager to nab a hefty portion of your monthly checks. Social Security benefits are taxed just as they are by the federal government — as high as 85%. What more, there’s sales tax (6%), state income tax (up to 9%) and just to kick you when you’re (literally) down, an up to 16% estate-tax rate on higher estate values.
A variety of factors makes Rhode Island not the best place to be for retirees. As Kiplinger notes, the state is “among the minority of states that tax a portion of Social Security benefits …to the same extent as they are by the federal government—up to 85%. The state also taxes virtually all other sources of retirement income, including pension income.”
Some good news: Rhode Island reduced the top income tax rate from 9.9% to 5.99%, with the three middle tax rates now at 4.75%. Now more bad news: Estates worth more than $910,725 are hit with the estate tax, and like other non-tax friendly states, the highest rate can reach 16%.
Check out the full list of least tax friendly states from Kiplinger here.
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