Many seniors are shocked to learn that they won’t be able to keep all of their Social Security benefits when they retire. That’s because those benefits are subject to federal taxes for moderate and high earners. Some lower income earners may also have their benefits taxed, depending on their specific income.
But federal taxes on Social Security are not the only taxes to worry about. Depending on the state you settle in for retirement, you may also be on the hook for additional taxes.
There are 13 states that tax Social Security benefits to some degree. The good news, though, is that most states don’t levy their own taxes on those benefits. So if you want to keep more of that cash, you may want to focus on those 37 when deciding where to call home during retirement.
The 37 States That Don’t Tax Social Security
Regardless of what your total retirement income looks like, you don’t pay taxes on your Social Security benefits in these 37 states:
- New Hampshire
- New Jersey
- New York
- North Carolina
- south carolina
- south dakota
But does that mean you have to write off the other 13 states automatically for retirement? Not necessary.
There are factors to consider when deciding where to live during your senior years, beyond Social Security taxes. Of which:
- Housing costs and property taxes (along with general living expenses)
- Access to healthcare
- Proximity to family and loved ones
- Amenities such as parks and recreation
While it’s true that taking an extra bite out of your Social Security benefits may not be ideal, the reality is that you can more than make up for that by retiring somewhere with affordable housing and healthcare. As such, it’s a good idea to do your research before assuming you shouldn’t move to a state that taxes Social Security.
Another thing to keep in mind is that if you are a low or medium earner, many of the states taxing Social Security offer exemptions for which you may qualify. So again, it pays to have all the facts before you write off 13 states from scratch.
Prepare for Social Security Taxes
Ideally social security will not be your only source of income during retirement. But if it’s a big one, prepare for taxes and prepare to lose some of those benefits.
However, you can offset this by insuring other retirement income streams that are not subject to taxes. Roth IRA and 401(k) withdrawals, for example, receive tax-free treatment. And if you invest in municipal bonds for retirement, the interest payments you receive during the year are exempt from federal taxes and, in some cases, state taxes as well.
It absolutely stinks to have to pay taxes on Social Security. But if you prepare accordingly, giving up some of those payments might not hurt you too much.
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