Can I Avoid Taxes on Social Security or Retirement Benefits?

Retirement

Can I Avoid Taxes on Social Security or Retirement Benefits?

Posted by Infinite Wealth Advisors, LLC
7 months ago | March 15, 2021

Many things will change in retirement, from your budget to your overall lifestyle. But some things never completely change, and income taxes fall into that category. Most retirees are still required to file tax returns and do pay some amount of income taxes each year. You might be surprised to learn that even your Social Security benefits or pension can be taxed, depending on the circumstances.

Taxes on the federal level impact you the same no matter where you choose to live, but individual states do tax retirement income very differently from one another. In fact, some states do not impose an income tax at all!

Once you’re ready to retire, you aren’t tied to a particular location for work purposes. So you might consider moving to a state that appears more tax-friendly to retirees. The following states do not tax Social Security benefits, some do not tax pensions, and some of them do not impose any income taxes:

  • Alabama
  • Alaska
  • Arkansas
  • California
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Maine
  • Maryland
  • Michigan
  • Mississippi
  • Nevada
  • New Jersey
  • North Carolina
  • New Hampshire
  • Oregon
  • Pennsylvania
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wisconsin
  • Wyoming

Looking at these states can give you a good starting point, if you’re considering a relocation in retirement. But do remember that income taxes are not the only taxes faced by retirees. Like everyone else, you might owe property tax, sales tax, and so on. Some states might look good from an income tax standpoint, but impose high taxes on property or something else.

To determine how your living situation fits into your overall budget, keep meeting with us in the years leading up to retirement and afterward. We can help you investigate these issues and decide upon a lifestyle that works for your retirement income budget.

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