States That Don't Tax Federal or State Pensions
A total of 17 states decline to tax residents on federal or state pension income as of the date of publication. Some have no income tax at all; others specifically exempt pensions from taxation. A handful of other states are tax friendly to retirees in other ways. All told, if you're looking to retire without an undue tax burden, roughly half of the United States tries to accommodate you to some extent.
It doesn't matter where your income comes from in Wyoming, Alaska, Florida, Washington, Nevada, Texas and South Dakota. These seven states have no income tax. An additional two states, New Hampshire and Tennessee, have no income tax, but they will tax interest income. If you're using the interest from investments to help you make ends meet in retirement, these states take a portion of it.
States That Exempt Government Pensions
An additional ten states impose income taxes, but not on state or federal pensions. In Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania., your public pension income is tax free. Virginia also generally exempts Social Security income. Alabama, Hawaii, Mississippi, Pennsylvania and Illinois exempt certain private retirement plans from taxation as well.
States With Other Exemptions
Of states with income tax, Connecticut, Hawaii, Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi. New Jersey, New York, Ohio, Pennsylvania and Wisconsin do not tax military pensions. Other states limit taxes on military pensions, but have some restrictions: Kentucky, Missouri, North Carolina and Oregon. Arizona, Oklahoma, Idaho and the District of Columbia offer some tax breaks for in-state pensions.
Retirement States to Avoid
California won't impose a tax on your Social Security income, but it taxes all pensions. Nebraska taxes Social Security; the state exempts only railroad retirement benefits, which are protected by federal law. Vermont taxes pension income, up to 8.95 percent in Vermont. Vermont also exempts railroad retirement benefits, however. Connecticut actually requires tax withholding from pensions. Rhode Island taxes all retirement income, including Social Security, although its tax rate is only 5.99 percent. Colorado, Montana, New Mexico, North Dakota, West Virginia and Utah also tax Social Security to some extent.
Posted by: sarah_oz@yahoo.com
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