7 Retirement Tax Haven States

by Andy Hough on August 1, 2007

I love it when publications like Forbes.com publish articles where they give you a nice broad national look at a particular subject, in this case the best tax haven states, but I hate it when they force you to wade through prose or a slideshow just to get to the meat of the piece. I like it better when they summarize and give you like a table view of it all so you can scan it and read it all at once. So below is merely the slideshow condensed down into paragraphs so you can read it easily, showing which state offers which benefit and how you can take advantage of it.

This particular article skipped Nevada and Florida, the well known tax haven states because of their no state income tax rules, and focused on ones that were less well known.

Michigan makes a great retirement tax haven because they are one of the many states that exempt all Social Security income from your taxes. Taxpayers 59.5 and up get an exemption from state income tax for up to $81,840 per couple in pension income, including IRA account disbursements. If you’re 65 and up you can use $18,255 of the $81,640 exemption to shelter income from any non-retirement investment accounts. Plus, those in the 65 and up category get another $2,100 personal exemption plus there is no state estate tax.

Georgia is another state that exempts all Social Security income and has no estate tax. If you’re 62 and up, you can exclude $60,000 each year of your interest, dividends, capital gains, rents, pensions, IRA withdrawals and annuities from your taxable income. Next year (2008), that exclusion jumps to $70,000 per couple. If you’re 65 and up, you get an additional standard deduction of $1,300.

Pennsylvania also exempts all social security income, all private and public pension payouts (including IRA account withdrawals) from your state income tax regardless of your age. And if you contribute to any state’s 529 college savings plan, you can deduct $12,000 per child each year.

Mississippi exempts all social security income, all private and public pension payouts (including IRA account withdrawals) from your state income tax regardless of your age. If you’re 65 and up, you get an additional $1,500 personal exemption. There also is no state estate tax.

Illinois exempts all social security income, all private and public pension payouts (including IRA account withdrawals) from your state income tax regardless of your age. If you’re 65 and up, you get an additional $1,000 personal exemption.

Kentucky exempts all social security income and exempts up to $82,220 per couple in pension income and IRA withdrawals from state income tax regardless of your age.

Lastly, South Carolina exempts all social security income and up to $30,000 of any income per couple, for those 65 and up, from state income tax. If you contribute to one of the three state-sponsored 529 college savings plans, you can get an unlimited deduction! (up to your total taxable income of course) For those under 65, you are instead exempted up to $6,000 per couple of traditional pension income from the state income tax. Finally, there is no estate tax.

{ 2 comments }

SavingDiva August 7, 2007 at 4:03 pm

When I retire, I might have to check out South Carolina (Hilton Head is nice) or Georgia….The other states are too cold in the winter!

EA August 8, 2007 at 11:12 am

Don’t forget states like NH that have no income tax at all!

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