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retire

Finding the Best Places to Retire Since 2006!

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What Retirement Income is Taxed by Which States?

Alabama Through Florida

Whether or not a state taxes Social Security income is often a top priority when considering where to retire, but taxes on other retirement income should be considered as well.   Here we look at what kind of retirement income each state taxes.  Today's article covers retirement taxes in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware and Florida. 

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Alabama (Tax Friendly) - Social Security income is not taxed. Military, civil service, state and local government pensions and qualified private pensions are not taxed. Out of state government pensions are not taxed if they are defined-benefit plans. Distributions from employer-based defined-contribution plans and IRAs, including 401(k)s and 403(b) plans, are taxed as ordinary income at up to 5%.

Alaska (Tax Friendly) - Social Security income is not taxed, and neither is any other retirement income. Residents also receive an annual dividend check from the state's oil wealth savings account. The 2018 payout was $1,100 per person.

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Arizona (Tax Friendly) - Social Security income is not taxed. Railroad Retirement benefits are not taxed, and up to $2,500 total of military, civil service and Arizona state and local government pensions is not taxed. Private pensions, 401(k)s and IRAs are taxed as ordinary income. Out of state government pensions are taxed.

Arkansas (Tax Friendly) - Social Security income is not taxed. VA benefits, workers' compensation, Railroad Retirement benefits and unemployment compensation are not taxed. Up to $6,000 in military, civil service, state and local government and private pensions are not taxed. If the taxpayer is age 59 1/2 or better, then IRA distributions qualify for the $6,000 exemption. Out of state government pensions qualify for the exemption, too.

California (Not Tax Friendly) - Social Security benefits and Railroad Retirement benefits are not taxed, but all private, local, state and federal pensions are taxed. IRAs and 401(k)s are taxed at ordinary income rates. The state has a 2.5% penalty on early distributions from IRAs, retirement plans and annuities.

Colorado (Tax Friendly) - For beneficiaries younger than age 65, up to $20,000 of Social Security income, along with other retirement income that includes state and local pensions, out of state pensions, federal civil-service pensions, military pensions and private pensions, is exempt from taxation. People age 65 and better may exclude benefits and other retirement income up to $24,000. Social Security income and Railroad Retirement income that is not taxed by the federal government is not added back to adjusted gross income on the state form.

Connecticut (Not Tax Friendly) - For taxpayers with federal adjusted gross income of less than $50,000 (single) and for taxpayers with federal adjusted gross income of less than $60,000 (married), Social Security income is not taxed. Military retirement pay and Railroad Retirement income are not taxed. All out of state government and federal civil service pensions are taxed. IRAs, 401(k)s and private pensions are taxed.

Delaware (Tax Friendly) - Social Security income is not taxed. Railroad Retirement benefits are not taxed. Taxpayers age 60 and better may exclude $12,500 of investment and qualified pension income. Out of state government pensions qualify for the pension and retirement exemption. For those younger than age 60, $2,000 of investment and qualified pension income is not taxed. Taxpayers who do not itemize and who are age 65 or better at the end of the year may be eligible for an extra standard deduction of $2,500.

Florida (Tax Friendly) - Florida does not tax any retirement income.

How We Choose Great Places to Retire

When looking for great places to retire, we consider a number of factors, including cost of living, medical facilities, climate, transportation, crime rates, cultural amenities, educational amenities, shopping venues, infrastructure, recreational opportunities, housing options, the poverty rate and more.

No one factor alone, except a high crime rate or a high poverty rate, will disqualify a town as a great retirement spot, but several factors combined, such as a high crime rate, a high poverty rate and population loss, generally will. We weigh all of the evidence to decide if a town has enough going for it to make it a great place to retire.

We are not affiliated with any of the places that we review.

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