The 13 states mentioned in the article that won’t tax Social Security, 401(k), IRA, or pension income are:
New Hampshire
South Dakota
Mississippi
Pennsylvania
Alabama
Hawaii
Massachusetts
North Carolina
North Dakota
South Carolina
These states either have no income tax at all or tax general income but not retirement income. Even in these states, retirees will still pay other forms of taxes like property taxes and sales taxes in most cases. Retirees can reduce their tax bill by carefully selecting where they retire.
However, Benjamin Franklin’s statement about the certainty of taxes still stands true to some extent. Starting in 2025, Connecticut, Rhode Island, and West Virginia will begin collecting state taxes on Social Security benefits. This could significantly impact the net income of beneficiaries in these regions.
Beneficiaries should verify information directly with their state’s tax authorities to fully understand how these changes apply to their benefits. Consulting with a tax professional can also help clarify any uncertainties and assist in planning for the future.
States exempting Social Security benefits
Some strategies to maximize Social Security benefits include delaying retirement, increasing years of work, and increasing salary. Each beneficiary has a unique financial profile, so it’s important to evaluate which strategies are most effective for your situation. While Donald Trump’s proposal to eliminate Social Security taxes has sparked interest, its effectiveness would vary greatly depending on where retirees live.
High state taxes in certain states could offset the relief from federal tax cuts. States with high tax burdens for retirees that might negate the benefits of eliminating Social Security taxes include California, Colorado, Connecticut, Hawaii, Massachusetts, New Jersey, New Mexico, New York, Rhode Island, and Vermont. These states have high sales taxes, property taxes, and/or tax Social Security benefits at the state level.
Understanding how both state and federal taxes impact retirement income is crucial for seniors looking to maximize their financial security in retirement. The proposed federal tax cut would provide some relief, but retirees in high-tax states may still struggle to save money and maintain a comfortable lifestyle.
