When considering retirement, it’s essential to factor in not just federal taxes but also state taxes. While states like Florida and Texas are often lauded for their lack of state income tax, there’s more to the equation. Before relocating for tax purposes, it’s crucial to examine all potential taxes, including property and sales taxes.
“In this world, nothing is certain except death and taxes”
Property Taxes and Home Insurance Rates
Florida is frequently chosen for retirement due to its lack of personal income tax. However, recent years have seen a notable increase in property taxes and homeowner’s insurance rates, posing financial challenges for retirees. Similarly, Texas offers tax-free personal and retirement income but compensates with high sales and property taxes.
Other State Income Tax Considerations
States with flat income tax rates below 5%, such as Colorado, Illinois, Indiana, Michigan, and Pennsylvania, present attractive options for retirees. Many of these states also provide exemptions for retirement income, further easing the tax burden. While most states do not tax Social Security benefits, a handful still do, though legislative changes are underway in some cases to alleviate this.
State and Local Sales Taxes
Sales taxes can significantly impact retirees on fixed incomes. For instance, Florida imposes a 6% sales tax, with an additional average of 1.05% local tax, resulting in an average sales tax rate of 7.05%.
As Ben Franklin famously remarked, “… in this world, nothing is certain except death and taxes.” By consulting with professionals, retirees can develop tax strategies to mitigate their financial obligations. Connect with an FRC® trained advisor to explore these options further.
