What states tax retirement income: Ask the Expert

Many of my colleagues are thinking of moving out of state after they retire. I think they should check whether another state will tax our New York pensions. Is there a place to find out what states tax pensions?

Anyone who contemplates relocating in retirement should definitely consider the potential tax consequences. And yes, there are places to learn about state taxes on retirement income. (See the links below.)

New York State gives a special break to retired government employees: There is no state tax here on income from federal, state or municipal pensions. New York also waives taxes on the first $20,000 of annual retirement income for all state residents who are over age 59 ½. And it doesn’t tax Social Security benefits.

Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming have no state income tax, so they don't tax pensions, IRA and 401(k) distributions, or Social Security benefits. (But New Hampshire currently does tax dividends and interest.)

Other states, like Colorado and South Carolina, give specific tax exemptions to people aged 65 and older.

But it’s important to look at the whole tax picture, not just income taxes. States with no income tax sometimes compensate by levying higher property or sales taxes. Like New York, Florida, Texas, and New Hampshire have higher property taxes than the national average. And within some states, local property and sales taxes sometimes vary widely.

For those who live part of the year out of state and are hoping to take advantae of tax breaks elsewhere, bear in mind that New York has an aggressive audit program for determining residency. If you maintain a dwelling in New York and spend more than 183 days here, you may still be subject to New York taxes even after relocating. (Time as an inpatient at a New York medical facility doesn't count towards those 183 days, but there’s no waiver for outpatient care.)

The bottom line

If you plan to relocate in retirement, consider the tax consequences as well as weather conditions and access to health care providers.

More information

bit.ly/RPEATaxationByStates

bit.ly/4bJm7n0