Kiplinger’s Magazine named Delaware as the most tax-friendly state for retirees. Below please see an excerpt from the article:
If you’re thinking of moving to a different state in retirement, you’ll want to consider climate, proximity to family and friends, access to quality health care, and a host of other important factors before picking a new location. But make sure you add taxes in the new state to the list of considerations. The total state and local tax burden in one place can be thousands of dollars more per year than in another. That can make a huge difference when you’re trying to stretch out your retirement savings.
To do a head-to-head, multistate comparison of state taxes on retirees, you can use Kiplinger’s State-by-State Guide to Taxes on Retirees. But if you’re just looking for the 10 states that impose the lowest taxes on retirees, check out the list below. Our results are based on the estimated state and local tax burden in each state for two hypothetical retired couples with a mixture of income from wages, Social Security, traditional and Roth IRAs, private pensions, 401(k) plans, interest, dividends, and capital gains. One couple had $50,000 in total income and a $250,000 home, while the other had $100,000 of income and a $350,000 home.
- State Income Tax Range: 2.2% (on taxable income from $2,001 to $5,000) to 6.6% (on taxable income over $60,000)
- Average Combined State and Local Sales Tax Rate: 0%
- Median Property Tax Rate: $562 per $100,000 of assessed home value
- Estate Tax or Inheritance Tax: None
Congratulations, Delaware – you’re the most tax-friendly state for retirees! With no sales tax, low property taxes, and no death taxes, it’s easy to see why Delaware is a tax haven for retirees. For beginners, you’ll have more disposable income in your golden years if you live in the First State, because you’ll pay zero state or local sales tax on your in-state purchases (Delaware is one of only a handful of states with no sales tax).
You’ll also have more money to spend on the grandkids because property taxes are so low. The estimated annual property tax bill in Delaware for our first make-believe retired couple is just $1,405 on their $250,000 home. It’s just $1,967 for our second imaginary couple’s $350,000 home in the state. Those property tax totals are the seventh-lowest amounts in the nation for homes at those prices. So, our make-believe retired couples will be quite happy in the state. Plus, some Delaware seniors qualify for a school property tax credit of up to $400 (you might have to live in the state for 10 years to get it, though).
Since there are no estate or inheritance taxes in Delaware, you can pass along more of your wealth to the grandkids, too (or to other family, friends or charities).
The only downside—and it really isn’t that bad—are middle-of-the-road income taxes. The rates are comparatively reasonable, and residents age 60 and older can exclude up to $12,500 of pension and other retirement income (including dividends and interest, capital gains, IRA and 401(k) distributions, etc.). Social Security benefits are also exempt. But, in the end, income taxes don’t add enough to a retiree’s overall tax burden to keep the state out of the top spot on our list.