If you are approaching retirement, you might be concerned about handing over a significant portion of your income to the taxman.
Depending on where you live, the combination of federal and state taxes can take a big chunk out of your retirement income, leaving you with precious little to meet your day-to-day expenses.
We have identified five tax-friendly states where you can keep most of your retirement income and stretch your nest egg to a significant extent.
The Sunshine State is one of the most preferred retirement destinations in the country thanks to its gorgeous beaches, balmy weather, excellent healthcare facilities, and endless range of local attractions.
It also happens to be one of the most tax-friendly states for retirees.
There is no state income tax and you are not required to pay any taxes on your 401(k), IRA, pension, or social security benefits.
The icing on the cake is that Florida does not have an estate or inheritance tax either.
Wyoming does not have a state income tax or estate tax. The sales tax rate is 5.22%, which is among the lowest in the country.
What is even better is that prescription medications and medical supplies are exempt from sales tax, which can be a huge advantage for retirees.
More importantly, the state also has a property tax deferral program under which eligible seniors to delay their property tax payments, up to 50% of what they owe.
It is one of the many reasons why it remains an attractive retirement destination even for those who are on a budget.
Kentucky does have a state income tax, but Social Security benefits are not taxed. More importantly, your retirement income from IRAs, 401(k) accounts, annuities, and other sources is also exempt from state income tax up to specific dollar limit.
The best part is that the exemption is applicable at an individual level, not at a household level. What it means is that if you and your spouse have a combined retirement income below a certain level, neither of you has to pay any income tax.
In addition to these tax benefits, seniors aged 65 or older can also qualify for a generous homestead tax exemption.
Alabama does not tax social security benefits and government pensions. Moreover, your income from other sources, including private IRA and 401(K) plans, are taxed at very low rates, depending on your income level.
The biggest advantage of retiring in Alabama is that the property tax rate is extremely low. What is even better is that if you are 65 or older, you are completely exempted from paying property taxes.
The state does not have an estate tax or inheritance tax either.
The Volunteer State does not have a state income tax, estate tax, or inheritance tax. Property taxes in the state are also among the lowest in the country.
The downside, however, is that the state’s sales tax rates are among the highest in the country.