5 States Considering Big Attractive Tax Breaks for Retirees
There are several states that are currently looking into making life easier for those that are entering the golden age of retirement. They are going to be doing this by expanding the tax breaks on Social Security, pensions and various other types of retirement income. Right now, there are lawmakers in five states that are looking into proposals that would make a large portion of retired citizens’ income exempt from income tax. Although retirees already enjoy several great tax breaks from the federal government, such as standard tax deductions and Social Security being exempt from Social Security income, those incomes from IRAs and 401(k)s are still taxable income. The exception to this rule is with Roth accounts due to the fact that you’ve already paid taxes on the money that you make contributions to this type of account with. Currently, states are looking into tax cuts for retirement incomes as these proposals are very popular with senior citizens and so are a way to get their vote. Here are the five states that are considering giving their senior citizens some substantial tax breaks.
Retirees enjoy pretty nice tax breaks in Maryland already, as they receive an additional $1,000 tax exemption from their income. However, currently Governor Hogan is recommending new laws that would make pension benefits for all retired police, firefighters and military exempt from state tax.
Iowa already has a great tax break in the fact that $6,000 out of retirement income is exempt from state taxes, and $12,000 for those who are married. On top of this, veterans who have military retirement benefits aren’t required to pay taxes on any of their income. However, Iowa has a particularly high individual tax rate, which comes out to just under 9%. Right now, Senator Robby Smith is looking to have a bill introduced that would completely eliminate any taxes on retirement income completely.
In the previous year, Maine was ranked as a state that doesn’t give their senior citizens special treatment when it comes to personal income tax rates, as the state has a 5.5% sales tax that retirees aren’t exempt from. Another issue with this state is that Maine taxes pension income that is earned in a different state even if the retired person already paid taxes when they made the initial contribution. That being said, Governor Le Page is proposing that several tax reforms go through that would greatly benefit retirees. This includes exempting military pension from being taxed, as well as $30,000 of retirement income being exempt.
4. Rhode Island
This state is considered one of the worst states to live in come retirement due to the fact that there are terrible tax benefits for retirees. Just like Minnesota, retirees living in this state have to pay tax from their Social Security benefits. On top of this, the majority of pensions and other types of retirement income are taxed. Lucky for citizens of this state, earlier this year several politicians have proposed to alter the law in order to make military pensions, Social Security and all local, federal and state retirement income to be exempt from tax. However, some people believe that this proposal will mostly benefit those who are in the high-income bracket.
Minnesota is one of several states that actually place tax on Social Security benefits, which makes many retirees angry. Due to this, a new proposal has been written up from the Republican side of the state that would alter that. This act called the “Retire in Minnesota” act is one that is being proposed in order to get more people to enjoy their golden years in this state. It would slowly reduce the taxes placed on Social Security, and could end up saving retirees as much as $600 every year. Those that advocate for this tax break say that it would keep people from running away to different states that are traditionally more retirement friendly than Minnesota such as Wisconsin.