There Are 37 States Never Impose a Tax on Social Security Benefits.
Many people put up their best efforts to prepare for and save for retirement, only to be thrown a curveball by one unpleasant surprise: taxes.
When it comes to retirement, a number of important sources of income for seniors are subject to taxation, including traditional IRA and 401(k) plan withdrawals as well as pension payments.
Social Security benefits are another form of income that can be subject to taxation — albeit not always. Taxes on benefits are levied at the federal level against seniors who have a moderate or higher income. And, in many cases, it is difficult to avoid paying federal taxes.
However, avoiding Social Security taxes at the state level isn’t as difficult as it might seem. This is because the vast majority of states do not charge a tax on benefits, and shifting to the proper state could allow you to retain more of your money in your pocket.
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States that do not impose a fee on Social Security benefits
A few states do not levy any form of income tax at all. As a result, no changes can be made to Social Security benefits. However, there are a large number of states that levy income taxes while also leaving Social Security alone.
It is no need to worry about your benefits being taxed at the state level if you choose to retire in one of these 37 states:
- New Hampshire
- New Jersey
- New York
- North Carolina
- South Carolina
- South Dakota
Should you stay away from states that offer tax breaks?
In light of this, it’s understandable why seniors would prefer not to have their Social Security benefits taxed at the state level.
Nonetheless, it’s crucial to remember that several of the jurisdictions that give tax breaks also have additional advantages, such as a generally cheap cost of living and a pleasant temperature.
Furthermore, you may like to relocate closer to your family once you have reached retirement age. And you shouldn’t let the prospect of state-level Social Security taxes deter you from taking advantage of that opportunity.
For starters, many of the states that provide tax breaks also provide exemptions for people with low and moderate incomes. There are more methods you may take to reduce your overall tax burden in retirement, which we will discuss next.
For starters, you can put your retirement funds into a Roth IRA or 401(k) (k). While your contributions to one of these accounts will not result in a tax deduction, withdrawals from them will be tax-free for you as a senior member of society.
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You can also invest in a way that keeps your tax liability to a minimal level. Investing in municipal bonds, for example, is an excellent method to ensure a steady stream of interest payments while avoiding the need to pay federal income taxes on those payments.
Furthermore, if you purchase municipal bonds issued by your state of residency, the interest payments on those bonds are free from both state and local taxes.
As a result, while it is important to be aware of which states tax Social Security and which do not, you do not necessarily need to make significant adjustments to your retirement plans as a result of this knowledge.
Even if you do end up missing any of your benefits as a result of state taxes, there are steps you may do to make up for lost time.