Upon reaching retirement age, individuals have the option to stop working and begin accessing their accumulated retirement savings. Some have smartly chosen to roll their 401k to a gold IRA, others have not. Regardless, when considering retirement, it is important to determine the most suitable state to reside in. The tax rules for retirement income vary by state, and your place of residence can significantly impact your tax payments.
There are variations in state tax policies when it comes to taxing retirement income. Knowing the differences is super important for your wallet. Specifically, states such as Alaska, Illinois, Nevada, New Hampshire, South Dakota, Pennsylvania, and Tennessee do not tax income from 401(k)s and IRAs, potentially resulting in significant savings for retirees.
Important Note: It’s best to consult with your tax accountant for advice and this article only provides information and should not be misconstrued as tax advice. Contact your accountant for retirement tax advice before making any significant life changes. That holds especially true if you’re looking for the gold IRA tax rules that exist today. Make sure you get professional advice before investing anything.
Which States Don’t Tax 401(k) Withdrawal Today
If you live in one of these states, you could be exempted from paying taxes on your 401(k) retirement income and that means more money in your pocket versus the state when it comes to 401(k) withdrawals.
Alaska’s tax system is favorable towards senior citizens, with exemptions on state income tax and retirement income from 401(k) or IRA. On the other hand, the state has a relatively high property tax rate. Something you must keep in mind when deciding to settle in Alaska.
South Dakota provides tax benefits for retirement income and withdrawals, while also imposing property and sales taxes. As a result, it is considered an attractive state for retirees seeking to optimize their long-term savings.
Don’t let taxes scare you! Tennessee’s income tax only targets interests and dividends earned on investments. And guess what? You won’t pay taxes on your 401(k) distributions, social security benefits, or pension income.
If you’re a senior citizen above 65, you’re tax-exempt! But wait, there’s more! The state does charge a 7% state sales tax, but that’s a small price to pay for all the tax benefits that the state offers. Head on over to Tennessee, where your money can go further!
After reaching the required age, retirement income from eligible employer plans is tax-free. This applies to 401(k) income, IRA payments, and social security payments. Withdrawing from a 401(k) before the age of 59 ½ may result in taxes. State sales tax for most purchases is 6%. Not bad all around.
Nevada does not tax 401(k) earnings or part-time job income. They also exempt IRA and pension income from taxation. Retiring in Nevada can save you money since your retirement income won’t be taxed. Purchases in Nevada are subject to a 6.85% state sales tax.
Rollover Your 401(k) To Gold
“Goldco is the precious metals company that I recommend to my audience, friends, and family.” – Sean Hannity.
Retirees can live off retirement income alone in New Hampshire. The state only taxes interest and dividends, not earnings from 401(k), IRA, or social security benefits. Sales tax is also not charged on purchases. However, property taxes in the state are high. It’s a great state for those who like to hike and ski though!
Fun in the Sun” Florida offers a favorable tax environment for retirees, as the state does not levy an income tax and allows for the retention of 401(k) earnings, social security benefits, and part-time job income. Many people choose to settle in Florida for this reason alone. It’s important to note that the state does impose a 6% state sales tax. My suggestion is Miami, FL if you’re planning on retiring anywhere in the state.
Illinois imposes income tax on residents, however, qualified employer-sponsored retirement plan income, pension income, and social security benefits are exempt from taxation. Additionally, the state imposes a 6.25% sales tax on purchases.
Mississippi offers a tax exemption on 401(k) income for retirees over 59 ½, and early retirees may face taxation based on their tax bracket rate. The state imposes a sales tax rate of 7%. The good thing about Mississippi is that the cost of living is relatively inexpensive.
Retiring in Texas can offer financial advantages, including exemption from state income tax on 401(k) and IRA distributions and part-time earnings. Nonetheless, the state imposes a sales tax and property tax. So, keep that in mind if you’re looking to move to Texas to retire.
Washington is a state that does not have state income taxes on 401(k) distributions, irrespective of income, making it tax-friendly. Since there is no income tax, other retirement distributions like social security benefits and pensions are not impacted. Nevertheless, residents are expected to pay sales tax on their purchases and property taxes if they own a home.
Wyoming has no state income tax and retirees are 100% exempt when it comes to retirement income, social security benefits, and part-time employment income from taxation. The state has a 4% sales tax and relatively low property tax rates compared to other US states. This is one of the lowest-taxed states that I’ve come across.
Conclusion: You’ve Got Options!
The good news here is that if you’re looking to avoid state taxes on 401k withdrawals, then you’ve got plenty of options to choose from. My suggestion would be to consider settling in one of these states to save money in the long run.
Now for the big question, should you keep your money in your 401k?
That’s a personal choice and many individuals have chosen to move from a traditional 401k to a precious metals-backed IRA account. If you’re interested in doing so to hedge inflation and diversify your risk, then see below.