Tax planning is particularly important for retirees, since the state you live in can make a big impact on your finances. If you’re planning for retirement in Connecticut, read on to learn more about the tax burden to expect in that state.
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Unfortunately, Connecticut is ranked by
Kiplinger’s as one of the least tax-friendly states for retirees. First off, if you collect a federal government pension or one from a state other than Connecticut, you can expect it to be fully taxed (though 50 percent of military pensions are exempt from this income tax). And while Social Security income is exempt from taxation, this only applies to people who earn a federal adjusted gross income of less than $50,000 for singles and less than $60,000 for those married and filing jointly.
The good news is that while real estate taxes in Connecticut are the second highest in the entire nation, there are some tax breaks for seniors. Homeowners in the state who are older than age 65 can get a property tax rebate if they have income of less than $39,500 if married or $32,300 if single. If you rent rather than own a home, you might also qualify for a rebate. In addition, check your local laws when researching retirement in Connecticut; some townships and counties may offer additional property tax relief.
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If you’re set on retirement in Connecticut despite the considerable tax impact, there are ways to save. The most important step to take is to plan for your expected tax burden when calculating retirement savings. Although you may place a certain amount of pre-tax money in retirement accounts, these funds are taxed as income when withdrawn. When you’re still working, you may want to consider investing in a Roth IRA, which allows for a tax break in retirement.
You should also be aware of special tax breaks specifically for seniors and retirees. For example, did you know that you can deduct a portion of your medical expenses? And that there is a tax credit for the elderly and disabled that you can claim if you or your spouse is older than age 65? A good accountant can help you plan for the taxes you can expect to pay when you pursue retirement in Connecticut.
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