Tags: Retirement | retirement | Iowa | taxes

Taxes for Retirees in Iowa

By    |   Friday, 05 June 2015 02:10 AM

Iowa's low cost of living may make it appealing for retirees, but the state's taxes are another story. The Hawkeye state is "not tax friendly," Kiplinger says. Iowa taxes "a considerable amount of retirement income and doesn't offer a low sales-tax rate or other tax trade-offs to make up for it," the site says. "Its top income tax rate is a steep 8.98 percent." Social Security benefits are free of state income tax. The sales tax here is 6 percent, and there's a property tax credit available for seniors.

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Still, U.S. News & World Report says you can retire here on $75 a day in Des Moines.
It just packs a state tax bite. However, the state is weighing big tax breaks for retirees, USA Today reported in April 2015.

"Iowa already excludes the first $6,000 of retirement income from state taxes (the exemption is $12,000 for married couples)," the story says. "Veterans with military retirement benefits don't have to pay tax on that income either, but the state has a high individual tax rate, topping out at 8.98 percent. Now, state Sen. Roby Smith is has introduced a bill, co-sponsored by 23 other Republicans, which would eliminate all taxes on retirement income."

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That makes Iowa one of half a dozen states considering giving tax breaks to seniors, according to analysis by The Pew Charitable Trusts. For some states, it's a way to draw more retirees, Pew reports in a story about potential tax breaks for seniors.

In Iowa, Sen. Smith's bill would phase out state taxation on retirement income across five years starting in the fiscal year of 2017. It would cost the state about $200 million a year. For seniors living on fixed incomes, the savings could make a difference.

However, for the state, the $200 million loss could make a difference, too. Tax policy analysts are among those questioning giving seniors tax breaks. "Tax breaks for old people are silly from a tax policy perspective," David Brunori, deputy publisher of Tax Analysts, told The Pew Charitable Trusts. "Under no theory of taxation should a person who turns 62 (or whatever age we pick) magically be exempt from taxation. Let's face it. States offer tax relief to old folks because those folks vote more than anyone else."

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Iowa's low cost of living may make it appealing for retirees, but the state's taxes are another story. The Hawkeye state is not tax friendly, Kiplinger says.
retirement, Iowa, taxes
Friday, 05 June 2015 02:10 AM
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