Retirement is a well-deserved phase of life, and for those who have served their country either in the military or as government employees, the choice of where to spend these golden years can greatly impact their financial well-being.

When it comes to selecting the best states for retirement, taxes play a significant role. In this article, we'll explore the top tax-friendly states for retirees with government or military pensions, real estate tax issues for retirees ^[i], and also highlight states that provide tax-free benefits to disabled veterans.

I) The 10 Most Tax-friendly States for Retirees

1. Texas:

· No state income tax.

· Median property tax bill of $3,520.

· No estate or inheritance taxes.

2. Alaska:

· No state income tax.

· Median property tax bill of $3,454.

· No estate or inheritance taxes.

3. Pennsylvania:

· No state income tax on retirement benefits.

· Flat income tax rate of 3.07%.

· Median property tax bill exceeds $3,000.

· Potential death taxes for heirs.

4. Iowa:

· No state income tax on retirement income for disabled, over 55 and others..

· Median property tax bills below $3,000.

· Inheritance tax (expected to be eliminated in 2025).

5. South Dakota:

· No state income tax.

· Median property tax bill of $2,331.

· Sales tax on groceries.

· No estate or inheritance taxes.

6. Florida:

· No state income tax.

· Median property tax of $2,143.

· Gasoline tax as a drawback.

· No estate or inheritance taxes.

7. Nevada:

· No state income tax.

· Median property tax bill of $1,736.

· High sales tax.

· No estate or inheritance taxes.

8. Wyoming:

· No state income tax.

· Median property tax bill below $1,500.

· High electric vehicle (EV) tax.

· No estate or inheritance taxes.

9. Tennessee:

· No state income tax.

· Low property tax bills.

· High sales tax (including groceries).

· No estate or inheritance taxes.

10. Mississippi:

· No state income tax on some retirement income.

· Lowest median property tax bill of $1,052.

· No estate or inheritance taxes.

*Using this list above, we must all be mindful of the homestead exemption tax breaks in each state. ^[ii] All retirees should also be conscious of the estate tax laws. Each state may have different laws. See Comparison: ^[iii]

II) Tax Benefits for Disabled Veterans

Disabled veterans who have served their country often face unique challenges. Many states recognize the sacrifices of these veterans by providing tax-free benefits. Here are some states that offer tax exemptions to disabled veterans:

1. Arizona

Arizona provides a property tax exemption for disabled veterans who meet specific criteria. This exemption can significantly reduce the property tax burden for those who have served their country and incurred disabilities due to their service ⁷.

2. California

California offers a property tax exemption for disabled veterans, which can be a substantial financial benefit. Disabled veterans in California should explore the eligibility requirements for this exemption ⁸.

3. Texas

In addition to being tax-friendly for retirees with pensions, Texas offers property tax exemptions for disabled veterans. These exemptions can vary based on the level of disability and are a valuable resource for veterans in the state ⁹.

4. Virginia

Virginia provides a property tax exemption for disabled veterans, making it an appealing destination for veterans looking for a tax-friendly environment ¹⁰.

5. Florida

Florida offers a homestead property tax exemption for disabled veterans. This exemption can significantly reduce property tax expenses for eligible veterans ¹¹.

III) 39 States that May Not Tax Social Security

There are 39 states that do not tax Social Security income: Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. ^[iv]

IV) States that May Have Free College for Kids and Grandkids

According to the Campaign for Free College Tuition, in 2023, a total of 32 U.S. states offer free college programs. Among these states, several provide four-year college opportunities.

Indiana's 21st Century Scholarship, for instance, grants tuition waivers to eligible in-state residents who apply in seventh or eighth grade and meet income criteria.

Iowa's All Iowa Opportunity Scholarship is available to residents attending an in-state institution within two years of high school graduation and prioritizes various student groups.

Louisiana's Taylor Opportunity Program for Students (TOPS) offers merit-based scholarships for tuition and certain fees, exclusively for Louisiana residents attending public colleges.

Massachusetts' MASS Grant Plus program provides need-based financial assistance to legal permanent residents attending public colleges in the state.

Minnesota's Minnesota Future Together Grant supports those pursuing high-need career degrees in specific fields at public higher education institutions.

New Mexico's Opportunity Scholarship covers tuition for residents attending public colleges, while New York's Excelsior Scholarship aids state residents attending SUNY or CUNY schools with adjusted gross incomes below $125,000.

Oklahoma's Promise award covers tuition at public institutions for eligible high school graduates from Oklahoma with household-adjusted gross incomes below specified levels.

Washington's College Bound Scholarship automatically covers tuition at in-state institutions for eligible students, with additional grants available for some income levels. Finally,

Wyoming's Hathaway Scholarship program combines merit and need-based awards to assist with tuition costs at the University of Wyoming based on GPA and academic progress. ^[v]

Of course, be aware of the school district you will reside if you will have kids in public schools.

V) The Most Affordable States

In 2023, these 13 states boast the most affordable cost of living in the United States: Kansas, Oklahoma, Mississippi, West Virginia, Alabama, Missouri, Arkansas, Michigan, Georgia, Iowa, Tennessee, Indiana, and Illinois. ^[vi]

VI) Special Tax Breaks on Retirement in 4 States

There are, in fact, four states where retirement income, including Social Security, pension, 401(k), and IRA income, is not subject to taxation. These states are Illinois, Mississippi, New Hampshire, and Pennsylvania. It's worth mentioning that New Hampshire currently imposes a 5 percent tax on investment income (such as dividends and interest) as of 2023, but this tax is scheduled to be gradually phased out, beginning in 2024.. ^[vii]

In conclusion, choosing the right state for retirement with a government or military pension involves careful consideration of tax policies and benefits for disabled veterans. The states mentioned above provide favorable tax environments and benefits that can significantly enhance the retirement experience for those who have served their country. It's essential to consult with financial advisors and tax professionals to make informed decisions about retirement destinations.
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Commissioner George Mentz JD MBA CILS CWM® is the first in the USA to rank as a Top 50 Influencer & Thought Leader in: Management, PM, HR, FinTech, Wealth Management, and B2B according to Onalytica.com and Thinkers360.com. George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a EU accredited graduate body that trains and certifies professionals in 150+ nations under standards of the: US Dept of Education, ACBSP, ISO 21001, ISO 991, ISO 29993, QAHE, ECLBS, and ISO 29990 standards. Mentz is also an award winning author and award winning graduate law professor of wealth management of one of the top 30 ranked law schools in the USA.

 

^[i] Property Taxes By State: Highest To Lowest | Rocket Mortgage

^[ii] Homestead Exemptions by U.S. State and Territory (assetprotectionplanners.com)

^[iii] 2023 State Estate Taxes and State Inheritance Taxes (taxfoundation.org)

^[iv] 13 States That Don’t Tax Your Retirement Income | Bankrate

^[v] States With Free College Tuition | Bankrate

^[vi] 13 States With the Lowest Cost of Living - Ramsey (ramseysolutions.com)

^[vii] Look No Further: The 10 Best States for Retirement in 2023 - PODS Blog