It seems like every week we get a top-10 list of things that are the best. So, this week, I thought we should turn the tables a bit and give you a top-10 list of the worst 10 states for retirees.
Now remember, we are only talking about the worst states from a tax perspective. They may be terrific places to live. And let’s give a big thanks to Kiplinger for putting this list together. You can find the entire article at http://finance.yahoo.com/news/10-least-tax-friendly-states-040001803.html.
10. New York: Property taxes are high, same for income tax and sales tax, and they even have an estate tax for estates over $1,000,000.
9. New Jersey: The Garden State’s combined state and local tax burden is the second-highest in the nation, and it is one of the few states with both an estate tax and an inheritance tax.
8. California: Living in the Golden State is no day at the beach for retirees. California residents pay the highest income tax rates in the US. The state sales tax increased from 7.25 percent to 7.5 percent in January. (The temporary rate hike is set to expire in 2016.) Rates are even higher in cities and counties with special taxing districts; with the addition of local taxes, the total can reach 10 percent in some cities.
7. Nebraska: Wide open spaces, but they come with income tax, sales tax, inheritance tax, and property taxes. Not to mention, the only sport to watch is “Big Red” Nebraska football.
6. Oregon: The Beaver State has no sales tax, but its income tax is one of the highest in the US. And don’t forget about those estate taxes.
5. Montana: The Treasure State is one of five states that do not impose a general sales tax. That’s the good news. The bad news is that it taxes most forms of retirement income. In addition, its top tax rate kicks in on taxable income of more than $16,400.
4. Minnesota: Maybe our long winters aren’t the only reason seniors leave this state for warmer climes. Income tax, sales tax, and estate tax all come into play, and all pension income is taxed, regardless of source.
State income tax: 5.35 percent, to 9.85 percent.
State sales tax: 6.875 percent.
The North Star State taxes Social Security income to the same extent as the federal government does (up to 85 percent). Pensions are taxable regardless of whether they're military, government, or private pensions. As of 2013, the state added a new top income tax rate of 9.85 percent on taxable income of more than $150,000 for single filers, and more than $250,000 for joint filers.
Food, clothing, and prescription and nonprescription drugs are exempt from the state sales tax. A few cities and counties also add their own sales tax.
Median property tax on a $200,400 median-valued home is $2,098, according to the Tax Foundation. Homeowners of any age may be eligible for a state-paid refund for homeowners whose property taxes are high relative to their incomes. About one-third of homeowners will receive a refund in 2014, averaging $840.
Minnesota taxes estates valued at more than $1 million. Assets left to a surviving spouse are exempt. The maximum tax rate is 16 percent. On July 1, the state added a gift tax of 10 percent, with a lifetime credit of $100,000, and an annual exemption amount indexed to inflation (for 2013, it's $14,000 per recipient). The credit protects up to $1 million in lifetime gifts.
3. Connecticut: The Constitution State is a tax nightmare for many retirees. Its real estate taxes are the second-highest in the nation, according to the Tax Foundation. Enough said.
2. Vermont: Prepare to pay lofty taxes if you retire in the Green Mountain State. Vermont taxes most retirement income. Some fun tidbits include a 9 percent tax for food in restaurants and lodging, and a 10 percent tax on wine or beer.
1. Rhode Island: The Ocean State is particularly tough on retirees. It’s among the minority of states that tax a portion of Social Security benefits. The state also taxes virtually all other sources of retirement income, including pension income. And, when all is said and done, you get to pay an estate tax as you head up to your reward in the sky.
If you are already retired and live in a different state than one of those listed, count your blessings.
If you live in Minnesota, you should be disgusted at our high – or should I say low – ranking. But, not to worry, I’m sure our state legislators and governor will soon rectify this so we can truly be number-one.