tax friendly states for retirees

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tax friendly states for retirees

Postby pablolo » Sat May 11, 2013 5:39 pm

I am retired and do not work in retirement. Are there any states that do not tax retirement income? ( distributions from traditional iras, social security, deferred and immediate annuities and pensions). thank you
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Re: tax friendly states for retirees

Postby livesoft » Sat May 11, 2013 5:41 pm

Texas does not tax income.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: tax friendly states for retirees

Postby stan1 » Sat May 11, 2013 5:47 pm

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Re: tax friendly states for retirees

Postby Calm Man » Sat May 11, 2013 7:32 pm

Much as I am not a fan of paying taxes, most states, even the absolutely highest taxes have max rates of about 6 or 7% (unless you are in NYC or have very, very high income eg over 500k in NJ). I would not base a retirement decision on avoiding income taxes on pension income as unless your pension is very high you are talking about a few thousand dollars a year. Life style decision should predominate in my humble opinion. And estate taxes? Well you're dead then so won't know the difference.
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Re: tax friendly states for retirees

Postby neurosphere » Sat May 11, 2013 7:46 pm

Calm Man wrote:Much as I am not a fan of paying taxes, most states, even the absolutely highest taxes have max rates of about 6 or 7% (unless you are in NYC or have very, very high income eg over 500k in NJ).


One has to be very careful when talking about tax rates relative to retirement income due to whether states tax pensions, SS and IRAs, and also what the deductions are.

For example, a married couple over 60 years old with $80,000 in withdrawals from a traditional IRA will pay roughly the same amount of state taxes in Alabama as they will in New York State.

Alabama taxes IRA withdrawals at 5% with a $6000 deduction, while NYS taxes IRA withdrawals at 8% but with a $40,000 deduction.

In order to really consider the impact of taxes at retirement, one needs to have a general idea of 1) expected expenses 2) proportion of expenses that will be paid by SS, traditional IRAs, Roth IRAs, savings, and dividend/interest 3) the taxation of all of these components by each state, including any special deductions or special rates.

NS

P.S. Nota bene! The number I gave for Alabama and NYS above are only rough estimates for illustration purposes.
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Re: tax friendly states for retirees

Postby Calm Man » Sat May 11, 2013 7:57 pm

I understand. I guess what I am saying is that when we retire we have maybe between 10 and 30 good years left. I live in NJ. I like going into NYC to see and do well, everything. I could save say $10,000 a year for example in taxes by moving to Texas or Florida Alaska or another tax free state. Taxes would be lower but weather extremes greater, the reliance on the auto more and the available public transportation and cultural/sports activities less. (This is not to say that Texas and Florida don't have plenty to do.). So I decided rightly or wrongly that I'd maximize my "happiness" and activities as I saw fit and not worry about taxes. So far it is working great as with free time there is so much one can do around here and I may, gulp< eventually move to NYC especially when I am ready to get rid of the car.
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Re: tax friendly states for retirees

Postby mickeyd » Sat May 11, 2013 8:06 pm

livesoft wrote:Texas does not tax income.



As big a fan of the state of Texas as I am, it is true that all personal income taxes are not due/payable in our state, however there is an 8-9% sales tax (depending on county) and a wicked property tax (unless you can qualify for an ag exemption, or 65 exemption, or disability exemption or...).

As I implied, Texas is still better than other choices.
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Re: tax friendly states for retirees

Postby JW Nearly Retired » Sat May 11, 2013 8:42 pm

California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.

Boglehead lesson for Californians, delay your SS to until 70 and live on/deplete anything else you can until then. :beer
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Re: tax friendly states for retirees

Postby otbricki » Sat May 11, 2013 8:50 pm

You may also want to consider issue like laws protecting IRAs from liability claims, filial responsibility and so on.
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Re: tax friendly states for retirees

Postby JW Nearly Retired » Sat May 11, 2013 9:01 pm

otbricki wrote:You may also want to consider issue like laws protecting IRAs from liability claims, filial responsibility and so on.

Yeah, good point. I think your IRA is up for grabs in California.
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Re: tax friendly states for retirees

Postby Toons » Sat May 11, 2013 9:08 pm

We retired in Tennessee from New York. No state income tax on pensions,distributions etc.
Sales tax a little higher,dividends,interest(bank interest excluded)over 2500.00 taxed at 6% for filing jointly ,details in link below

http://www.retirementliving.com/taxes-n ... #TENNESSEE
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Re: tax friendly states for retirees

Postby mlipps » Sat May 11, 2013 9:49 pm

IL doesn't tax retirement income and Chicago is a world class city, but property taxes are quite high here, at least in the Chicagoland area.
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Re: tax friendly states for retirees

Postby nightpharmer09 » Sat May 11, 2013 10:08 pm

I found this article very helpful in comparing various states taxing of retirement income: http://www.ncsl.org/documents/fiscal/taxonpensions2011.pdf

While doing some early planning for my future retirement, I asked for some guidance about a pension income exclusion in Kentucky in this thread: http://www.bogleheads.org/forum/viewtopic.php?f=1&t=110171

Kentucky excludes $41,110 per person from pretty much any retirement income source. The state also offers an additional $40 tax credit and partial property tax exemption to retirees. Cost-of-living is low compared to most states, as well.

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Re: tax friendly states for retirees

Postby livesoft » Sat May 11, 2013 10:14 pm

mickeyd wrote:... and a wicked property tax.

My prop taxes are much less than they would be for the same size home in NY. The Texas rate may be higher than in other states, but since prop values can be a fraction of those in other states, the actual taxes may be less.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: tax friendly states for retirees

Postby Watty » Sat May 11, 2013 10:17 pm

Beware of general lists, the problem is that the relative tax load for people of different income levels may be a lot different than what the lists are looking at. I would be best to actually do a sample tax return and make a spreadsheet of all the property and sales taxes that you will be paying. Some states have a state estate tax so be sure to look into that too.

Check might out Georgia. You would want to check it out but off the top of my head they exempt $65K per person, $130K for a couple. Property taxes vary widely by county but are typically moderate. A few counties (and just a few) exempt people over 62 from paying school property taxes. Mine does so that if I stay here when I retire when I qualify then I will not pay any state income taxes in retirement and only about $600 a year in property taxes.

Porto Rico recently passed some widespread exemptions to try to attract wealthy retires so you might consider that too.
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Re: tax friendly states for retirees

Postby Dibbels81 » Sat May 11, 2013 10:28 pm

Come join me in Las Vegas! We have no state income tax, favorable weather, low property taxes, great entertainment and state parks, and homes that are still on clearance sale.
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Re: tax friendly states for retirees

Postby Toons » Sat May 11, 2013 10:32 pm

Property taxes in Tennesse 1/4 of what they were n New York State.Tax on gasoline about 30 cents a gallon less :happy
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Re: tax friendly states for retirees

Postby beardsworth » Sat May 11, 2013 10:34 pm

More than one poster above has linked to the Retirement Living web site.

This one from Kiplinger is also interesting. In addition to clicking on any individual state for Kiplinger's characterization of its tax situation, there are also (scroll down the page) "theme" links for lists and maps: the 36 states that don't tax Social Security, the states with no income tax at all; the states without a sales tax; the states with the highest sales taxes, etc.

http://www.kiplinger.com/tool/retiremen ... /index.php

I assume that the information is generally correct but, of course, do your own research to check if weighing an actual relocation decision.
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Re: tax friendly states for retirees

Postby joe8d » Sun May 12, 2013 12:41 am

while NYS taxes IRA withdrawals at 8% but with a $40,000 deduction.


Neurosphere, Are you sure on that? I thought it was 20K.
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Re: tax friendly states for retirees

Postby neurosphere » Sun May 12, 2013 2:26 am

joe8d wrote:
while NYS taxes IRA withdrawals at 8% but with a $40,000 deduction.


Neurosphere, Are you sure on that? I thought it was 20K.


I believe it's $20,000 per person. My example was for a married couple.
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Re: tax friendly states for retirees

Postby lazyday » Sun May 12, 2013 7:26 am

Haven't looked into, but suspect that for many, local difference in health insurance cost may be much more important than taxes. Don't they vary widely geographically, even within USA?

I'm seeing from perspective of early retiree, not medicare eligible, but maybe would still matter.
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Re: tax friendly states for retirees

Postby frugaltype » Sun May 12, 2013 8:23 am

Looks like you have to make a list of concerns vs. states and crunch that.

Rhode Island has very high property taxes. Income taxes are not minor, either.
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Re: tax friendly states for retirees

Postby dickenjb » Sun May 12, 2013 8:32 am

PA does not tax pensions or IRA/401(k) withdrawals.

In addition the income tax rate of 3.07% is quite low but it is a very flat tax, taxing pretty much everything except retirement income.

I would never base my decision on where to live in retirement on taxes alone.
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Re: tax friendly states for retirees

Postby VictoriaF » Sun May 12, 2013 8:33 am

neurosphere wrote:
joe8d wrote:
while NYS taxes IRA withdrawals at 8% but with a $40,000 deduction.


Neurosphere, Are you sure on that? I thought it was 20K.


I believe it's $20,000 per person. My example was for a married couple.


Is this $20k/$40k deduction for using IRA withdrawals for living expenses only? Or it would also apply to Roth conversions?

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Re: tax friendly states for retirees

Postby nvboglehead » Sun May 12, 2013 8:40 am

As a native of SF, CA, moved to LV, NV 16 years ago and never looked back. Very low cost of living (no state income taxes) and plenty to do. Love the weather, including the infernal summers.

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Re: tax friendly states for retirees

Postby Sidney » Sun May 12, 2013 8:42 am

dickenjb wrote:I would never base my decision on where to live in retirement on taxes alone.

Not even top 5 for my criteria.
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Re: tax friendly states for retirees

Postby neurosphere » Sun May 12, 2013 9:22 am

VictoriaF wrote:
Is this $20k/$40k deduction for using IRA withdrawals for living expenses only? Or it would also apply to Roth conversions?

Victoria


I THINK yes, $20K/$40K of a Roth conversion would be excluded. But I could not find a definitive answer from an authoritative source. Only some links to general information articles, such as at the Motley Fool.

NYS has a standard deduction of $7500/$15,000. I ASSUME but have not verified that the IRA exclusion could be used in conjunction with the standard deduction? I.e., withdraw $40K from an IRA after 59.5 years old and it's tax free, but then also have $15K in non-taxable income from other sources due to the standard deduction? I'll have to research this. Because all of a sudden I realize that saying "New York is not a tax friendly state for retirees" depends on many factors.
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Re: tax friendly states for retirees

Postby jeffyscott » Sun May 12, 2013 11:52 am

mlipps wrote:IL doesn't tax retirement income and Chicago is a world class city, but property taxes are quite high here, at least in the Chicagoland area.


Also sales tax is 9.25% in Chicago (2.25% on food) and maybe averages around 8% (~2% food) :?: elsewhere in the state.
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Re: tax friendly states for retirees

Postby chaz » Sun May 12, 2013 11:55 am

JW Nearly Retired wrote:California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.

Boglehead lesson for Californians, delay your SS to until 70 and live on/deplete anything else you can until then. :beer
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Re: tax friendly states for retirees

Postby JW Nearly Retired » Sun May 12, 2013 12:03 pm

chaz wrote:
JW Nearly Retired wrote:California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.

Boglehead lesson for Californians, delay your SS to until 70 and live on/deplete anything else you can until then. :beer
JW

Boglehead lesson for Californians, move to a lower taxing state.

I'm trapped by the weather and Prop 13.
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Re: tax friendly states for retirees

Postby wesleymouch » Sun May 12, 2013 12:51 pm

Watty wrote:Beware of general lists, the problem is that the relative tax load for people of different income levels may be a lot different than what the lists are looking at. I would be best to actually do a sample tax return and make a spreadsheet of all the property and sales taxes that you will be paying. Some states have a state estate tax so be sure to look into that too.

Check might out Georgia. You would want to check it out but off the top of my head they exempt $65K per person, $130K for a couple. Property taxes vary widely by county but are typically moderate. A few counties (and just a few) exempt people over 62 from paying school property taxes. Mine does so that if I stay here when I retire when I qualify then I will not pay any state income taxes in retirement and only about $600 a year in property taxes.

Porto Rico recently passed some widespread exemptions to try to attract wealthy retires so you might consider that too.


We are getting ready to retire and find that if you are 62 in Cherokee county (north of atlanta) that you are exempt from the school bond portion of property tax typically about two thirds of the tax bill. Also income tax excluded for those over 62 ($35000 per yr) and 65 ($65000 per yr). If you worked hard give it why give it to the government
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Re: tax friendly states for retirees

Postby jeffyscott » Sun May 12, 2013 1:48 pm

lazyday wrote:Haven't looked into, but suspect that for many, local difference in health insurance cost may be much more important than taxes. Don't they vary widely geographically, even within USA?

I'm seeing from perspective of early retiree, not medicare eligible, but maybe would still matter.


Other unavoidable costs also vary, insurance and utilities come to mind and, of course, housing costs.

But in any case, if you can afford to live where you want to live, would you move just to save :moneybag ? I don't think I would.
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Re: tax friendly states for retirees

Postby mickeyd » Sun May 12, 2013 2:19 pm

livesoft wrote:
mickeyd wrote:... and a wicked property tax.

My prop taxes are much less than they would be for the same size home in NY. The Texas rate may be higher than in other states, but since prop values can be a fraction of those in other states, the actual taxes may be less.



You make an excellent point livesoft. State and local taxes are relative and their range of difference is wide. As you may know Texas has available substantial tax exemptions for agricultural land use, disabled vets, over age 65 property owners and others so that high rate is seldom paid by many folks since they can often grab one exemption or another or many of them.

Any tax that I have to pay seems too high to me.
Last edited by mickeyd on Sun May 12, 2013 2:25 pm, edited 1 time in total.
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Re: tax friendly states for retirees

Postby investor » Sun May 12, 2013 2:20 pm

JW Nearly Retired wrote:
chaz wrote:
JW Nearly Retired wrote:California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.

Boglehead lesson for Californians, delay your SS to until 70 and live on/deplete anything else you can until then. :beer
JW

Boglehead lesson for Californians, move to a lower taxing state.

I'm trapped by the weather and Prop 13.
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Re: tax friendly states for retirees

Postby mickeyd » Sun May 12, 2013 2:28 pm

California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.


Don't worry, they will get around to that one ASAP. 8-)
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Re: tax friendly states for retirees

Postby Blues » Sun May 12, 2013 2:32 pm

So many things go into the decision on where to relocate upon retirement.

I've lived in NYC, San Francisco, Key Biscayne before moving to NC. I've had the best of urban life, the shore and all the great things those environments have to offer.

One environment I had never lived in was "small town" America in a mountain setting. Having grown up hiking, climbing and fishing around the continental U.S., Alaska and Canada, (even though from NYC), it appealed to me. Close to the Blue Ridge Parkway and surrounded by state and national forests, it's a mecca for hikers, fishermen and cyclists. (It doesn't hurt that it's also the beer & ale capital of the east. 8-) )

We spent some time looking for the attributes that would make it a good place to live. Small college town of approx. 7,000 residents comprising a healthy mix of natives as well as transplants . International music festival every summer. Good health care, library and very reasonable property taxes. The state income tax is one of the highest in the Southeast but my federal pension and TSP plan is exempt.

There are so many factors to consider before moving to a new locale. I can only recommend spending as much time there as possible before making a decision. Even then, one will never be sure until they've lived there a while, imho.
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Re: tax friendly states for retirees

Postby Paul78 » Sun May 12, 2013 3:07 pm

for those of you saying you only have x amount of "good" years. Yes this is true but no one knows how many good years they will have.

Some might look at this and say they want to retire in a high state tax which will be more "fun" for them.

Others might say "I would rather retire a year or two earlier and move to a state with favorable taxes"
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Re: tax friendly states for retirees

Postby BobStrauss » Sun May 12, 2013 3:58 pm

No state sales tax in Texas is great. But then I hop on I-35 to visit my sister in Dallas and realize that I'm actually "paying" that tax in the form of dealing with crumbling infrastructure. I still like it here though.
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Re: tax friendly states for retirees

Postby deci02 » Sun May 12, 2013 3:59 pm

Managed to find a current link for a Kiplinger piece I found on MSN Money back in 2003. Liked it as a quick preliminary comparison (prior to one's own due diligence) using income, property & sales taxes. Keep in mind article is 10 years old.

http://www.liveinde.com/placestoretire.htm
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Re: tax friendly states for retirees

Postby mickeyd » Sun May 12, 2013 4:02 pm

BobStrauss wrote:No state sales tax in Texas is great. But then I hop on I-35 to visit my sister in Dallas and realize that I'm actually "paying" that tax in the form of dealing with crumbling infrastructure. I still like it here though.



Other than Jerry Jones, what crumbling infrastructure in Dallas are you refering to?
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Re: tax friendly states for retirees

Postby BobStrauss » Sun May 12, 2013 4:09 pm

Have you driven I-35 between Dallas and San Antonio? I've seen much better highways in third-world countries.
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Re: tax friendly states for retirees

Postby Blues » Sun May 12, 2013 4:19 pm

BobStrauss wrote:Have you driven I-35 between Dallas and San Antonio? I've seen much better highways in third-world countries.


I'm partial to U.S. 180 from Mineral Wells heading out to Hobbs, NM. I stopped to get a torn tendon on a finger splinted in Breckenridge, TX (on a motorcycle trip out west) and I was the only one in the emergency room. I literally had to wake the resident up! First time I'd ever been in a vacant emergency room in my life. I fell in love with TX that day. :D
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Re: tax friendly states for retirees

Postby jeffyscott » Sun May 12, 2013 4:37 pm

BobStrauss wrote:No state sales tax in Texas is great.


I thought it was no income tax?

I've only ever visited the southwestern part of the state, El Paso to Big Bend NP, I don't know about crumbling, but most of the highway surfaces had this rough texture that made it extremely noisy. My theory was the locals had no idea since they all drive pick-ups with knobby tires that are noisy on any pavement.
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Re: tax friendly states for retirees

Postby RebusCannébus » Sun May 12, 2013 5:00 pm

JW Nearly Retired wrote:
chaz wrote:
JW Nearly Retired wrote:California has big real estate tax, big sales taxes, big income taxes, taxes cap gains at the same rate as earned income, except no tax at all on social security income. One saving grace.

Boglehead lesson for Californians, delay your SS to until 70 and live on/deplete anything else you can until then. :beer
JW

Boglehead lesson for Californians, move to a lower taxing state.

I'm trapped by the weather and Prop 13.
JW

Yeah, me too. The property tax bill on my modest 3BR home was $600/yr until I added on. Then it went all the way up to $1000. I'm an hour from SF; 45 minutes from an old growth redwood forest; 5 hours from Yosemite; 1 hour from one of the most beautiful stretches of the Pacific Coast anywhere; and 2 blocks from several wine tasting rooms. Retired in February. Not leaving this place while still vertical. I do worry about climate change, though. If people can enjoy Vegas, though, I reckon I can survive the near-term consequences of that, too.
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Re: tax friendly states for retirees

Postby mickeyd » Sun May 12, 2013 5:21 pm

BobStrauss wrote:Have you driven I-35 between Dallas and San Antonio? I've seen much better highways in third-world countries.



I have driven that stretch. My comparison of crappy roads is from my years of driving the highways of NY, NJ, PA, DE, and MD. Those states have roads that are torn up annually by freezing weather and road salt. The I-35 stretch that you reference has notsomuch of that.
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Re: tax friendly states for retirees

Postby MarkNYC » Sun May 12, 2013 6:19 pm

neurosphere wrote:
VictoriaF wrote:
Is this $20k/$40k deduction for using IRA withdrawals for living expenses only? Or it would also apply to Roth conversions?

Victoria


I THINK yes, $20K/$40K of a Roth conversion would be excluded. But I could not find a definitive answer from an authoritative source. Only some links to general information articles, such as at the Motley Fool.

NYS has a standard deduction of $7500/$15,000. I ASSUME but have not verified that the IRA exclusion could be used in conjunction with the standard deduction? I.e., withdraw $40K from an IRA after 59.5 years old and it's tax free, but then also have $15K in non-taxable income from other sources due to the standard deduction?


The NY pension exclusion does apply to Roth conversion income as long as the account owner is over age 59.5 on the date of conversion; and the exclusion can be used in combination with the NY standard deduction.

Unless the RMD is small, the NY pension exclusion is usually a good reason for a NY resident NOT to postpone the first year's RMD until April 1st of the following year, since doing so would waste one year's exclusion.

IRA beneficiaries who are NY residents can also utilize the pension exclusion in the current year regardless of their age as long as the original IRA owner was a NY resident and would have been entitled to the exclusion in the current year had they lived.
Last edited by MarkNYC on Sun May 12, 2013 6:21 pm, edited 1 time in total.
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Re: tax friendly states for retirees

Postby gkaplan » Sun May 12, 2013 6:21 pm

You couldn't pay me to live in most of the tax friendly states for retirees.
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Re: tax friendly states for retirees

Postby Blues » Sun May 12, 2013 6:24 pm

gkaplan wrote:You couldn't pay me to live in most of the tax friendly states for retirees.


I think I just heard a sigh of relief coming over the mountain from Tennessee...
“Tactics without strategy is the noise before defeat.” - Sun Tzu | "Everybody has a plan until they get punched in the mouth." - Mike Tyson
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Re: tax friendly states for retirees

Postby BobStrauss » Sun May 12, 2013 6:31 pm

mickeyd wrote:
BobStrauss wrote:Have you driven I-35 between Dallas and San Antonio? I've seen much better highways in third-world countries.



I have driven that stretch. My comparison of crappy roads is from my years of driving the highways of NY, NJ, PA, DE, and MD. Those states have roads that are torn up annually by freezing weather and road salt. The I-35 stretch that you reference has notsomuch of that.




My complaint isn't necessarily about the quality of the road surface (though they aren't that great either), but the structure, layout, and ongoing construction you have to deal with. There are huge tracts of four-lane highway that are under constant construction (repaving, not widening), most of which should have been made six-lane highway long ago. There is very little continuity to that stretch, as the road surface, speed limit, and number of lanes is always changing. Traffic constantly gets bottlenecked. I mean sure, I bet you could find other highways in the country that are worse, but it's still inexcusable for the major interstate between the 7th and 9th largest cities in the country (with the 13th, Austin, in between) to be so awful.


(Previously I mentioned no sales tax. Yeah - that was a mistake. I meant state income tax.)
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Re: tax friendly states for retirees

Postby flipflopliving » Sun May 12, 2013 6:53 pm

FWIW most RV fulltimers pick SD or TX as their state of domicile for tax reasons.
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