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Table of Contents
Lifestyle Magazine®
What States Do Not Tax Retirement Income and Social Security?
What states do not tax retirement income and Social Security?
Good question.
I guess you’re thinking about moving.
The broad answer is this:
13 states currently do not tax retirement income, and more than 40 states do not tax Social Security.
But that answer is just the surface.
Because taxes are never that simple.
Key Takeaways
- 13 states currently do not tax retirement income
- More than 40 states do not tax Social Security
- State tax rules can change over time
- No state is a perfect tax hiding place
- MYGAs can provide tax-deferred growth
- Retirement planning should focus on income floor and lifestyle, not tax fear
The Static Answer Is Not the Whole Answer
Yes, there are states that are more tax-friendly.
Florida and Nevada are good examples.
Those are two states I spend a lot of time in, and both are considered tax-friendly.
But there is nowhere to completely hide.
If you have worked hard, saved, invested, and built a nest egg, taxes are going to be part of the conversation.
Do Not Let the IRS Live in Your Head
This is the bigger point.
Do not let the IRS live in your head for free.
Too many people build their entire retirement plan around avoiding taxes.
That is the wrong focus.
Taxes matter.
But they should not control chapter two of your life.
Tax Rules Can Change
Social Security used to be treated differently.
Roth IRAs are talked about differently by politicians.
State tax laws can change.
Federal tax laws can change.
That is why you should not build your entire retirement around one tax rule staying the same forever.
How Annuities Can Help With Tax Deferral
One annuity product that can help from a tax standpoint is a Multi-Year Guarantee Annuity, or MYGA.
MYGAs are the annuity industry’s version of a CD.
With non-IRA money, the interest can grow and compound tax-deferred.
That means you can defer taxes on the interest until you take money out.
Immediate Annuities and Taxes
With an Immediate Annuity funded by non-IRA money, the income is generally a combination of:
- return of principal
- interest
You only pay taxes on the interest portion.
That is called the exclusion ratio in the industry.
QLACs and IRA Tax Planning
Qualified Longevity Annuity Contracts, or QLACs, can be used inside traditional IRAs.
The amount allocated to the QLAC is not used to calculate Required Minimum Distributions during the deferral period.
That can create a tax planning benefit.
Be Careful With “Tax-Free Income” Sales Pitches
If someone tells you they have a product that creates tax-free lifetime income, be careful.
A common pitch is using life insurance policy loans.
But a loan is a loan.
It is not income.
Do not buy the dream and then get stuck with the contractual reality.
Focus on Your Income Floor
The real retirement question is not just:
“Which state has the lowest taxes?”
The real question is:
What income do I need every month to live the way I want?
That income floor can include:
- Social Security
- Pension income
- MYGA interest
- Annuity income
- Rental income
- Other reliable income sources
Where to Compare Income Options
Once you know your income floor, the next step is figuring out whether there is a gap.
If there is, you can compare guaranteed income and principal protection options using our annuity calculators here: https://www.stantheannuityman.com/ annuity-calculator/
The Bottom Line
Some states do not tax retirement income, and most states do not tax Social Security.
But tax-friendly states are only one piece of the retirement puzzle.
The better strategy is to build an income floor, understand your tax situation, and live your life.
Taxes matter.
But chapter two is about you.
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