For retirees on a fixed income, every dollar counts. And for seniors in 13 states, they may not be able to keep as much of their Social Security money as their peers who live in other places.
Here’s why that’s the case, plus some options for what older Americans might want to do about it.
Retirees in 13 states have an additional tax burden
Here’s the situation: In 13 states, some residents who receive Social Security income will have to pay state tax on that money. Most states don’t, which is good news for seniors who live in those states. But in the following 13 places, some seniors must pay a reduction in their benefits to their state department of revenue:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
In most of these places, low-income retirees are exempt from state taxes, however, this still means middle and high income earners could end up with less Social Security money than they have. would have expected. Since many Americans rely too heavily on their benefits — which are meant to replace only about 40% of pre-retirement income — receiving a smaller-than-expected check could make it harder to stretch the money as far as needed.
What can retirees in these states do?
The first thing to do if you live in one of these states is to find out about the rules by visiting your state’s Department of Revenue website. Most, like Colorado and Vermont, have dedicated pages designed to help seniors figure out exactly how their retirement income will be taxed.
Once you learn the rules based on your age and income level, you can see if the money left over after paying social security contributions will be enough to cover your costs when combined with your savings. and other sources of income. If it turns out that you will not have the money you need, you will have to think about the best way to solve this problem.
For some people, moving may be the way to go. But before you move, be sure to address any issues a move might cause, including:
- General tax rules applicable to all sources of retirement income. It doesn’t do you much good, for example, to move to a state that won’t tax Social Security but will impose higher taxes on your other retirement income.
- Housing expenses and other living costs. You don’t want to move somewhere much more expensive just because there’s less tax on this type of retirement funding.
- Quality of life issues. Moving away from family or friends can be a daunting prospect, and you don’t want to move to an area without social supports, proper health services, or the amenities you care about.
If you decide to move is not the best way to deal with the taxation of your social security benefits, you will need to make other plans. This could include adjusting your budget and other reductions to pay taxes you will have to pay.
Check your state’s rules first and do some math. You can then make the right choices to protect your finances despite this additional expense.
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