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Did you know that you will have to pay more “complicated” taxes once you retire? No? that’s okay, you definitely aren’t the only one who didn’t know this. If you’re planning to retire soon, here are a few things to consider:
How Much do you Know about Retirement Taxes?
Understanding what is and is not taxed during retirement is key. For instance, how many of you know that Social Security checks are not taxed? probably a good number of you know that. However, upon further investigation, you will find that a lot depends on your income! While most of the retirement withdrawals involve Federal Taxes—the amount of tax that you will have to shell out depends on where you live. The tax rates on your investment will vary widely as well.
Tax Variance Between States
There are 13 states, where residents have to pay State Income Tax. These are Kansas, Colorado, Missouri, Connecticut, Montana, Nebraska, New Mexico, Vermont, North Dakota, West Virginia, Rhode Island, Utah, and Minnesota. The seven states that don’t charge you State Income Tax are Florida, Nevada, Alaska, South Dakota, Washington, Texas, and Wyoming.
If you settle in either Tennessee or New Hampshire you will have to pay taxes only on the interest and dividends. So, retirement income has a wide variety of taxation depending on where you call “home”.
Social Security Taxes
As far as your Social Security is concerned, it’s your combined income that determines if you will be taxed or not. Your combined income is the result of your adjusted gross income along with any non-taxable interest and around half of your Social Security benefit. For instance, if your combined income is below $25,000 and you’re single then you will not really be taxed. If your combined income is something around $25,000 – $34,000 then you may have to pay taxes on around half of your income. If your combined income exceeds $34,000 then around 85% of your benefits are taxable.
Retirement taxes also entail estate taxes. Yes! There are around 12 states and the District of Columbia that also end up levying estate taxes. Maine, Hawaii, and the District of Columbia use the Federal exemption amount. However, if you’re in Massachusetts or Oregon, your estate worth $ 1 million or more might as well be taxed.