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Nobody has actually told you this – but do be duly informed about the fact that you’ll be paying up more “complicated” taxes during your retirement than what you are paying up now – while you’re working. So, anyone who’s on the verge of retiring should consider a thorough perusal of this write-up – because, here, we’ll explore one of the little-known nuances of retirement – i.e. taxes. Documented below are details.
How Much do you Know about Retirement Taxes?
The key is to understand what is taxed while you’re retired and what is not! Do let us tell you that when it comes to money – a couple of “loose” statements don’t really help. For instance, how many of you know that Social Security checks are not taxed? The answer is many. However, on further education, you will actually come to know 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.
Taxes as Per States
There are 13 states, for instance, where residents have to pay State Income Tax as well! Kansas, Colorado, Missouri, Connecticut, Montana, Nebraska, New Mexico, Vermont, North Dakota, West Virginia, Rhode Island, Utah and Minnesota are among these states. The seven states that don’t charge you State Income Tax are Florida, Nevada, Alaska, South Dakota, Washington, Texas and Wyoming.
However, if you’re staying either in Tennessee or New Hampshire you will have to pay taxes only on the interest and dividends. So, retirement income might as well be exempt or partly exempt or just offset or just fully taxable.
What Should you Know about Social Security Taxes?
As far as your Social Security is concerned, it’s your combined income which determines whether at all it 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 Combine 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 might as well have to pay taxes on around half of your taxes. 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 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.