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When you're searching for a place to
retire, a location's taxes are certainly an important
consideration, because they could take a big bite out
of your retirement resources.
To varying degrees, many states offer breaks for older or retired
residents.
Below is a look at some key tax-preference provisions
for 20 states, assembled from data collected by CCH
Tax and Accounting, in Riverwoods, Ill., as they apply
to retirement income. "The list reflects all the
significant state provisions, but with 41 states imposing
an individual income tax, it's always possible that
a provision or policy quirk in a particular state may
not appear on the radar screen," says John Logan,
senior tax analyst with CCH Tax and Accounting.
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State Tax Breaks for Retirees |
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| Arkansas:
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Up
to $6,000 in pension income is exempt. |
| Colorado: |
Taxpayers
55 through 64 years old can exclude up to $20,000
($24,000 for taxpayers 65 and over) in pension and
annuity income. |
| Delaware: |
Taxpayers
under 60 may deduct pension amounts of up to $2,000
and those 60 or over, up to $12,500. Eligible amounts
for taxpayers 60 or over include retirement income
(dividends, capital gains realization, interest
and rental income). |
| Georgia: |
Taxpayers
62 or older may exclude up to $15,000 of retirement
income (earned income limited to $4,000). |
| Hawaii: |
Distributions
derived from employer contributions to pensions
and profit-sharing plans are exempt. |
| Illinois: |
Income
from federally qualified retirement plans and IRAs,
as well as payments from businesses to retired partners,
is excluded. |
| Iowa: |
Married
taxpayers filing joint returns may exclude up to
$12,000 (half that for unmarried taxpayers) of retirement
benefits. |
| Kentucky: |
Inflation-adjusted
amounts of IRA and pension distributions are exempt.
The 2004 exemption amount was $40,200. |
| Louisiana: |
Up
to $6,000 of pension and annuity income, of taxpayers
65 and over, is exempt. |
| Maryland: |
Up
to $20,700 in pension income (except income from
IRAs, SEPs or Keoghs) is excludable for taxpayers
age 65 and over. |
| Michigan: |
Up
to $38,550 in pension income is deductible on a
single return ($77,100 on a joint return). |
| Montana: |
$3,600
of pension income is exempt for filers with income
up to $30,000. For income in excess of that, the
$3,600 exemption amount is reduced. Disabled retirees
may be able to exclude income up to $5,200. |
| New
Jersey: |
Taxpayers
62 or older may exclude up to $20,000 of pension
income or IRA withdrawals if they are married and
filing jointly ($10,000 if married and filing separately).
The exclusion is $15,000 for a single taxpayer.
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| New
York: |
Exempts
distributions from all government (federal, state
and local) pensions, as well as Social Security
and Tier 1 railroad retirement benefits. In addition,
for taxpayers 59½ and older, $20,000 of private
pension income also is exempt. |
| Ohio:
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Taxpayers
65 and over may claim a credit for lump-sum distributions
from retirement, pension or profit-sharing plans
equaling $50 multiplied by the expected remaining
life years. Also, recipients of retirement benefits
may claim a credit ranging from $25 to $200, depending
on the amount of benefit received during the year. |
| Oklahoma: |
$7,500
of retirement income from private pensions is exempt
for taxpayers 65 and over who have adjusted gross
income of $37,500 or less as a single taxpayer ($75,000
or less for married filers). In 2006, the exemption
will increase to $10,000. |
| Oregon: |
Taxpayers
62 and over may claim a credit for pension income
from public or qualified private pension benefit
plans in the amount of the lesser of 9 percent of
the individual's net pension income or the individual's
Oregon personal income tax liability. |
| Pennsylvania:
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Pension
income is not taxed. |
| South
Carolina: |
Taxpayers
receiving retirement income may deduct up to $3,000.
Taxpayers 65 and older may deduct up to $10,000. |
| Utah:
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For
taxpayers under 65, up to $4,800 in retirement benefits
from pensions, annuities and Social Security is
exempt, increasing to $7,500 for those 65 and older.
The exemption amount is reduced (50 cents for each
$1 of adjusted gross income over a certain limit)
and the limits are set according to filing status:
$32,000 for married taxpayers filing joint returns;
$16,000 for married taxpayers filing separate returns
and $25,000 for individual taxpayers. |
In addition to these general provisions,
some states also exempt Social Security and certain
railroad retirement benefits; New York, as cited above,
is not alone in offering retirees this break. Others
don't tax disability pensions or military benefits.
And several states exclude a combination of these various
types of pension income from state taxation. To make
sure you qualify for any and every retirement income
tax break offered by your state, consult your state's
revenue department, as well as your personal tax adviser.
Many states also offer property tax breaks for older residents.
Check with your local property assessor for more details on tax
help here. Information on how to contact both your state tax department
and local property tax officials can be found in Bankrate's
state tax directory.
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