Retirees and State Taxes

How retirees are treated by states varies considerably. Some states that overall are high-tax states actually provide a lot of tax breaks for seniors and are low-tax states for them.

But you have to stay on top of things. Many states are changing their tax policies in response to budget shortfalls, and some are removing some of the tax breaks for seniors. You can find some details here. (Subscription might be required.) Others that haven’t been too attractive to retirees are changing or thinking of changing their policies. As I’ve said many times, retirement has changed and will change again. You have to stay on top of things.

Financial advisers often discuss tax regimes with clients who are getting ready to retire. Andrew Tignanelli, president of the Financial Consulate, an advisory firm in Hunt Valley, Md., is working with a New Jersey doctor who plans to retire to Hershey, Pa., because taxes are lower there and family members also live in Pennsylvania.

Mr. Tignanelli, whose firm manages around $275 million, tells clients in Maryland to consider neighboring Delaware as well as more distant Tennessee. Delaware exempts a portion of retirement income and has no sales tax, while Tennessee taxes only dividends and interest, he says.

On the West Coast, retirees are sometimes drawn to Nevada partly because it has no income tax, says Christopher Jones, who runs Sparrow Wealth Management in Las Vegas. Mr. Jones has personal experience—he moved the firm from the East Coast two years ago, partly to be close to family and partly to save money. “I was getting killed on New York City taxes,” he says.