Certainly! I understand that many states do not tax Social Security benefits, and even in the states that do, the tax burden is often relatively low. Retirees often strive to maximize their income during their retirement years while minimizing their tax obligations. This approach is advisable because numerous Americans have not saved as much as they would like or need for retirement, and relying solely on Social Security benefits may not provide enough income for most people to live comfortably.
As of April 2023, the average Social Security retirement benefit was $1,835 per month, which amounts to approximately $22,000 per year. While individuals with above-average earnings can expect to receive higher benefits, the difference is not substantial. The highest monthly benefit in recent times was $4,555, equating to less than $55,000 annually.
The States That Don’t Tax Social Security Benefits
It’s important to note that these figures are based on the information available up until my knowledge cutoff in September 2021. The specific numbers and regulations may have changed since then. These are the 38 states that do not pay taxes, and you can also add the District of Columbia to the list:
- Carolina del Norte
- Carolina del Sur
- Dakota del Norte
- Dakota del Sur
- New Jersey
- Nueva York
- Nuevo hampshire
Common tax obligations during retirement
During retirement, individuals may have tax obligations that they need to consider. Here are some common tax obligations to keep in mind:
- Early distributions from retirement plans may be subject to a 10% additional tax.
- Retirement income from sources such as Social Security, pensions, and annuities may be taxable.
- Asset Retirement Obligations (AROs) for tangible long-lived assets may require calculation, presentation, and disclosure under FAS 143 and IAS 37.
To minimize tax obligations during retirement, individuals can take steps throughout their working lives. For example, contributing to a tax-advantaged retirement account such as a 401(k) or IRA can reduce taxable income and increase retirement savings