RETIREMENT TAX HAVENS

RETIREMENT TAX HAVENS

Financial planning is really life planning. Choosing a home,
particularly a retirement home, involves many factors. With
state and local taxes on the rise, retirees should look closely
at tax matters when formulating their retirement financial plan.

Retirees who plan on continuing to work in their \golden years\
should know that state taxation of such income varies widely.
Some states give retirees favored treatment on earned income,
some treat retired seniors like everyone else, and some impose
no tax at all on earned income. Taxation of investment income
shows nearly as much variation between states. Retirees in a new
domicile must also watch out for unexpected municipal income
taxes.

Income from government, military, private pension and other
retirement plans is growing increasingly important to the
survival of retired individuals. Some states exempt all such
pension income from taxation, while others exempt certain types
or place limits on non-taxable pension income. Some states even
tax former residents on retirement plan withdrawals, creating
the possibility of paying income tax in two states. Some states
follow federal tax formulas for taxation of Social Security
benefits, others have their own formulas, and some tax benefits
not at all.

Sales and property taxes must also be considered. Again, some
states offer property tax advantages to retired seniors while
others provide homestead exemptions. Retirees should consider
sales taxes when estimating their retirement budget for such
items as clothing, household goods, food and drugs.

It is also important not to overlook the effect of estate taxes
upon the surviving spouse. Some states do not provide an
unlimited marital deduction. Property ownership laws must also
be examined in this area when considering the distribution of
possessions upon death. Changes in these laws must be monitored
as many states will attempt to make their financial environment
more appealing to retirees.

All retirees weigh the cost of living, weather, nearness to
relatives and recreational opportunities in their decision to
settle in their retirement community. The tax climate should
also be examined to analyze the financial situation during
retirement. Working with an experienced financial planner, as
well as a tax advisor, is often recommended to those looking for
a retirement home.