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Places that Don't Tax Retirement Income

written by: Lucinda Watrous•edited by: Rebecca Scudder•updated: 6/4/2010

Retirement is something many of us look forward to and dread at the same time. This article looks at places that don't tax retirement income.

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    To make the most of retirement income, many retirees look to live in places that don't tax retirement income. There are several options so retirees can take their pick. While states have guidelines, it is also important to take a close look at city and county rules and regulations to ensure they too, do not tax any sort of pension and/or income.

    States with No Income Tax

    While Federal taxes will still apply, people living in: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming will not be subject to any state income tax. We must note however, these states are not necessarily cheaper to live in, because the lack of income taxes must be compensated elsewherre, such as in sales tax or property tax.

    States that Do Not Tax Pensions

    Alabama

    Hawaii

    Illnois

    Kansas

    Louisiana: Will tax certain pensions, but not federal pensions, and waives state tax for some others.

    Massachusetts

    Michigan

    Mississippi

    New York

    Pennsylvania: Will not tax any pension, but will still tax wages.

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    Where to Live?

    17 out of 50 states will help you save retirement money through less taxes on income. Looking through the list of options though, we see several places are expensive to live in, so when considering a relocation for this purpose, it is important to look at the cost of living. If you've saved with a certain cost of living in mind, it's not a good idea to move to another location with a higher cost of living, just to save on taxes. What you'll save on taxes will not be enough to compensate for the higher cost of living in most cases.

    Once you've taken a look at the cost of living, you'll want to consider other factors such as proximity to family members and the cost of moving there. If you feel it would benefit you to move to one of the places that don't tax retirement income for any other reason, the fact that there's no income tax will be an added bonus.