Are your clients ready to move to the retirement home they’ve been dreaming of? They may want to consider how each state treats Social Security income before making their final decision.
When to take Social Security benefits is a major decision that clients are facing as these benefits are an important source of retirement income.
A lot of time is spent crunching numbers and analyzing different scenarios in order to assist clients with this important decision, trying to determine the optimal age to begin claiming Social Security benefits.
Another aspect to consider regarding Social Security benefits is the taxation of these benefits. Some clients will not have to pay taxes on this income, but you should consider up to 85% of your Social Security may be included in your taxable income. However at least 15% of your benefits are always income tax-free federally.
Taking taxation a step further, it is important to understand how each state treats Social Security Income. This varies from state-to-state, with some states imposing full taxation, other states offer preferential tax treatment, and there are states where this income is tax-free. Direct client’s attention to the chart on this social security taxation map. Emphasize that each state treats social security income differently.
- Only 13 states impose tax on Social Security income, either taxing to the same extent that the federal government does or providing tax breaks for certain individuals.
- Four states including: New Mexico, North Dakota, Vermont, and West Virginia impose full taxation on Social Security income.
- Nine states including: Colorado, Connecticut, Kansas, Missouri, Minnesota, Montana, Nebraska, Rhode Island, and Utah offer preferential tax treatment of Social Security income.
This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments or investment management. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.