States That Don’t Tax Federal Retirement Benefits
Retirement savings are essential for citizens to live a comfortable and stress-free retired life. Therefore, we want our retirement savings to last as long as we do, and reducing the tax bill on federal retirement benefits is one way to ensure your benefits last longer. One of the biggest factors towards a tax on FERS retirement benefits is where you live. Many states don’t tax federal retirement benefits.
Understanding Your Federal Retirement Benefits
Before we detail the states that don’t tax federal retirement benefits, you must understand how your retirement benefits work. On the federal level, retirement benefits are divided into three income sources, each taxable.
Social Security
Social security retirement benefits consist of a monthly check that replaces your income when you retire. Tax on social security is one of the most surprising factors for federal employees. Some states would tax up to 85% of your social security benefits. Here are 13 states that don’t tax social security:
- Alaska
- Florida
- Georgia
- Mississippi
- Nevada
- Illinois
- New Hampshire
- Pennsylvania
- Tennessee
- Texas
- Wyoming
- Washington
- South Dakota
- Pension
Pension, the basic benefit plan, is one of the major parts of the FERS retirement plan. Around 90% of your pension can be subjected to tax. The government calculates taxes on pensions by analyzing how much you contribute to the system. Here are fourteen states that don’t tax pensions:
- Alaska
- Florida
- Mississippi
- New Hampshire
- Wyoming
- Alabama
- Illinois
- Pennsylvania
- Nevada
- South Dakota
- Tennessee
- Texas
- Hawaii
- Washington
- Thrift Savings Plan (TSP)
A thrift savings plan (TSP) is a retirement savings plan offered to federal employees that Is similar to a private company employee’s 401k plan. TSP is a popular retirement income for federal employees. However, withdrawals will be taxable. Here are 12 states that don’t tax TSP:
- Alaska
- Florida
- Nevada
- South Dakota
- Texas
- Wyoming
- Mississippi
- Illinois
- New Hampshire
- Tennessee
- Washington
- Pennsylvania
Which Are The Best States to Live For Federal Retirees?
Several states don’t tax federal retirement benefits of one style but might tax the other. Similarly, there are several states that don’t tax federal retirement benefits of any type. Therefore, these are the best states for federal retirees to live in.
However, when a state doesn’t tax your income or retirement benefit, they would find other ways to make up for it. State taxes commonly include income, sales, and property tax. Your federal retirement benefits fall into income tax.
While the states might not take tax on your income, they can levy higher taxes on the remaining ones. This includes higher-than-average property or sales tax. Therefore, describing a single state as the best is challenging.
Moving to lower-tax states can help you save on your retirement benefits and ensure that your retirement funds last as long as possible. Tax is one of the biggest cuts to your retirement income and living in states that do not take that tax can help greatly.
Get Help With Your Federal Retirement Benefits
Many federal employees are unaware of some of the essential factors of federal retirement planning. Federal Educators aims to help federal employees understand and plan their retirement benefits. We can help you find states that don’t tax federal retirement benefits and help you maximize your retirement funds. Book an appointment today or receive a benefit analysis.
Call us at (813) 755-7037 or fill out our form online to get help with your federal benefits.
