Retirement is a major milestone for many Americans—the age at which one can put their career behind them and enjoy leisurely twilight years, thanks to decades of savings and accrued benefits. With retirement, though, often comes major shifts in lifestyle, and one common shift is relocation to more retirement-friendly states.
Some states are simply better for retirees than others. While many factors including personal preference to cost of living to climate conditions and more can determine a state’s attractiveness to retirees looking to make the most of their retirement years, taxes are often an overlooked deciding factor.
A state’s income tax, property tax, sales tax, and estate tax policies can all play a major role in how far retirees can go with the money they’ve saved up and the benefits they’ve earned. Today, with big changes to its tax laws on the horizon, Georgia could soon be one of the best states for retirement taxes.
Let’s take a look at what current tax factors influence Georgia’s retirement-friendliness as well as what’s on the horizon to make it a better fit for retirees looking to make the most of their retirement funds.
What are tax-friendly states for retirees?
When evaluating a state’s tax-friendliness for retirees, one must take into account how its income taxes, property taxes, estate taxes, and sales taxes influence retirees. The best states for retirement taxes often have no or low income taxes and limited taxes on retirement benefits; many have exemptions for property taxes as well.
Some examples of tax-friendly states for retirees include Florida, which has no state income tax, estate tax, or inheritance tax, or Nevada, which also has no state income tax and also no taxes on Social Security benefits.
Currently, Georgia is a moderately tax-friendly state to retire in, with no taxes on fixed income, estate taxes, or inheritance taxes, which makes it an especially favorable state for estate planning.
In addition, while Georgia does have an income tax, it offers a retirement income exclusion and exemptions for Social Security benefits which mitigate these tax burdens. In addition, recently, Georgia has decided to implement a flat income tax that will further benefit retirees starting in 2024.
An Overview of Georgia’s Retiree-Friendly Tax Policies
With property taxes of 0.92% of a home’s assessed value on average (varying by county and municipality), a 4% sales tax, generous tax breaks for older adults on pensions and retirement income, no state-level social security taxes, and a soon-to-be flat 5.49% income tax, Georgia is a tax-friendly state for retirees.
Some of the Georgia state policies that ease the tax burden for retirees include:
The Georgia Income Tax Retirement Exclusion
One element of Georgia’s tax-friendliness is the income tax exclusion it makes available to retirees, which reduces the burdens of Georgia’s income tax and makes it more competitive with states that have no or lower income taxes.
In order to be eligible for the Georgia Income Tax Retirement Exclusion, one must be 62 years or older. However, if a taxpayer is permanently and totally disabled, they may be eligible regardless of age.
The income tax exclusion applies to the following sources of retirement income:
- Employee-sponsored pension plans, annuities, and similar retirement arrangements
- IRAs, 401(k)s, 403(b)s, and other retirement savings plans
- Government-sponsored deferred compensation plans
- Military retirement income
This tax exclusion for sources of retirement income is capped at $65,000 per taxpayer and $130,000 for a married couple filing jointly.
With this tax exclusion, Georgia retirees can reduce or even eliminate their tax liability on retirement income by excluding their income from taxation up to the cap. This policy helps Georgia retirees keep more income for personal use to better pursue their desired retirement lifestyle.
Other Income Tax Breaks for Georgia Retirees
In addition to Georgia’s income tax retirement exclusion policy, the state offers several further income tax breaks for Georgia retirees to make the state a more attractive retirement destination.
For example, Georgia makes certain types of pensions, specifically pensions received from state and local governments, exempt from income taxes altogether, as well as military retirement income. Social Security benefits are also fully exempt from state income taxes.
Withdrawals from retirement accounts such as IRAs, 401(k)s, and 403(b)s are usually taxed as income, but Georgia provides a deduction for withdrawals—up to $4,000 for under-65 taxpayers and up to $8,000 for those aged 65 and up.
Tax Breaks for Older Georgia Residents
There are also tax breaks, credits, benefits, and exemptions available for older residents (not necessarily retirees) that those looking to retire in Georgia may be eligible for, such as:
Property Tax Exemptions
Georgia offers a property tax exemption for seniors 65 and older, as well as a school tax exemption for seniors 62 and older that reduces the school portion of the property tax bill.
All homeowners regardless of age may be eligible for a homestead exemption that reduces the assessed value of a primary residence for taxation purposes.
Disabled Veterans Tax Credit
Retired Georgia residents can take advantage of a tax credit if they are disabled veterans. Depending on the level of disability and other criteria established by the Georgia Department of Veterans Service, this tax credit can help retired veterans keep more of their retirement income.
Georgia Retired Educators Association Deduction
Retired educators can also claim a deduction on their state income tax return if they are members of the Georgia Retired Educators Association.
In terms of taxes, Georgia is a moderately retiree-friendly state, with many income tax credits, exemptions, and deductions that retired seniors can take advantage of to do more with their retirement income. Georgia’s available exemptions or deductions can reduce or even eliminate retirement tax burdens retirees may face in other states. Looking towards the future, Georgia may become one of the best states for retirement taxes as the state’s planned flat tax implementation goes into effect.
While far from the only factor to take into consideration, taxes are not to be overlooked when it comes to planning one’s retirement and deciding on a place where one can maintain their desired retirement lifestyle.
Tax laws and policies are in constant flux, though, so before deciding where to retire when the time comes, make sure to speak with tax experts local to the area to gain a better sense of what deductions, exemptions, credits, and other benefits would be available for you, as well as any specific rules or procedures for taking advantage of them.
Facing tax issues with the IRS or the Georgia Department of Revenue? At Wiggam Law, our team of experienced tax attorneys can help you straighten out your situation and put you on a path toward resolution so you can enjoy your retirement without the burden of tax debt. Contact us today by filling out our online form or calling our team at (404) 233-9800 to schedule a consultation.