Why are Pennsylvania retirees so enamored with the state? While there are many advantages to spending one’s senior years in Pennsylvania, including quick access to big cities such as Philadelphia and the Big Apple, as well as being surrounded by historical landmarks, one significant benefit is the state's retirement tax-friendliness. However, what are the financial advantages of retirement in Pennsylvania? These financial advantages are discussed further in this article.
State Retirement Taxes
When deciding where to start one’s retirement, one should keep taxes in mind so that one can extend their income in retirement as far as possible; for retirees, Pennsylvania offers a tax-friendly environment.
Pennsylvania residents do not have their retirement income taxed. It is one of just two states on the East Coast of the United States of America that deems pension income to be tax-free.
The state even has the nation's lowest flat tax rate of 3.07%. Although it is hard to avoid federal income taxes once one retires, one may be able to reduce their tax burden by relocating to a state with a low-income tax rate, such as Pennsylvania.
Most retirees plan on gaining income from a variety of different sources such as:
Social Security: Retirees receive a percentage of their income from Social Security, which is based on how much they contributed to the system while they were employed. Widows may be eligible to receive their partner's social security benefit. Some states, such as Connecticut, West Virginia, and Rhode Island, tax social security earnings, but Pennsylvania does not.
Individual Retirement Accounts: If one’s workplace did not provide a pension plan they may have saved money for retirement in an IRA. IRAs provide a variety of tax advantages. Another benefit is that the money one withdraws from their IRA is not taxed as income in Pennsylvania.
Pensions: Most retired individuals today receive pension contributions from either the government or a private company. The amount is determined by their job conditions, the amount of time they contributed to the pension fund, and how successfully the pension scheme was managed. Pennsylvania does not tax public or private pension income, giving it an advantage over neighboring states like New York, New Jersey, and Maryland, which do.
401(k): A 401(k) is a type of retirement investment account that often includes both one's own money and additional funds from their employer. In Pennsylvania, no sort of workplace pension retirement plan is taxable as income.
One’s retirement income is tax-free in Pennsylvania provided they live there. In terms of retiree income, Pennsylvania is among the most attractive states in the country. They can also assist with various types of taxes.
Pennsylvania's state sales tax is under six percent, making it one of the lowest rates in the nation. Food and apparel are likewise tax-free in the state. Only the cities of Philadelphia and Pittsburgh charge a municipal tax in addition to the state rate. In Pennsylvania, there is a further sales tax exemption that can have a significant effect on seniors. All medications, both prescription and non-prescription, are tax-free. Because the cost of medicine tends to rise as people get older, Pennsylvania is doing everything it can to keep these costs as low as possible.
What Is the Retirement Age in Pennsylvania?
Every state has the same age of retirement. As per the Social Security Administration, the full retirement age for persons born in 1960 is 67. This means one can collect their social security benefits in their entirety, with no reductions. When they reach the age of 67, beneficiaries receive half of their spouse's retirement benefits. (Find out how to calculate retirement age)
If necessary, someone can start to receive social security pension payments as early as age 62. However, the rate has been decreased, and they only receive 70% of their own monthly earnings and 32.5% of their spouse's. The proportion of their pension payments increases month by month until they reach the full sum at age 67.
The Bottom Line
Retirement is a decision that most people take very seriously, as they should. One must determine their income from their retirement benefits as well as any tax implications for accurate amounts. Choosing to live in Pennsylvania means exemption from many applicable forms of tax. This can lead to a better quality of life.
To make the best decisions when it comes to your finances, it would be ideal to seek the help of the best Pittsburgh PA financial consultants. They can provide advice in terms of your taxes and finances, even helping you seek answers to frequently asked questions such as what is a mega Roth.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax, legal, or investment related advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This material was prepared for The Kelley Financial Group.