BIZARRE: I asked chatgpt which states are best for retirement taxes here s what it said - You Need To See This

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While taxes do persist at this stage of life, some states might be a little friendlier than others in how much they take. To dig deeper into this, I asked ChatGPT to help me analyze some key data and see which states are most cost effective when it comes to retirement taxes. Here’s what it said.

How To Measure ‘Best States’

To determine what makes a state the “best” when it comes to retirement taxes, ChatGPT used an approach common to financial analysts to compare retirement taxes across states:

• Whether the state has an income tax
• Whether Social Security benefits are taxed
• Whether retirement income (pensions, IRAs, 401(k) plans) is taxed.

Though each state has its own tax code, the IRS provides a federal framework for how retirement income is taxed. For example, pension and retirement distributions are generally taxable income unless exempted. Similarly, Social Security benefits can be taxable depending on income levels. States then decide whether to tax or exempt that income at the state level.

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States With No Income Tax (Strongest Tax Advantage)

ChatGPT said the most straightforward tax advantage for retirees is simply living in a state with no state income tax.

According to retirement tax analyses and state tax structures, the AI pointed to the nine states that have no individual income tax, meaning retirement withdrawals are not taxed at the state level.

These states include:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming.

If a state does not levy income tax, then retirees with retirement accounts like IRAs, 401(k) plans and pensions will not pay state taxes on these funds (though they may still have to pay federal taxes). This is why places like Florida and Nevada consistently show up in retirement tax rankings, ChatGPT said.

States That Exempt Most Retirement Income

The next best states for retirees are those that still have income taxes but specifically exempt retirement income, ChatGPT said (though remember, federal taxes may still apply). They are:

Illinois

Illinois exempts:

• Social Security income
• Pension income
• IRA and 401(k) withdrawals
• U.S. retirement bonds.

This means retirees can receive those distributions without state income tax, although other types of income can still be taxed.

Iowa

Iowa recently expanded retirement tax exemptions so that residents ages 55 and older will not be taxed on pension and retirement account income.

Mississippi

Mississippi also exempts several types of retirement income, including:

• Pensions
• Retirement plan distributions
• Social Security benefits.

Pennsylvania

Pennsylvania exempts several major retirement income streams:

• Social Security
• Pensions
• Retirement plan distributions.

This policy makes it one of the few states that excludes pension and qualified retirement plan income from taxation.

Social Security Tax Policy (A Major Retirement Variable)

Retirees will want to seek out states that don’t tax Social Security benefits. Fortunately, that’s most states, 41 and the District of Columbia, to be exact, that exempt Social Security benefits from state income tax.

Only a handful of states still tax some portion of benefits:

• Colorado
• Connecticut
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont
• West Virginia (This state is phasing out its taxation after 2026).

Avoiding those states can reduce retirement tax exposure if Social Security is a major income source, ChatGPT said.

This knowledge might change some retirees’ plans for where they’ll spend their golden years, in more ways than one.

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This article originally appeared on GOBankingRates.com: I Asked ChatGPT Which States Are Best for Retirement Taxes — Here’s What It Said