When you retire with a Self-Directed IRA, traditional IRA or other tax-deferred investment, you presumably benefited from tax deferral for many years. But now that you’re retired and beginning to draw down your IRA to generate income, it’s time to pay the piper, so to speak.
Income from a Self-Directed IRA attributable to contributions for which you received a tax deduction is generally 100 percent taxable.
That means income tax is usually the primary legislative threat to your retirement cash flow, unless most of your assets are in Roth accounts or non-retirement accounts with a relatively low income component.
The District of Columbia
You probably saw this one coming. The metro area is one of the most expensive real estate markets in the country, but the poverty rate among seniors is 14 percent – tied with Mississippi for the worst in the country. The top income tax rate is 8.95 percent – again, the worst in the country. Add 5.75 percent sales tax to that.
The only good thing we can report is that Social Security benefits are exempt from DC income tax, as is 3,000 in military, federal or District of Columbia pensions. Those government employees prefer to vote themselves tax breaks at the expense of everyone else.
If you want to retire here, go Roth, go early and go often.
Nice place; crummy tax situation for Self-Directed IRA owners. Retirement income outside of Social Security Benefits is fully taxed and subject to the highest state income tax in the whole country, with a top rate 13.3 percent. The sales tax is 7.5 percent at the state level, but once the cities and counties get their pound of flesh sales taxes can get as high as 10 percent.
They aren’t getting lower any time soon: California is struggling under a massive public pension load. The bright spot: Real estate seems to go nowhere but up in California, most of the time. So despite the challenges, it may be a good spot to have some real estate IRA investments.
Another beautiful state with some ugly tax policies as far as Self-Directed IRA owners and retirees are concerned. Plan on sales tax (they call it a gross receipts tax) of 5.125 percent minimum, with up to another 3.56 percent added on top of that depending on your city and county. That’s on top of an income tax ranging from 1.7 percent up to 4.9 percent, depending on your income. Social Security income is taxed. There’s a small exemption for those age 65 or older.
No surprise here. New York is extremely expensive, has a high poverty rate among seniors, and a relatively onerous state income tax regimen, with marginal brackets ranging from 4 percent on the first $8,400 in income, sliding up to 6.45 percent on income between $21,151 and $79,600. Anything above that is taxed at 6.65 percent all the way up to $212,500, and 6.85 percent all the way up to $1,062,650. Above that it’s 8.82 percent.
That’s on top of a state income tax of 4 percent, or 4.375 percent for residents within the Metropolitan Commuter District, so that takes you to 8.875 percent right there, and local sales taxes that can be as high as 4.5 percent for New York City.
You really have to love New York.
This beautiful New England state has a lot going for it: But attractiveness to retired Self-Directed IRA owners isn’t one of them. The state income tax is significant at 3.55 percent minimum on joint incomes up to $62,600 (or $37,450 for singles, so the marriage penalty can be significant). The top income tax bracket reaches 8.95 percent and applies to incomes over $411,500. Up to 85 percent of Social Security benefits are taxed, and the State of Vermont limits deductions to $15,750 for singles and to $31,500 for married couples.
Sales tax is 6 percent, with some jurisdictions adding another 1 percent, exempting food for home cooking, clothing, and medicine. The sales tax on prepared foods and restaurants is 9 percent, though, and 10 percent on beer and wine. Property tax is substantial too.
American IRA, LLC is pointedly not located in any of these jurisdictions. Our offices are in the much more tax-friendly state of North Carolina, but we work with investors from all over the country with an interest in Self-Directed IRA strategies and non-traditional assets within retirement porfolios. For more information, visit us on the Web at www.americanira.com, or call us for a free, no-obligation consultation at 866-7500-IRA(472).