Retirement Tax Hell: The Worst States For Self-Directed IRA Owners and Retirees
Vermont. Is anyone surprised to see a New England state listed as the worst state in America from the perspective of the taxation of Self-Directed IRA and other retirement income? But the beautiful, mountainous, verdant State of Vermont tops our list, with a top state income tax rate of 8.95 percent on taxable income greater than $415,600 for single filers. Married filers don’t get much of a break, with the top rate applying to joint incomes over $421,900.
Own a Self-Directed IRA and don’t make that much? You still get to pay a state income tax of 3.55 percent on taxable income over $39,900 for singles and $69,900 for married couples.
Deductions are limited to $15,000 for singles and $31,500 for married couples.
There’s also a nasty Vermont state sales tax, and local sales taxes can ad as much as 1 percentage point to it. Food consumed at home, clothing and medicines are exempt from sales tax, but the tax on lodging, prepared foods and restaurant meals is 9 percent. The tax on beer and wine is 10 percent.
Social Security Benefits are generally 85 percent taxable in Vermont.
Property taxes are relatively high in Vermont as well. Finally, Vermont imposes an estate tax on estates over $2.75 million, with the maximum rate set at 16 percent.
- To no-one’s surprise, another northeastern state occupies the short list of retirement “tax hells” in the country. There’s a 3 percent state income tax on taxable income over $10,000 per person ($20,000 per couple), while any income over $500,000 (twice that for married couples) is taxed at 6.99 percent. Income from your real estate IRA or Self-Directed IRA is considered ordinary income.
Real estate taxes are very high – ranking them in the top 10 percent in the country. Social Security Income is likewise counted against you – and subject to tax, though there are exemptions for those with federal adjusted gross incomes below $50,000 (or $60,000 for married couples, indicating a substantial built-in marriage penalty).
There are no local sales taxes, but there don’t need to be: The state income tax of 6.35 percent is plenty. Luxury items worth over $5,000 as well as clothing, shoes and accessories over $1,000 are taxed even more, at $7.75 percent.
Connecticut levies a 7.2 percent to 12 percent estate tax on estates of $2 million or more.
3.) Minnesota. All this and lousy weather, too! Minnesota imposes a state income tax of at least 5.35 percent on income below $25,180 for singles and $36,820 for couples. The rate goes up from there, reaching a 9.85 percent top rate on incomes over $155,650 for singles, or $259,420 for joint filers. The average combined state and local sales tax, on top of that, is 7.27 percent, though food, clothing and medicine are exempt.
Their estate tax is very nasty, with all estates over 1.6 million affected, with a max estate tax rate of 16 percent. Assets left to a spouse are exempt, however.
4.) Oregon. The Beaver state takes a big bite out of taxable incomes: There’s a 5 percent state income tax on taxable income over $3,350 per individual and $6,700 for joint filers. Some cities and counties add as much as 2 percent on top of those state income taxes. This would directly affect Self-Directed IRA owners as income from Self-Directed IRAs is considered ordinary income.
The estate tax tops out at 16 percent, and the state taxes all estates over $1 million, excepting assets left to a surviving spouse or domestic partner. The $1 million exemption is among the lowest in the country. Self-Directed IRAs, as well as small businesses, real estate, and other assets are subject to this estate tax, make it among America’s worst states for Self-Directed IRA owners to die in!