One of the things about Social Security that annoys people the most is that the federal government makes many recipients pay income taxes on their Social Security benefits. To add insult to injury, many states pile on with taxes of their own. As Fool contributor John Maxfield noted last week, six states in particular have heavy taxes on benefits. If you're retired and live in those states, you have to ask: Does it make sense to pick up and move somewhere else?
Source: The Tax Foundation.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the question of whether you should leave high-tax states in retirement to avoid Social Security taxes. Dan notes that it's particularly difficult for many seniors to deal with taxes eating away at their benefits. But he also points out that you should consider all elements of your financial picture, not just Social Security taxes. For instance, some states have tax benefits that can outweigh taxes on Social Security payments. Moreover, for those who live in states that follow federal guidelines in taxing Social Security, you won't necessarily pay tax if your income doesn't rise above federal limits. Dan encourages retirees to look at the full picture before making a big decision to move.
