The Pros and Cons of Retiring in Pennsylvania

It’s a great place to retire, but can be an expensive place to have an estate.

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Pennsylvania ranked in the middle (26 out of 50) in the Tax Foundation’s 2018 State Tax Climate index. With an average tax burden of 10.2%, Pennsylvania was the 10th highest in the nation. Then why would Kiplinger rank Pennsylvania #6 in the 2017 ranking of the 10 most tax-friendly states for retirees?

There are only two states that exempt nearly all retirement income – Pennsylvania and Mississippi. Military pensions, other public and private pensions, social security benefits, distributions from IRAs, and other employer plans are all exempt from income tax. This is a big advantage for a retiree!  When it comes to taxable income such as wages and investment income, Pennsylvania has one of the lowest income tax rates – a flat rate 3.07%. Some municipalities have their own additional income tax ranging from 1% to a high of 3.928% in Philadelphia. The state sales tax is 6%, but food, clothing, and medicine are exempt.

Unfortunately, Pennsylvania is one of only seven states with an inheritance tax. An inheritance tax is calculated based on who receives a deceased person’s property and, in some states, how much they receive.

PA Inheritance Tax Rates

  • 0% on transfers to a surviving spouse or to a parent from a child aged 21 or younger.
  • 4.5% on transfers to direct descendants and lineal heirs.
  • 12% on transfers to siblings.
  • 15% on transfers to other heirs, except charitable organizations and exempt institutions/government entities.

Pennsylvania’s inheritance tax applies to all real estate and to all tangible personal property (such as furniture, vehicles, jewelry, etc.) located in the state, whether the property is owned by a resident or non-resident. It also applies to all intangible property of Pennsylvania residents (bank accounts, stocks, bonds, mutual funds, and patents, etc.).

Pennsylvania is a great place to retire but can be an expensive place to have an estate. Careful planning is required to take advantage of the low state income tax rates while minimizing the inheritance cost to heirs.

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

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