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 didn’t stand out in the Tax Foundation’s annual ranking of state & local tax burden based on the 2010 fiscal year. With an average tax burden of 10.2%, Pennsylvania was the 10th highest in the nation. Then why would Kiplinger name Pennsylvania one of the 10 most tax-friendly states for retirees?

When it comes to taxation of retirees, there are only two states that exempt 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. 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. The rates for Pennsylvania inheritance tax are as follows:

  • 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.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437