Retiring and Pennsylvania Income Tax


Many retirees or soon-to-be retirees worry about their finances. Some are concerned about living on their savings while others are nervous about living on a fixed income. Certainly, in living on a budget, any kind of tax break helps. Pennsylvania is a smart choice for a less taxing life because Pennsylvania's income tax is very favorable for retirees. In fact, for 401k withdrawals you may NEVER pay any state taxes if you move from a state that lets you defer taxes (most states) during your working years! Kiplinger’s named Pennsylvania one of its ten most tax-friendly states for retirees in 2010. Interested? Read the following answers to more frequently asked questions about 529 benefits and taxes in Pennsylvania.

Is It Worth It to Retire to Pennsylvania?

With its Mid-Atlantic climate and the short distance to great destinations like New York City and Washington D.C., Fayetteville, Pennsylvania—Penn National’s home city—is the perfect place to retire. Fayetteville itself is in Pennsylvania’s farm and fruit belt and offers the splendors each of the four seasons has to offer. If you’re a nature lover, Fayetteville is neighbor to the Michaux State Forest, an 85,000 forest filled with hiking and biking trails. If you want to experience Southern charm, Fayetteville is close to the Mason-Dixon Line and is only 90 miles from Washington D.C., Maryland, and Virginia. The city is also close to historically significant Gettysburg, allowing you to participate in the rich culture there.

What Do Retirees Need to Consider with Taxes?

Even if states don’t have income or sales tax, higher rates of other types of taxes can make living in those states as expensive as states with income or sales taxes. Pennsylvania has a low income tax, and a low sales tax, from which many types of purchases are exempt. In contrast, for example, Rhode Island has a 9.9% tax on all retirement income including capital gains, and also taxes Social Security benefits.

What Are Taxes Like In Pennsylvania?

Out of all of the states, Pennsylvania has one of the lowest income taxes on wages and investment income, at 3.07%. In contrast, the highest income tax in the country is in California, at 13.3%. In Pennsylvania, sales tax is 6%, but there is no sales tax on food, clothing, or medicine. In contrast, for example, the highest sales tax—9.45%—is taken in Tennessee. To see a comparison of tax calculations for Pennsylvania compared to Maryland, Delaware, North Carolina, etc., click here.

What Are Taxes on Retirement Income in Pennsylvania?

Only nine states in the United States don’t tax any form of retirement income. Pennsylvania is one of the best places to retire because it is one of these states. Pennsylvania doesn’t tax any of the multiple forms of retirement income, including Social Security, private or public pensions, deferred compensation plans, or 529 plans (If you’re not familiar, a 529 benefits plan is a college savings plan set up by students’ parents and grandparents). What’s more is that Pennsylvania is one of only two states in the nation (the other being Mississippi) that also doesn’t tax IRA and 401(k) distributions. That means that you’ll get to keep all of the money you earn if you decide to retire to Penn National.

What does that mean if you worked in a state that did not tax retirement income while you earned it but does tax it when you retire and withdraw it?  It means moving to Pennsylvania when you are retired gives you the best of both worlds--you NEVER pay state taxes on your deposits or withdrawals! Penn National is one of two communities in Pennsylvania to be named one of America’s Top 50 retirement destinations by Where to Retire magazine. Family owned and operated, our retirement community is home to over 1,000 families and offers a diverse selection of completely custom housing options, including single-family homes, condos, villas and new builds. Click below to get more information on Pennsylvania income tax benefits and other great aspects of life at Penn National.

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