When selecting your dream retirement spot, several criteria spring to mind. For example, nice weather, lots of options for entertainment, proximity to family, possible work opportunities, and volunteer spots could be on your wish list.
While that’s a great roundup, one benchmark we recommend adding to your list is “tax friendliness.” It’s not nearly as fun to think about as all the sun and fun Charleston offers, but it’s still necessary to consider. Taxes pose one of the greatest hurdles to your retirement income plan, especially if you don’t properly plan for them.
If you’re considering retiring to South Carolina, are you making a tax-conscious choice?
At Partners in Financial Planning, we believe Charleston is a beautiful and desirable retirement destination. But before making the move, review these tax considerations every out-of-stater should keep in mind when relocating in retirement.
Why Look At The Taxes?
When retiring, you want to make every dollar count, which means being mindful of your tax situation.
If you know you want to relocate, it’s wise to consider moving to a place with similar or lower taxes and cost of living. That way, your current planning projections for saving up remain as accurate as possible.
For example, if you live in Oklahoma and want to retire to California, you’d need to adjust your projected expenses to accommodate for your new state’s much higher cost of living and tax liabilities. While South Carolina has neither the cheapest nor most expensive state taxes, there’s still a good chance they’re different from what you’re used to.
You’ll likely feel more comfortable and confident in your retirement plan if you work with the most accurate numbers possible. To do that, you must account for your future state’s tax requirements.
How To Determine If a State Is Tax-Friendly or Not
What actually goes into the “friendliness” factor of a state’s tax law? You’ll have to address the areas in your financial life where taxes play a big role—hint: there are probably more than you think.
Start with your retirement income. Each state has different tax requirements for Social Security benefits, pension income, investments, etc. Be sure to factor in any source you plan on pulling retirement income from.
Next, think about legacy planning. Because of the 2017 Federal Tax Cuts and Jobs Act, the federal exemption level for estate taxes is quite high. In 2022, estates valued under $12,060,000 per individual (doubled for married couples) are exempt from federal estate taxes.1
So while you may not have to worry about taxes at the federal level, some states have their own estate and inheritance taxes.
Don’t forget about the taxes that impact you more regularly, like state income, property, and sales taxes. Even “random” taxes like vehicle and registration taxes should be on your radar.
Where South Carolina Falls On The Friendliness Scale
Those thinking about heading to Charleston for retirement are in for some good news. South Carolina is generally considered a tax-friendly state. Below, we’ll address all the tax considerations above with information specific to South Carolina.
Social Security benefits are entirely exempt from South Carolina state taxes. On top of that, those 65 and older can exclude an additional $10,000 in retirement income from their state income taxes.
Retirees over 65 can also take a $15,000 (or $30,000 for joint filers) tax deduction on additional taxable income, like IRA withdrawals or pension payouts.
Estate And Inheritance Tax
Only a few states have an estate or inheritance tax, and South Carolina is not one of them.
Currently, the states that do have an estate or inheritance tax include:2
- Washington, D.C.
- New Jersey
- New York
- Rhode Island
Moving to a state without an inheritance or estate tax creates a significant tax advantage for your estate and its heirs. States that do impose these taxes often don’t have the same high exemption rate as the federal government, meaning your children or other beneficiaries are likely to face a significant tax obligation upon inheriting assets.
State legislators recently passed an act to cut South Carolina’s top income tax rate from seven percent to 6.5 percent in 2022. According to the legislation, the rate will continue to drop .1 percent annually until it reaches six percent. The .1 percent cut will only go into effect if South Carolina’s general fund revenues project an increase of at least five percent above the previous year.3
The standard deduction for the 2022 tax year is $12,950 for individual filers and $25,900 for those married filing jointly. In addition, South Carolina offers a $4,300 personal exemption per dependent.3
If you’re considering moving to South Carolina from another state, you’ll likely plan on funding that moves with the sale of your previous home. The good news is, South Carolina doesn’t tax you on the sale of property from another state.
It’s important to keep property taxes in mind as you look into purchasing a home in the Charleston area. The median property tax rate is actually the fifth-lowest in the country, currently sitting around $566 per every $100,000 of assessed home value. This makes the effective property tax rate 0.55 percent.4
There are a few exemptions you may qualify for with your property purchase:4
Homestead exemption: There is a $50,000 tax exemption for South Carolina homeowners who use the property as their primary residence and have been legal residents of the state for the year that precedes the current tax year.
Senior citizens exemption: Homeowners over 65 may receive a $50,000 tax exemption within the state’s income limits. The home must be your primary residence, but only one spouse or joint homeowner must be 65 or older.
Disabled veteran’s exemption: Disabled veterans or their surviving spouses may be eligible to receive a full exemption from their property taxes. To qualify, the disability must be 100 percent military-related. If a veteran is completely disabled, their property is exempt from all property taxes. If the veteran is 50 to 60 percent disabled, they may receive a $10,000 property tax exemption.
Capital Gains Tax
Capital gains taxes in South Carolina fall on the lower end of the spectrum, though some states have no capital gains tax.
The state taxes capital gains as income, with a seven percent rate. However, you can take advantage of a 44 percent deduction on long-term gains.
Unfortunately, sales tax rates are relatively high in South Carolina. The average rate of combined local and state tax is 7.44 percent: six percent sales tax and 1.44 percent average local tax.5
We Can Help You Create a Comprehensive Tax Plan in Retirement
Your financial team can make a plan for taxes to help stretch your money further. If you’re considering moving to Charleston or South Carolina, we’re here to help you understand all the state-specific tax obligations you may face in retirement.
Don’t hesitate to give us a call. We’ll help you prepare for a successful retirement that considers all aspects of your financial well-being.
4 South Carolina Property Taxes
Partners in Financial Planning provides tax-focused, comprehensive, fee-only financial planning and investment management services. With locations in Salem, Virginia and Charleston, South Carolina, our team is well-equipped to serve clients both locally and nationally with over 100 years of combined experience and knowledge in financial services.
To learn more, visit https://partnersinfinancialplanning.com