Retirement Income and Minnesota State Taxes

Published On: 15th October 2014

From the internet

For Minnesotans, tax planning is an important part of planning for retirement planning. However, when planning for Uncle Sam, many retired Minnesotans overlook the state tax that will impact them. It is very important to understand what the state tax impact will be.

Minnesota is a state that doesn’t offer a safe haven for retirement income, but this comes in the way of estate taxes. Estates that are worth more than $1/2 million are subject to the state estate tax, which will gradually increase to $2 million by 2018. The majority of states do not impose inheritance or state tax, but 17 states do and Minnesota is one of them. The estate tax impacts the estate before the distribution of assets. This is something that retirees have to account for to ensure that all of their affairs are taken care of accordingly by their heirs.

What individuals can count on is the breaks that are given on certain types of retirement income. When it comes to estate and gift tax, estate and gift tax consulting can be very helpful in determining what needs to be done. An individual can utilize this as a part of their retirement planning and others may need the help after their loved one has passed and they find that there are bills that need to be paid.

While the state may not tax certain types of retirement income or tax it very little, it is important for individuals to understand what the federal government taxes on. For instance, the federal government is allowed to tax up to 85 percent of Social Security benefits. A majority of states exclude Social Security from their income tax. In Minnesota, Social Security benefits are taxable to some degree, but not to the extent that the federal government can tax those benefits. This is something to consider in your tax planning.

It is very important that when you plan for your retirement, that you are educated on the taxation of it under current law. Over time, the laws can change. What may be taxable now in Minnesota may not be taxable later and vice versa. As time progresses, you can alter your retirement plan and the tax planning that goes with it since it is not likely the laws will always be the same. Individuals tend to have to adjust their plans for the future based on the changing times because doing so lets them know what to expect and keeps them in check with their income throughout their later years.