34:["$","$L35",null,{"category":"$36","relatedArticles":[{"id":"cG9zdDoyNTg4MjA=","databaseId":258820,"postId":258820,"author":{"node":{"id":"dXNlcjoz","databaseId":3,"userId":3,"avatar":{"url":"https://secure.gravatar.com/avatar/47938df052bf0a5283bd6b77ab786737?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"SmartAsset employs a team of writers and editors with years of experience in the editorial, news and personal finance industries. Some staff members also hold the Certified Educator in Personal Finance (CEPF®) designation from the Institute for Financial Literacy.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Michael","fullName":"SmartAsset Team","lastName":"Carvin","name":"SmartAsset Team","postCount":{"pageInfo":{"offsetPagination":{"total":1417,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mcarvin","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybToxOTQ3NQ==","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":19475,"categoryId":19475,"link":"https://smartasset.com/401k/articles","name":"401(k)","postCount":{"pageInfo":{"offsetPagination":{"total":191,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"401k","ancestors":{"nodes":[{"name":"Retirement","slug":"retirement","__typename":"Category"}],"__typename":"CategoryToAncestorsCategoryConnection"},"parent":{"node":{"name":"Retirement","id":"dGVybTo5Mw==","slug":"retirement","__typename":"Category"},"__typename":"CategoryToParentCategoryConnectionEdge"},"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$37","date":"2024-08-15T18:21:45","excerpt":"

Understanding 401(k) non-spouse beneficiary rules is key for anyone planning their estate and retirement. When a non-spouse inherits a 401(k), the distribution options differ significantly from those available to a spouse. Non-spouse beneficiaries must follow specific guidelines regarding withdrawals, which can impact both taxes and the timeline for accessing the funds. Knowing these rules can […]

\n","featuredImage":{"id":"cG9zdDoyNTg4NzM=","databaseId":258873,"altText":"A woman reviews her 401(k) beneficiary designations with her daughter and son-in-law.","date":"2024-08-15T11:18:21","fileSize":86858,"mimeType":"image/jpeg","modified":"2024-08-15T11:18:36","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/08/retirement-accounts-you-should-consider.jpg_s1024x1024wisk20cMOrx2ZZoJoWuIJ_yoMb12cqBf58eOSHWtlb8iESp6go-4.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-8-15","readable":"August 15, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":{"expertise":"Retirement Planning, Social Security, Estate Planning, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":307,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"pvillanova","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":true,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/retirement/401k-non-spouse-beneficiary-rules","metaDesc":"","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"401(k) Beneficiary Rules for Non-Spouses","__typename":"PostTypeSEO"},"slug":"401k-non-spouse-beneficiary-rules","status":"publish","title":"401(k) Beneficiary Rules for Non-Spouses","uri":"/retirement/401k-non-spouse-beneficiary-rules","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":null,"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":"$38","description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":"$39","email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":"$3a","slug":"patrick-villanova-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxOTQ3NQ==","children":"$3d","databaseId":19475,"categoryId":19475,"link":"https://smartasset.com/401k/articles","name":"401(k)","postCount":191,"slug":"401k","ancestors":"$3f","parent":"$42","__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

","

Need help managing your assets or planning your estate? Speak with a fiduciary financial advisor today.

","

Understanding Inherited 401(k)s

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Inherited 401(k)s are retirement accounts that are passed down to beneficiaries after the account holder’s death. These accounts can be inherited by spouses, non-spouses or other designated beneficiaries, each facing different rules and options for managing the inherited funds.

","

When inheriting a 401(k), the beneficiary can choose from several options, depending on their relation to the person who died. Spouses typically have more flexibility than non-spouses for how they can structure and time their withdrawals.

","

The rules and regulations for inherited 401(k)s have evolved over the years – particularly with the passing of the SECURE Act in 2019. This law, which was followed by the SECURE 2.0 Act of 2022), introduced significant changes to distribution timelines for non-spouse beneficiaries, including the establishment of the “10-year rule.”

","

The 10-Year Rule

","

","

Beneficiaries were previously allowed to stretch distributions over their lifetimes, but the SECURE Act now mandates that non-spouse beneficiaries who inherit a 401(k) account withdraw the entire balance within 10 years following the account holder’s death.

","

Meanwhile, if the original account owner had already begun taking required minimum distributions (RMDs) from the account, the non-spouse beneficiary must continue to take RMDs “at least as rapidly” as the deceased, according to the IRS.

","

It is incumbent on the beneficiary to be aware of these rules, as the consequences of violating them are potentially significant. The SECURE 2.0 Act lowered the penalty for missing RMDs from 50% to 25% – still a significant cost. However, if the mistake is rectified promptly, the excise tax can be further reduced to 10%. To avoid this penalty altogether, it’s crucial to ensure that RMDs are taken as required.

","

Who Does the 10-Year Rule Apply to?

","

The 10-year rule primarily applies to non-spouse beneficiaries who inherited IRAs or 401(k) accounts from someone who died on or after Jan. 1, 2020. This includes children, grandchildren, friends and other non-spousal relations.

","

For beneficiaries who inherited 401(k) accounts from individuals who died before Jan. 1, 2020, the old stretch IRA rules remain in effect. Under these now-outdated rules, non-spouse beneficiaries could take distributions over their life expectancy, potentially reducing the tax impact of those annual withdrawals.

","

Special Exceptions

","

However, certain individuals are exempt from this rule, often referred to as “eligible designated beneficiaries.” These exemptions include:

","

Minor children of the account holder (until they reach the age of majority)
Disabled individuals as defined by IRS criteria
Chronically ill individuals with a condition that impairs their ability to work or perform daily living activities
Individuals not more than 10 years younger than the deceased account holder, such as siblings close in age
Certain trusts if the trust meets specific requirements set by the IRS for eligible beneficiaries

","

These exempt beneficiaries can generally stretch distributions over their lifetime, rather than being subject to the 10-year withdrawal requirement.

","

401(k) Beneficiary Rules for Spouses vs. Non-Spouses

","

","

The primary distinction between spousal and non-spousal beneficiaries lies in rollover options and distribution timelines. Spouses can opt to treat the 401(k) as their own, offering more flexibility and potential tax deferral. Non-spouses, however, must adhere to the 10-year rule, leading to a more accelerated distribution schedule.

","

A spouse-beneficiary of a 401(k) can:

","

Roll the account over into their own IRA: This allows the surviving spouse to treat the account as their own, potentially deferring distributions until they reach age 73 – the age at which RMDs begin.
Take distributions as a beneficiary: Income taxes will be due on the money.
Leave the account in the deceased spouse’s 401(k) plan: They can also simply treat the account as if it was their own all along and leave it in the plan.

","

How Are Inherited 401(k)s Taxed?

","

Generally, distributions from an inherited 401(k) are subject to ordinary income tax, meaning that the beneficiary will pay taxes at their current income tax rate on any withdrawals they make.

","

However, if the funds remain in the account or are rolled over into another tax-deferred account like an inherited IRA, they will preserve their status.

","

Taking a lump-sum distribution from an inherited 401(k) is another option, but doing so results in the entire amount being taxed as ordinary income in the year it is received. This can significantly increase the beneficiary’s taxable income and may push them into a higher tax bracket.

","

Bottom Line

","

Understanding the distinct rules for non-spouse beneficiaries of 401(k) accounts is vital for tax planning and cash flow management. The SECURE Act’s introduction of the 10-year rule has significantly altered distribution options, requiring non-spouse beneficiaries to empty the inherited accounts within 10 years of the original account owner’s death or face tax penalties unless they qualify for an exemption.

","

Estate Planning Tips

","$44","

Photo credit: ©iStock.com/kate_sept2004, ©iStock.com/AndreyPopov, ©iStock.com/Luke Chan

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Deferred compensation allows Florida employees to set part of their earnings aside for future uses. This strategy could help you manage taxes or plan retirement, as it delays a portion of your income, which can include bonuses, stock options, or other incentives. And in Florida’s tax-friendly environment, where there is no state income tax, deferred […]

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As a certified educator in personal finance, he edits and writes content that focuses on retirement, investments, home buying and other financial topics.\r\n\r\nArturo is a bilingual native in English and Spanish, and also writes as a freelance journalist for NBC News, among other publications. 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","

A financial advisor can help you figure out whether deferred compensation is a strategy that could benefit your long-term goals.

","

What Is a Deferred Compensation Plan?

","

A deferred compensation plan is often used by executives and high-earning individuals as a strategic tool for tax deferral and retirement planning. By deferring a portion of their salary or bonuses, employees can potentially lower their current taxable income, allowing their deferred earnings to grow tax-deferred until they are withdrawn. This can be particularly advantageous for those who expect to be in a lower tax bracket during retirement.

","

There are two main types of deferred compensation plans:

","

Qualified plans, such as 401(k)s, are subject to strict regulations under the Employee Retirement Income Security Act (ERISA) and offer tax benefits to both employers and employees.
Non-qualified deferred compensation (NQDC) plans are more flexible, and are often tailored to meet specific needs. These plans do not have the same contribution limits as qualified plans, allowing participants to defer larger amounts of income. However, they also carry more risk, as the deferred funds are considered part of the employer’s assets and may be subject to creditors in the event of company insolvency.

","

Deferred Compensation Rules in Florida

","

If you’re considering a deferred compensation plan in The Sunshine State, here are four rules that you should keep in mind:

","$52","

Benefits of a Deferred Compensation Plan in Florida

","

Deferred compensation in Florida not only offers tax advantages but also provides flexibility for participants to adjust their contributions based on their financial goals and retirement plans. Employees can choose how much of their salary to defer, giving them control over their savings strategy.

","

Additionally, participants often have a variety of investment options, such as mutual funds, stocks, bonds and annuities. This flexibility allows deferred compensation plans to act as a useful supplement to traditional retirement accounts like 401(k)s or IRAs, offering an additional layer of financial security.

","

When you defer income and invest it, the money can increase through returns like interest or dividends. And, as these returns are reinvested, they can produce additional earnings, allowing your investment to compound over time.

","

Bottom Line

","

","

Deferred compensation plans in Florida can be valuable for managing income and retirement savings. They offer strong tax advantages, particularly because Florida has no state income tax. These plans are attractive to state employees, and private employers can also provide them to attract and retain talent, giving employees a flexible option to customize their retirement planning.

","

Tips for Retirement Planning

","$53","

Photo credit: ©iStock.com/adamkaz, ©iStock.com/shapecharge

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\n","featuredImage":{"id":"cG9zdDoyNjU0NTM=","databaseId":265453,"altText":"The state flag of South Carolina flies alongside the American flag.","date":"2024-10-17T15:48:53","fileSize":56166,"mimeType":"image/jpeg","modified":"2024-10-17T15:49:26","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/10/the-south-carolina-state-flag-waving-along-with-the-national-flag-of-the-united-states-of.jpg_s1024x1024wisk20c2KOMqg6mVj48Ac3x3M_PvadVaefSymTaRB3VOUdaU_U.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-10-18","readable":"October 18, 2024"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":{"expertise":"Retirement Planning, Social Security, Estate Planning, Taxes","__typename":"User_Additionalmeta"},"email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":307,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"pvillanova","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":true,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/retirement/deferred-compensation-south-carolina","metaDesc":"South Carolina offers a deferred compensation program that allows public workers to set aside a portion of their income to be paid out later.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"How Deferred Compensation Works in South Carolina","__typename":"PostTypeSEO"},"slug":"deferred-compensation-south-carolina","status":"publish","title":"How Deferred Compensation Works in South Carolina","uri":"/retirement/deferred-compensation-south-carolina","tags":{"nodes":[{"name":"news-sitemap","__typename":"Tag"}],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":null,"editedBy":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":"$55","description":"Patrick Villanova is an editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. His particular areas of focus include retirement, financial planning and investing. Patrick studied English at the University of New Hampshire and currently holds the Certified Educator in Personal Finance (CEPF) designation. \r\n\r\nPrior to joining SmartAsset, Patrick was a senior writer at MagnifyMoney, where he covered investing. His career began in journalism and included 11+ years at The Jersey Journal, where he covered sports and news as an editor. His work has appeared on Yahoo Finance, MSN, NJ.com, and The Star-Ledger. He lives in Portland, Oregon.","additionalMeta":"$56","email":null,"firstName":"Patrick","fullName":"Patrick Villanova, CEPF®","lastName":"Villanova, CEPF®","name":"Patrick Villanova, CEPF®","postCount":"$57","slug":"patrick-villanova-cepf","__typename":"User"},"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybToxOTQ3Nw==","children":"$5a","databaseId":19477,"categoryId":19477,"link":"https://smartasset.com/pensions-and-other-retirement-accounts/articles","name":"Pensions & Other Retirement Accounts","postCount":89,"slug":"pensions-and-other-retirement-accounts","ancestors":"$5c","parent":"$5f","__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

South Carolina offers a deferred compensation program that allows public-sector employees to set aside a portion of their income to be paid out at a later date, typically during retirement. Contributions are often made pre-tax, which can lower current taxable income and provide potential tax benefits. Teachers, government workers, and other public employees can use this option to save for retirement flexibly, with the added benefit of potentially lowering their overall tax liability by withdrawing funds when they are in a lower tax bracket.

","

A financial advisor can help you navigate the ins and outs of retirement planning.

","

About the South Carolina Deferred Compensation Program (SCDCP)

","

The South Carolina Deferred Compensation Program offers employees of public institutions, including state and local government workers, teachers and public health employees, the opportunity to save for retirement through tax-advantaged plans. These plans, which are voluntary, allow eligible employees to defer a portion of their income to be paid out in the future, often after retirement.

","

Eligible employees can begin participating in the South Carolina Deferred Compensation Program as soon as they begin receiving compensation for their public service roles. This flexible savings option allows for strategic financial planning and can complement other retirement benefits like pensions and/or Social Security.

","

What Retirement Plans Are Available?

","

Two primary types of plans are available through the South Carolina Deferred Compensation Program: the 401(k) and 457(b) plans. Both options allow participants to contribute either pre-tax income, reducing current taxable income and providing the potential for tax-deferred growth, or after-tax income to a Roth account and capitalize on tax-free growth.

","

The 457(b) plan is specifically designed for government and public employees, with no early withdrawal penalty if funds are accessed before the age of 59 ½ upon separation from service. Meanwhile, the 401(k) plan offers a similar tax-advantaged growth structure but follows more traditional retirement account rules, including penalties for early withdrawals before age 59 ½.

","

Contributions to these plans can be made through automatic payroll deductions, and employees can choose how much they want to contribute within the annual IRS limits. In some cases, employers may offer matching contributions, though this is not guaranteed.

","

Employees can invest their contributions in a range of investment options, including mutual funds and target-date retirement funds, which allow for diversified growth over time.

","

Deferred Compensation Contribution Limits

","$61","

In 2024, employees participating in the South Carolina Deferred Compensation Program can contribute up to $23,000 to a 457(b) or 401(k) plan. If an employee is 50 or older, they can make additional catch-up contributions of $7,500 to either plan, bringing the total possible contribution to $30,500 for those individuals.

","

However, 457(b) participants within three years of retirement eligibility may qualify for a special provision for catch-up contributions. This allows them to contribute up to twice the standard limit, potentially reaching $46,000. These limits apply to both pre-tax and Roth contributions if offered. Employees can adjust their contribution amounts throughout the year, giving them flexibility to increase or decrease their savings based on their financial circumstances.

","

How Much Are the Fees?

","

The South Carolina Deferred Compensation Program, administered by Empower, has several fees associated with participation.

","

Annual recordkeeping fee: The annual recordkeeping fee is 0.065% of your account balance, deducted quarterly.
Administrative fee: There is a $1 administrative fee, which is deducted annually in June.
Investment management fees: The investment management fees vary depending on the specific investment options chosen by participants.

","

There may be other fees, as well. For those who opt for a self-directed brokerage account, there is a quarterly fee of $12.50, along with potential transaction fees and commissions based on trading activity. Importantly, the program does not charge any distribution fees when withdrawing funds.

","

Is There a Vesting Period?

","

While there is an eight-year vesting period that applies to the state’s public pension plan, there is no vesting schedule associated with the South Carolina Deferred Compensation Program. This means that any money an employee contributes to their 401(k) or 457(b) account, along with any investment earnings, belongs to them immediately.

","

Employees then have full control over their contributions and can access the funds according to plan rules, typically after separation from service or retirement.

","

However, if an employer offers matching contributions, the vesting schedule for those contributions may vary, depending on the specific terms set by the employer. Some employers may require a certain number of years of service before their matching contributions become fully vested. Employees should check with their employer for details on any matching contributions and associated vesting requirements.

","

Making Withdrawals

","

Like workplace retirement plans at private companies, the deferred compensation that South Carolina offers allows participants to make withdrawals from their 401(k) or 457(b) plans under certain conditions, typically in retirement, separation from service or after reaching age 59 ½ for the 401(k) plan.

","

The rules are different for 401(k) withdrawals versus 457 (b) withdrawals. As mentioned earlier, withdrawals from the 401(k) plan before age 59 ½ may be subject to a 10% early withdrawal penalty, in addition to regular income taxes. However, the 457(b) plan offers more flexibility, as participants can withdraw funds after separation from service at any age without incurring an early withdrawal penalty.

","

Participants in both plans can also take required minimum distributions (RMDs) beginning at age 73 (75 for people born in 1960 or later), as required by IRS rules. These RMDs ensure that participants begin withdrawing from their accounts once they reach a certain age to avoid penalties.

","

In cases of financial hardship, both 401(k) and 457(b) plans may allow hardship withdrawals, but these are subject to strict IRS guidelines and must meet specific criteria, such as covering medical expenses or preventing eviction.

","

Finally, the program does not charge any distribution fees for withdrawals, which can be taken as lump sums, periodic payments or rolled over into another retirement plan, depending on the participant’s needs.

","

Bottom Line

","$62","

The South Carolina Deferred Compensation Program offers a valuable opportunity for public employees to supplement their retirement savings with flexible, tax-advantaged plans. Whether through a 401(k) or 457(b) plan, participants can take advantage of personalized contributions, a variety of investment options and no vesting period for their contributions. With clear rules around withdrawals, contribution limits and fees, the program provides a straightforward path to building long-term financial security.

","

Retirement Planning Tips

","$63","

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California has the largest number of Social Security recipients and also receives more dollars in benefits than any other state. Almost 6.3 million state residents collect payments from Social Security’s main program for retirees, disabled workers and their families according to recent data from the Social Security Administration. Those payments total around $114.8 billion per year. Social Security retirement benefits are not subject to California’s otherwise burdensome state taxes, though state income taxes do apply to payments from corporate and public pensions as well as retirement account withdrawals. This taxation of income sources relied upon by many retirees, along with high state sales taxes, helps make California one of the least tax-friendly states for retirees.

","

If you are thinking about how to fit Social Security benefits into your retirement plan, consider talking it over with a financial advisor.

","

Social Security Taxes in California

","

Like a majority of states, California does not levy state income tax on Social Security retirement benefits. This is good news for California’s Social Security benefit recipients, because the state’s income tax rates are among nation’s highest, ranging from 1% to 12.3%. Although California gives a pass to taxing Social Security benefits, these payments still may be subject to federal income taxes, depending on your other income sources.

","

In spite of its favorable treatment of Social Security retirement benefits, California’s other taxes combine to make it one of the least tax-friendly states for retirees overall. These additional state taxes include levies placed on income from public and private pensions as well as withdrawals from retirement accounts. All these sources of income are taxed as normal income under the state’s rules. In addition, California has the country’s highest state-level sales tax as well, at 7.25%. Local sales taxes can add up to 3.25% more.

","

If you’re interested in building a tax-effective retirement strategy, consider using this free tool to find a vetted financial advisor.

","

California Social Security Payments

","

As the most populous state, California also has the largest number of Social Security benefit recipients. According to the SSA’s 2023 statistical report, a total of nearly 6.3 million state residents received payments in December 2022 from Old Age, Survivors and Disabilities Insurance (OASDI), Social Security’s largest program. Beneficiaries of retirement payments included almost 4.8 million retired workers, 228,490 spouses, and 79,402 children. Survivors benefits were paid to 355,097 widows or widowers and parents and 160,623 children. Disability payments went to 539,044 disabled workers, 7,939 spouses and 71,481 children.

","

Californians also receive more dollars in Security benefits than residents of any other state. California Social Security recipients split a total of nearly $114.8 billion in OASDI payments in 2022. Retirees collected more than $947 billion, survivors got close to $141 billion and disabled recipients received more than $10.5 billion.

","

More than 1.1 million Californians received benefits from Supplemental Security Income (SSI), a smaller Social Security program that provides assistance to elderly, blind or disabled low-income people. These include 339,560 aged, 14,662 blind and 778,968 beneficiaries in the state. Total SSI payments for all of 2022 came to just under $9.9 billion, with more than $2.4 billion going to aged, more than $141 million to blind and almost $7.4 billion going to disabled Californians.

","

Social Security Contacts

","

San Francisco hosts one of Social Security’s 10 regional offices. The San Francisco Region of Social Security serves a vast territory stretching across six time zones that in addition to California includes Arizona, Nevada, Hawaii, Guam, American Samoa and the Northern Mariana Islands. Facilities include 162 local offices, half a dozen phone centers, 17 offices for disability determinations and 20 hearing offices, staffed by a total of 6,500 employees.

","

In order to find the nearest Social Security office, Californians can Social Security’s office locator, which provides address and other contact information for the most convenient location using ZIP codes. Californians can also use Social Security’s online services, available at SSA.gov. Online services include applying for benefits, future benefits and reviewing work history. Social Security also maintains a toll-free number, 800-772-1213 where callers can receive assistance and referrals for Social Security-related business or questions. You can also use this free tool to match with up to three vetted fiduciary advisors if you are interested in professional guidance.

","

Bottom Line

","

California receives a substantial economic benefit in the form of Social Security benefits paid to its residents. Payments totaling nearly $114.8 billion went to about 6.3 million Californians in 2022. Those payments are subject to California’s state income tax, the highest in the nation, but the state tax system is otherwise considered unfriendly to retirees thanks to levies placed pension payments and retirement account withdrawals.

","

Tips

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Photo Credit: Grok

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