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Mississippi Retirement Tax Friendliness

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Overview of Mississippi Retirement Tax Friendliness

Mississippi exempts all forms of retirement income from taxation, including Social Security benefits, income from an IRA, income from a 401(k) and any pension income. The state has low property taxes and moderate sales taxes.

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You will pay of Mississippi state taxes on your pre-tax income of
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Quick Guide to Retirement Income Taxes
is toward retirees.
Social Security income is taxed.
Withdrawals from retirement accounts are taxed.
Wages are taxed at normal rates, and your marginal state tax rate is %.
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    Jim Barnash is a Certified Financial Planner with more than four decades of experience. SmartAsset’s retirement expert is passionate about helping both individuals and business owners prepare for retirement. Jim has run his own advisory firm, worked for large financial services companies and even acted as a consultant to help other advisors grow their businesses. He is an author and public speaker on a variety of financial topics. Jim previously served for six years as President and Chairman for the Financial Planning Association. He also instructs others about the topic – Jim has created and taught courses on financial planning at DePaul University and William Rainey Harper Community College.

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Mississippi Retirement Taxes

Photo credit: ©iStock.com/omersukrugoksu

If you are planning your retirement and trying to decide where to settle down, Mississippi may be worth consideration. It has warm winters and the fourth lowest average cost of living of any U.S. state. It is also one the country’s most tax-friendly states for retirees.

What makes Mississippi’s tax system so great for retirees? First and foremost is the way it treats retirement income. Mississippi exempts all forms of retirement income from taxation, including Social Security benefits, income from an IRA, income from a 401(k) and any pension income. On top of that, the state has low property taxes and moderate sales taxes.

Is Mississippi tax-friendly for retirees?

Yes, very. It has some of the most generous exemptions for retirement income of any U.S. state. Income sources that are exempt from state taxes include Social Security retirement benefits, pensions, 401(k)s and IRAs. Additionally, the state has property taxes that rank among the lowest in the country. Mississippi’s sales tax rates are close to average and it has no estate or inheritance tax.

Is Social Security taxable in Mississippi?

No. Even Social Security income that is taxed at the federal level is exempt from the state tax in Mississippi.

Are other forms of retirement income taxable in Mississippi?

No. Mississippi provides exemptions for retirees on all of the most common forms of retirement income. Income from a pension, income from a 401(k), income from an IRA, income from a 403(b), income from a SEP-IRA and income from a 457(b) are all exempt in Mississippi. Work income earned by seniors is, however, subject to the state income tax.

Photo credit: ©iStock.com/LindaBryan

How high are property taxes in Mississippi?

Property taxes in Mississippi are very low. The median annual property tax paid in the state is just $841, which ranks as the sixth lowest amount in the country. That is one reason housing costs in Mississippi are 11% lower than the national average. For seniors, however, housing costs may be even lower than that, as described below.

What is the Mississippi homestead exemption for the elderly?

All Mississippi homeowners whose home is their principal residence are eligible for the regular Mississippi homestead exemption. The regular homestead exemption can credit a homeowner for up to $300 in taxes, based on the first $75,000 in home value.

The bonus exemption for the elderly is available only to homeowners over the age of 65. It fully exempts the first $75,000 in home value. Given that the median home value in Mississippi is about $100,000, for many homeowners this will reduce property taxes by more than half.

How high are sales taxes in Mississippi?

The state sales tax rate in Mississippi is 7%. This is the rate collected across the state, with one exception. There is an additional 1% tax in Jackson, the state capital.

Mississippi is one of just a few states to apply sales tax to groceries. However, prescription drugs are exempt from the sales tax in Mississippi.

Does Mississippi have an estate tax?

No. There is no estate or inheritance tax in Mississippi.

Most Tax Friendly Places for Retirees

SmartAsset’s interactive map highlights the places in the country with tax policies that are most favorable to retirees. Zoom between states and the national map to see the most tax-friendly places in each area of the country.

Highest
Lowest
Rank City Income Tax Paid Property Tax Rate Sales Tax Paid Fuel Tax Paid Social Security Taxed?

Methodology Our study aims to find the areas with the most tax-friendly policies for retirees. To do that we looked at how the tax policies of each city would impact a retiree with a $50,000 income. Our hypothetical retiree is getting $15,000 from Social Security benefits, $10,000 from a private pension, $15,000 from retirement savings like a 401(k) or IRA and $10,000 in wages.

To calculate the expected income tax this person would pay in each location we applied deductions and exemptions. This included the standard deduction, personal exemption and deductions for each specific type of retirement income. We then calculated how much this person would pay in income tax at the federal, state, county and local levels.

We calculated the effective property tax rate by dividing median property tax paid by median home value for each city.

In order to determine sales tax burden we estimated that 35% of take-home (after-tax) pay is spent on taxable goods. We multiplied the average sales tax rate for a city by the household income less income tax. This product is then multiplied by 35% to estimate the sales tax paid.

For fuel taxes, we first distributed statewide vehicle miles traveled down to the city level using the number of vehicles in each county. We then calculated miles driven per capita in each city. Using the nationwide average fuel economy, we calculated the average gallons of gas used per capita in each city and multiplied that by the fuel tax.

For each city we determined whether or not Social Security income was taxable.

Finally, we created an overall index weighted to best capture the taxes that most affect retirees. We gave a 4x weighting to income tax, 3x weighting to property tax rate, a 2x weighting to sales tax and 1x weighting to fuel tax.

Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2016 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration