Overview of Montana Retirement Tax Friendliness
Montana fully taxes most forms of retirement income, while taxing a portion of Social Security benefits for retirees above a certain income level. Property taxes in Montana are fairly low, and there are no sales taxes there.
Annual Social Security Income
Annual Retirement Account Income
Year of Birth
Annual Income from Private Pension
Annual Income from Public Pension
|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 %.|
- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
Montana Retirement Taxes
Montana has the third-lowest population density of any state in the country, but it’s crowded with breathtaking scenery. From Glacier National Park to the headwaters of the Missouri River, Montana is the perfect place for seniors who want to spend their golden years surrounded by natural splendor.
Unlike its landscape, Montana’s tax system may disappoint some seniors. That’s because it heavilytaxes most forms of retirement income, while taxing a portion of Social Security benefits for retirees above a certain income level.
A financial advisor in Montana can help you plan for retirement and other financial goals. Financial advisors can also help with investing and financial planning - including taxes, homeownership, insurance and estate planning - to make sure you are preparing for the future.
Is Montana tax-friendly for retirees?
Montana is moderately tax-friendly for retirees. Depending on your specific financial circumstances, you may find it very friendly or very unfriendly. For starters, the state has no sales tax, which lowers living costs for everyone. It also has relatively low property taxes.
On the other hand, many retirees pay taxes on Social Security retirement benefits, which is fully exempt in most other states. Likewise, Montana provides very limited exemptions for retirement income from pensions or retirement accounts.
Is Social Security taxable in Montana?
Social Security is taxable in Montana, but there is a deduction available for taxpayers below a certain income level. For single filers with an adjusted gross income (AGI) of less than $25,000 and joint filers with an AGI of less $32,000, all Social Security retirement income is deductible.
For taxpayers above those limits, but below $34,000 for single filers or $44,000 for joint filers, half of Social Security retirement income is deductible. Above these secondary limits, only 15% is deductible.
Are other forms of retirement income taxable in Montana?
Income from a pension or retirement account, like a 401(k) or IRA, is treated as regular income and taxed at Montana’s state income tax rates. There is, however, an exemption available for these taxes if you're a single filer with a federal AGI below $38,605 or a joint filer with a federal AGI below $40,790. If your AGI comes in below your respective requirement, then up to $4,370 of your retirement account income is exempt from state taxes.
Income Tax Brackets
|Montana Taxable Income||Rate|
|$0 - $3,100||1.00%|
|$3,100 - $5,400||2.00%|
|$5,400 - $8,200||3.00%|
|$8,200 - $11,100||4.00%|
|$11,100 - $14,300||5.00%|
|$14,300 - $18,400||6.00%|
How high are property taxes in Montana?
Property taxes in Montana are fairly low. The state provides an exemption on all residential property that greatly reduces the property tax burden of residential homeowners.
The average effective property tax rate paid by homeowners is 0.83% across the state. That’s equal to $830 in property taxes for every $100,000 in home value. It’s important to note, however, that this will vary based on where in the state you live.
What is the Montana elderly homeowner tax credit?
Montana homeowners who are at least 62 years old can apply for a tax credit on their property taxes. To be eligible, they must pay the property taxes for a home they occupy or rent. Total household income must be less than $45,000 to receive the full credit amount.
The Elderly Homeowner Credit is worth a maximum of $1,000. Claimants with household income of between $35,000 and $45,000 will receive between 10% and 40% of the full credit. The credit may also be less than $1,000 if your property taxes paid were below a certain level.
How high are sales taxes in Montana?
There is no sales tax in Montana. In other words, retirees can do all of their Montana shopping tax-free.
What other Montana taxes should I be concerned about?
Capital gains are taxed as income in Montana, though
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.
Methodology To find the most tax friendly places for retirees, our study analyzed how the tax policies of each city would impact a theoretical retiree with an annual income of $50,000. Our analysis assumes a retiree receiving $15,000 from Social Security benefits, $10,000 from a private pension, $10,000 in wages and $15,000 from a retirement savings account like a 401(k) or IRA.
To calculate the expected income tax this person would pay in each location, we applied the relevant 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 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 after subtracting 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 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. The income tax category made up 40% of the index, property taxes accounted for 30%, sales taxes 20% and fuel taxes 10%.
Sources: Internal Revenue Service, Social Security Administration, state websites, local government websites, US Census Bureau 2018 American Community Survey, Avalara, American Petroleum Institute, GasBuddy, UMTRI, Federal Highway Administration