Retirement income is one of the most important pieces of your retirement plan – how else are you going to pay for all those trips to see your grandkids?
All too often, taxes are an afterthought for retirees, which can take a large unexpected bite out of your freedom to enjoy retirement.
That’s why we put together this list of seven important tax facts retirees should be aware of in Oregon.
1. Oregon Does Not Tax Social Security Benefits
While some states tax Social Security benefits, here in our home state of Oregon they do not. That’s great news – just be sure you consult with a professional to decide when you should start claiming your benefits.
2. Oregon Taxes Income from Your 401(k) at the Full State Income Tax Rate
While some states don’t have an income tax, and thus do not tax retirement accounts like your 401(k) and IRA, Oregon is not one of those. So your income from taxable retirement accounts will be subject to the Oregon income tax rate based on your income (highest rate is currently 9.9%)
3. Oregon Has One of the Highest Income Tax Rates in the Country
According to the Tax Foundation, Oregon’s income tax rate is the fourth highest in the country, topping out at 9.9%.
The 4 highest income tax rates in the United States
What does that mean for retirees? While tax-exempt accounts like a Roth IRA and Roth 401(k) will not be subject to taxes upon withdrawal, you should plan on withdrawals from your 401(k), IRA and other taxable retirement accounts to have a higher tax base. But don’t let the tax tail wag the dog. Make decisions about what’s best for you and your family.
The actual amount you are taxed will depend on your income level when you make a withdrawal. If your income is less than $125,000, you could be charged less.
4. Oregon’s Overall Tax Burden is Lower Than Most States
While our income tax rate may be one of the highest, WalletHub ranked Oregon #31 in their list of states with the heaviest tax burden when you account for property taxes, individual income taxes and sales and excise taxes.
5. Oregon Does Not Have a Sales Tax
Oregon is one of five states with zero sales tax, which means your money can go farther when making major purchases or paying for healthcare.
6. Some PERS-eligible Employees can File for a Tax Remedy
If you are an Oregon resident with a PERS retirement plan (most state-employed public service workers), you may be eligible to file for a tax remedy on your PERS benefits.
So who qualifies? Tier One members who were hired before July 14, 1995, have either service time before October 1, 1991, or at least 10 years of creditable service, and are Oregon residents for the purpose of paying Oregon income taxes, are eligible for the tax remedy. Tier Two and Oregon Public Service Retirement Plan (OPSRP) members are not eligible for the tax remedy on their PERS benefits.
7. Oregon Has One of the Lowest Estate Tax Thresholds
Only 12 states (and DC) have an estate tax, including Oregon. The threshold for where each state imposes the estate tax varies. Oregon taxes estates over $1 million, giving us the “honor” of having the lowest estate tax threshold, tied with Massachusetts. Oregon’s marginal estate tax rate starts at 10% and increases based on the size of your estate.
There are ways you may be able to lower your estate tax burden – consult with your advisor for details.
Build a Retirement Income Plan You Can Count On by Understanding Tax Implications Early
Make sure you understand the impact taxes can have on your retirement income plan so you’re not caught by surprise when it’s too late to plan otherwise.
Want some help building a tax-aware retirement income plan? Contact us today to get started!