Retirement Tax Planning- Pennsylvania v. Delaware

February 14, 2022 —Retirement is ultimately a game of numbers. What can I afford? How much income do I have? When should I retire? And the big question – Where should I retire?

This question is often on the minds of many of our prospective residents, especially because Kendal-Crosslands Communities is located in Pennsylvania, just a few miles away from the Delaware State line.

While we understand that everyone’s decision making on these questions is very personal, and that no two “best case scenarios” are alike, local experts at the Delaware accounting firm, Bumpers & Company of Wilmington, DE have put together some comparative information on advantages of choosing to retire in Pennsylvania versus Delaware. They examined a variety of tax advantage scenarios affecting retired individuals and couples.

In fact, there is so much information to consider that we have broken it down into two separate categories. This article deals with the tax treatments of a variety of income streams that are typical of many retirees. We have also included a breakdown of the effect of real estate tax treatments, long considered a major factor when choosing where to settle.

This is what the experts at Bumpers & Company found:

State Income Tax

Individual income tax rates in Pennsylvania are a flat 3.07%. Delaware maintains a graduated income tax rate going as high as 6.6%. It only takes $60,000 of taxable income for single or married filing jointly taxpayers to reach the 6.6% tax rate in Delaware.

So for a married couple filing jointly with taxable interest, dividends and capital gains of $150,000, the tax liability in Pennsylvania is $4,605 versus $6,035 in Delaware.

Taxable Retirement Income

Pennsylvania does not tax distributions from pensions, individual retirement accounts (IRAs), 401Ks or Social Security. Delaware taxes on all of those incomes.

Taking the example of a married couple filing jointly with pensions and IRAs of $100,000, the tax liability in Pennsylvania is $0. In Delaware it is roughly $3,500 by comparison.

Pennsylvania Tax Forgiveness

Pennsylvania maintains a special tax forgiveness on certain qualified income. Depending on the amount of income and source and other qualifying factors, you may find that no income tax is due.

For example, a married couple, filing jointly, with 401K income of $100,000 and dividend income of $12,000 would pay no tax in Pennsylvania. However in Delaware your tax liability would be roughly $3,900. As long as your “other” income – interest, dividends, capital gains, etc. are below $13,000 for a married couple filing jointly – no income tax is due in Pennsylvania.

Real Estate Taxes

Whenever you consider a move, real estate taxes can factor into the decision. How are property taxes apportioned to people choosing to retire at Kendal-Crosslands?

In Pennsylvania, local property taxes go to support schools, emergency services, open space and other important local services. Kendal-Crosslands incorporates local property taxes into the monthly fee paid by residents, so there are no additional property tax bills incurred by residents, helping to bring an extra level of predictability in your retirement. Just as in Delaware, tax amounts are not reported to residents for deductability purposes.

Additionally, the proximity to outstanding educational and cultural institutions, preserved lands and parks, coupled with many other tax advantages available to retirees in Pennsylvania make Kendal-Crosslands a sound choice.

529 Education Plans

Pennsylvania offers another tax advantage that you can share with your grandchildren or other young scholars. Retirees looking to fund education can get a break on their state tax in Pennsylvania but not in Delaware. You can contribute up to the gifting limit of $15,000 per person and save $461 in tax. And, Pennsylvania is one of a handful of states that don’t limit 529 funding to Pennsylvania state residents or state schools. So if your grandchildren live in New York state, you can contribute to their 529 account and still receive the tax benefit.

Summary

While your individual income and tax liability are unique, it’s clear that there are taxation advantages for many people choosing to retire in Pennsylvania. Choosing a Life Plan Community like Kendal-Crosslands also offers you the potential to deduct a portion of your monthly fees and entrance fee as medical expenses, and eliminate issues regarding escalating local real estate taxes, which can be hard for Retirees on a fixed income.

We hope you’ll come explore all the advantages to retiring at Kendal-Crosslands Communities, including the tax advantages! And many thanks to Bumpers & Company for providing us with up-to-date information on the tax differences between Pennsylvania and Delaware!

Disclosure

Please remember that everyone’s finances are different. The material provide here is for informational purposes only and not for the purpose of providing legal advice, Please consult with your attorney or financial advisor to see how this information may be applicable to you.