Maryland is not the Retirement Heaven it can be

September 3, 1:02 PMBaltimore Financial ExaminerTom Taylor, CPA/PFS

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In a recent meeting I was asked by a small business owner if he and his wife should consider retiring in Maryland or another state.  What a fantastic question and debate.  Where should you retire?  Maryland is a fantastic place to live, play and raise a family, but is it a great place to retire?

No doubt as Marylanders we have a vast array of natural and cultural resources to enjoy.  Our location puts us within driving distance of just about anything you want to do or see.  But in retirement your wants and needs change and your standard of living is more tied to the assets you have accumulated and income you pull from those assets than ever before.  Baby Boomers are retiring at a steady clip these days and when asked in a 2005 Merrill Lynch survey, “What are you looking forward to the most in retirement?” the response that received the most votes was to “have more fun during retirement.”

I personally believe Maryland is a fantastic place to retire, primarily because if you want to have more fun during retirement you can do so right here in America in Miniature.  As part of planning for retirement Baby Boomers need to determine what type of Retirement Lifestyle they want.  How you are taxed in retirement is a big part of that lifestyle.  Knowing that Maryland provides for a maximum allowable pension income exclusion of $23,600 is important and that Maryland will not tax your social security income is equally important.  Additionally, if you are 65 or older you can take advantage of an additional personal exemption of $1,000.  However, as we all know sales tax rates have increased by 20% over last year (5% to 6%).  Distributions you may take from a 401(k) and IRA will be taxed at ordinary income tax rates in Maryland that equal 4.75% of income above $3,001 and depending on what county you live in there is an additional piggyback tax of between 1.25% and 3.20%. 

Compare this to Pennsylvania that exempts all retirement income of residents age 59 1/2 or older; including Social Security benefits, private and public pensions, 401(k) and IRA earnings.  And there is of course Florida that has no state income tax at all.  With all of its resources and benefits, imagine your retirement lifestyle if Maryland became more competitive on how it taxes retirement income for residents over 60 years old.