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South Dakota Taxes for Retirees

The benefits of South Dakota taxes for retirees make residency in The Mount Rushmore State a solid financial choice for many. The state’s low taxes are a boon for those living on a fixed retirement income.

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Joseph Anthony
June 10, 2020
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South Dakota might be the best state for retirement. High quality of life and low cost of living make The Mount Rushmore State a great place to spend the golden years. One hidden benefit of opting to retire here is that you might end up saving money on taxes. South Dakota taxes for retirees are easy to navigate and can help you keep more of your nest egg and pension in your pocket.

In fact, residents of South Dakota pay:

  • No state income tax
  • No tax on pensions 
  • No tax on Social Security benefits
  • No personal property taxes
  • No inheritance tax or estate tax
  • No intangible tax on investments

You’ll likely find that South Dakota taxes for retirees are among the lowest in the nation if not Zero. See how you can save with South Dakota residency.

Is South Dakota a Good State to Retire In?

For many people, South Dakota is a great state to retire. In fact, Kiplinger rated South Dakota No. 1 “Best State To Retire” in 2018. Reasons the magazine gave The Mount Rushmore State this rating include:

  • Tax friendly
  • Low cost of living
  • Low healthcare costs
  • Fiscal soundness

The report also indicated that South Dakota is home to residents over age 65 who are fit, active and prosperous. With so many advantages, it’s easy to see why retiring here is advantageous.

Those who choose to retire are choosing to maximize their leisure time. Even though the average year-round temperature in South Dakota is just 45 degrees, retired people here find many ways to enjoy life. The Mount Rushmore State is home to beautiful terrain, from the famous monument to the Badlands. Art-lovers will love exploring Art Alley in Rapid City. Custer State Park is perfect for hiking, camping and swimming. You can pan for gold in Deadwood. The list of leisure activities in South Dakota is nearly endless. 

Is South Dakota Tax Friendly for Retirees?

South Dakota ranks among the most tax friendly states in the nation and it is easy to see why. In fact, having a South Dakota address might pay off big time when the taxman comes each year on April 15. South Dakota is very tax friendly for retirees.

In addition to skipping out on state income and other taxes, the state local sales tax rate is among the lowest in the nation. The state sales tax and use rate is only 4.5% in South Dakota. Other retiree friendly states like Florida charge more. The state sales tax rate in Florida is 6%, and this difference can add up quickly when you’re making a big purchase.

In addition to lower sales tax, South Dakota residents avoid paying a few other taxes you’d be responsible for in other states. This can help retirees living on a fixed income hang on to more of their cash. You’ll find that those living in South Dakota will also avoid paying:

  • Tax on 401(k), IRA or pension income
  • Tax on Social Security benefits
  • Personal property taxes
  • Inheritance tax
  • Intangible tax on investments

These benefits make South Dakota taxes for retirees easy on the wallet. 

What Taxes Do You Pay in South Dakota?

What Taxes Do You Pay in South Dakota

You might know what taxes you don’t pay in South Dakota. But what taxes do you pay? If you’re a single resident of South Dakota who earns $50,000 in taxable income a year, you’ll be responsible for the following tax burden:

  • Federal taxes -- approximately $4,300
  • Federal Insurance Contributions Act Tax (for Social Security and Medicare) -- approximately $3,800

This adds up to just over $8,000. You’ll also end up paying approximately $500 in tax over the year, along with $230 in sales taxes. Property taxes are very affordable. You might pay around $3,000 a year on your home. You might find that property tax rates are a little higher in South Dakota than other states, but for many this is offset by the lack of other taxes.

What States Do Not Tax Pensions and Social Security?

South Dakota isn’t the only state where you’ll avoid paying taxes on pensions and Social Security. Other low-tax places that are friendly for retirees include:

  • Alabama
  • Alaska
  • Florida
  • Illinois
  • Mississippi
  • Nevada
  • New Hampshire
  • Pennsylvania
  • Tennessee
  • Texas
  • Washington
  • Wyoming

However, it is important to note that even though you won’t pay taxes on pensions or Social Security in the above states, you will be responsible for state income taxes in many of them. 

The only states in which residents are exempt from both pension and Social Security tax and state income taxes include:

  • South Dakota
  • Alaska
  • Florida
  • Nevada
  • Texas
  • Washington 
  • Wyoming

You’ll also find that Tennessee and New Hampshire don’t tax wages, but they do tax interest and investment income.

Are Groceries Taxed in South Dakota?

One caveat to living and shopping in South Dakota is that all purchases are subject to sales tax. This means you’ll even pay sales tax on your grocery bill. This varies from most states, as essentials like groceries are often tax free in other states.

Do You Have to Live in South Dakota to Take Advantage of Tax Benefits?

South Dakota makes it easy to establish residency. If you’re retired, you might opt to become a resident of The Mount Rushmore State for tax savings purposes.  Do you have to live in state to take advantage of the tax benefits? The simple answer is no.

Many people who travel full time establish South Dakota residency for tax purposes. This might make sense for retirees who are full-time RVers or who spend a majority of their time on the road traveling. If this sounds like your retirement situation, you can become a resident and start saving on taxes by taking advantage of a mail forwarding service.

If you want to benefit from South Dakota’s tax advantages, you’ll need to establish residency. To do this, you must have a permanent address in the state. You can get this address from a mail forwarding service. You also need to obtain a South Dakota driver’s license and spend one night in the state. You’ll need to spend one night in the state every 5 years to keep your residency and driver’s license current.

Are you considering claiming South Dakota residency for tax purposes? You’ll need to be a resident for at least 183 days of the year. If your domicile is in South Dakota for fewer than 183 days, you might still be on the hook for taxes in your former state.

You’ll find that the hassle-free residency requirements made South Dakota a smart choice for retirees on the go who need to establish a state of residence. South Dakota taxes for retirees might make sense for you.

How Can Retirees Establish South Dakota Residency for Taxes?

If it makes sense for you to become a South Dakota resident for tax purposes, you’ll find that establishing your domicile here is a fairly simple process. In fact, you can become a resident of The Mount Rushmore State in just 3 steps.

To become a South Dakota resident, you’ll need to:

  1. Get a permanent address in South Dakota
  2. Spend at least one night in the state
  3. Get a South Dakota driver’s license

Explore each of the steps and see how easy residency makes South Dakota taxes for retirees.

Get a Permanent South Dakota Mailing Address

Want to take advantage of the state’s tax benefits without physically moving there? You can obtain a permanent South Dakota mailing address by using a mail forwarding service like Americas Mailbox. This service will give you an easy home base in The Mount Rushmore State. It is important to know that you’ll need a permanent South Dakota mailing address before you can complete the other steps on the list. 

How it works is simple. You receive a Private Mailbox from Americas Mailbox that you can use to receive mail in South Dakota. You can use this address as your home address. You can get your mail at your South Dakota address and then have it forwarded to you wherever you are. This might make sense for you if you’re spending your retirement traveling, heading abroad or even living life as a full-time RVer. 

It is easy to join Americas Mailbox. There are 5 tiers of service offerings. You can choose a plan that allows you to receive just a few pieces of mail and establish a basic home base. You also have the option of selecting a plan that handles a large amount of packages and scans and uploads your mail for online viewing. Need help choosing a plan? The friendly staff at Americas Mailbox will work with you to determine your needs.

After you’ve joined Americas Mailbox and selected a plan, you’ll need to complete some paperwork. This documentation includes a form from the United State Postal Service. Because you’re establishing residency to take advantage of South Dakota’s tax friendly climate, you’ll likely also need to fill out IRS Form 8822. Completing this form is the official address change process with the Internal Revenue Service. 

Spend a Night in South Dakota

If you’re seeking to establish South Dakota residency, you’ll need to spend at least one night in the state. No matter where in South Dakota you stay, you’ll need to document your stay. You might choose to stay in a campground or hotel instead of with family or friends because of the documentation required. 

You’ll need a receipt from the place you stay that includes your name, your South Dakota mailing address and the dates of your stay. You’ll be required to present this information when you apply for a South Dakota driver’s license.

Even though only 1 night is required, you might want to spend more time exploring The Mount Rushmore State. The state is home to many beautiful parks, monuments and cities.

Get a South Dakota Driver’s License

You can make your residency official by obtaining a South Dakota driver’s license. This is a permanent, state-issued photo I.D. that you can use to prove your residency and more. 

You’ll need to visit a South Dakota driver exam station to get a license. You’ll need to bring a few essential documents: The receipt from your overnight stay, proof of your South Dakota address, and documents proving your identity. You might need some additional paperwork, too. It is a good idea to double check with the South Dakota Department of Public Safety before you go to the exam office to make sure you have the right documents.

Following these three steps is all it takes to become a South Dakota resident. With so many benefits for tax reasons and more, it is easy to see why many retirees are seeking a domicile here. 

However, it is important to consult with a tax professional before establishing your domicile in South Dakota exclusively for tax purposes. Living in one state and being domiciled in another can create hairy situations come tax time. A tax professional can guide you through residency requirements and more and help you make the most of your situation. They can also keep you on good terms with the IRS.

How do I Avoid Taxes on Social Security and Retirement Income?

For many retirees, you don’t have to pay income tax on your Social Security benefit. This might apply to you if you are low income or your Social Security check is your only source of income. However almost half of retirees, about 40% according to reports, have to pay some kind of tax on these benefits.

How do I Avoid Taxes on Social Security and Retirement Income

One way to avoid taxation on your Social Security and retirement income is to establish residency in South Dakota. The state doesn’t assess state income taxes on Social Security and retirement income.

Other things you can do to lessen taxes accounted for on retirement income include:

  • Keep your Social Security income below thresholds ($25,000 for single filers, $34,000 for married)
  • Be mindful of other sources of income, like interest, part-time job earnings, 401(k) and IRA withdrawals
  • Consider withdrawing from your IRA before taking Social Security payments
  • Save your retirement money in a Roth IRA
  • Live in a state like South Dakota that doesn't leverage taxes on Social Security and retirement income

Consulting with a tax professional or financial planner can help you make sense of the rules around retirement income and come up with a plan to keep more money in your pocket.

Does South Dakota Have Other Benefits for Retirees?

South Dakota taxes for retirees might be a major perk of an address in The Mount Rushmore State, but they aren’t the only benefits. Residents here enjoy many advantages. Some of these perks save you even more money, others add up to a better quality of life.

Benefits of life in South Dakota include:

  • Affordable health care: The cost of health insurance and health care is generally below the national average in South Dakota.
  • Low auto insurance rates: Drivers who register their vehicles in South Dakota might save money on their vehicle insurance each year. In fact, a South Dakota driver in their 60s might spend as little as $1,000 a year on vehicle insurance, which is about 11% below the national average.
  • Financial stability: South Dakota is a financially sound place for retirees to live. According to information from credit reporting company Experian, the average credit score among residents here is nearly 30 points above the national average.

No matter why you’re seeking a South Dakota address for retirement, you likely won’t be disappointed when it comes to life in The Mount Rushmore State. From tax savings to high quality of life, it makes sense to make the state your retirement home base.

Understanding South Dakota Taxes for Retirees

South Dakota taxes for retirees make the state a great home base for the golden years. From saving money on inheritance tax to avoiding paying taxes of Social Security and retirement income, there are many perks to a South Dakota address for retirees come tax time.

You can start taking advantage of these money-saving tax benefits by establishing a permanent address in The Mount Rushmore State with Americas Mailbox. It is easy to obtain an address and start reaping the benefits of South Dakota residency with a strategic partner on your side. You can let Americas Mailbox handle everything from forwarding mail to helping you register your vehicles. This can all add up to significant savings on taxes, car insurance and health insurance -- and a significant increase in your quality of life. See how South Dakota taxes for retirees make sense for your golden years. 

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