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Kiplinger: 10 Most Tax-Friendly States for Retirees

6. Alabama

State Income Tax: 2% to 5%

State Sales Tax: 4%

Estate Tax/Inheritance Tax: None/None

Alabama is a tax haven for retirees. Social Security benefits, as well as military, public and private pensions, are excluded from state income taxes (but IRAs and distributions from 401(k)s and similar defined-contribution retirement plans are not exempt). Remaining income is taxed as high as 5%, the maximum rate that kicks in when taxable income tops $3,000. Alabama also has some of the lowest property taxes in the U.S. Homeowners 65 and older are exempt from state property taxes, but some cities assess their own property taxes. The only downside is sales taxes. The statewide rate is just 4%, but cities and counties in the Yellowhammer State can impose their own levies. Together, the combined sales tax can add up to a whopping 10% -- among the highest in the nation. Food is taxed, but prescription drugs are not.

(iStock)

More From Kiplinger:
Kiplinger’s State-by-State Guide to Retiree Taxes
10 Things You Must Know About Social Security
12 Smart Year-End Tax Moves for 2012



The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.

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