A lot of conversations we have with clients nowadays involve something to the effect of, “things are actually better than you think…”. I’m going to share a contrarian point of view today and tell you that there is not only good news out there, it’s actually true in my home state of New Jersey for many retirees.
I know I’ve already gotten a good chuckle or scowl from many readers, but for those who stick around I think you may find the proverbial glass fuller than you think.
Income Taxes
First, let’s talk about something that NJ doesn’t tax at all – Social Security income. Regardless of how much income you make, Social Security benefits are not taxed. If only the federal government did the same!
Good start, but most people can’t live (particularly in NJ) on just Social Security, so what about pension and IRA withdrawals?
If your total income (not counting Social Security) is $100,000 or less, a married couple filing a joint return can exclude up to $100K of pension/annuity/IRA withdrawals ($75K for a single filer).
So, if you and your spouse collected $50K in Social Security and had $80K of IRA withdrawals (and no other source of taxable income), you wouldn’t owe any NJ taxes.
Now that we have interest rates well above zero, it is likely that you may have some taxable income from savings/ investments. However, this income could very well be offset by your personal exemptions, medical expenses and NJ property taxes you paid.
Property Taxes
I can’t offer much good news regarding property taxes, as we do have the highest rates in the country.
However, if you (or spouse/civil union partner) are at least age 65, you may at least be able to stop property taxes from going up via the NJ Senior Freeze program. Things are never simple, so of course the program doesn’t actually “freeze” your taxes, but it does offer a rebate for the difference between your current assessment and your first qualifying year of the program.
There are a few other qualifications to meet, including having income under $163,050 for married couples in 2023.
Sales & Gasoline Tax
New Jersey sales tax is actually ranked 30th in the nation for state/local tax rate (a ranking where you want to be low).
Gasoline tax isn’t great news as it’s now the 7th highest in the nation. The rate has nearly tripled in less than a decade.
Death and Taxes
We can’t talk about taxes without discussing death, right? Would you believe that NJ very well may not tax your estate upon your passing? Even if you had $20,000,000.
NJ Estate tax was eliminated for deaths after 1/1/2018. NJ Inheritance tax, however, was not repealed. But, even if you are fortunate enough to have $20 million, and you leave those assets to a spouse, child (or a few other qualifying individuals), there is no Inheritance tax.
Once you go further away from your closest family, beneficiaries (think siblings, cousins, nephews, friends ) will have to deal with 11-16% tax levies.
I’ll say that’s mostly good news.
529 Plans
Closing out on a positive note, let’s discuss saving for education via 529 plans.
Since 2022, New Jersey residents who are saving for education via 529 accounts and have gross income under $200,000 can deduct contributions of up to $10,000 per year from their income. These are great vehicles that we discuss regularly with clients, including retirees looking to help their grandchildren prepare for education bills.
In conclusion, I think we have to declare a loss on property taxes, but I think many of the other items discussed are positive news to retirees. For those of us that call the Garden State home, perhaps the financial decision to stay put will be a bit more manageable than previously thought.
