<\/p>\n
Hawaii often shows up on lists of the most expensive places to retire.\u00a0<\/p>\n
But a closer look at the tax code tells a more nuanced story, Abel Soares III, CPA\/PFS, CFP, CEO of Hui Malama Advisors in Hawai\u2019i, said in a recent interview.\u00a0<\/p>\n
According to Soares, who is also a member of the American Institute of CPA\u2019s PFP Champions task force, the state\u2019s income tax rates \u2013 topping out at nearly 11% \u2013 are among the highest in the country.\u00a0<\/p>\n
Yet retirees may not feel the full impact. Social Security benefits aren\u2019t taxed. Many pension payments receive favorable treatment. And property taxes are lower than in many mainland states.<\/p>\n
Below is a transcript of the interview with Soares, edited for clarity and brevity.<\/p>\n
Understanding Hawaii\u2019s tax picture for retirees<\/p>\n
Robert Powell: Hawaii isn\u2019t a low-cost retirement destination, but its tax structure does offer meaningful offsets. Joining us to discuss that is Abel Soares III. Abel, welcome.<\/p>\n
Abel Soares III: Aloha, and thank you for having me.<\/p>\n
Income taxes: high rates, but context matters<\/p>\n
Powell: As we\u2019ve done in prior conversations about state tax systems, let\u2019s start with income taxes. What should retirees know?<\/p>\n
Soares: Hawaii has a progressive income tax system, ranging from about 1.4% to nearly 11%. That puts it on the higher end nationally. But it\u2019s important to look at total taxes, not just income taxes. That includes sales-type taxes and other factors that can affect your overall burden.<\/p>\n
Social Security and pensions<\/p>\n
Powell: Retirees may not feel the full impact of those rates. Let\u2019s talk about Social Security.<\/p>\n
Soares: Social Security benefits are not taxed at the state level in Hawaii. If that\u2019s your only source of income, you likely won\u2019t have a state income tax bill.<\/p>\n
That extends, in some cases, to pensions. Certain private pensions may receive favorable treatment. Military pensions are not taxed, and disability benefits are also exempt.<\/p>\n
Senior tax breaks and planning opportunities<\/p>\n
Powell: There are also exemptions for seniors, correct?<\/p>\n
Soares: Yes. Seniors may receive partial exclusions on pension income. The exact amount depends on individual circumstances, so it\u2019s important to work with a tax professional.<\/p>\n
You also want to be mindful of income thresholds. As income increases, certain benefits may phase out, similar to the federal system.<\/p>\n
Retirement account strategy<\/p>\n
Powell: What about planning opportunities before relocating?<\/p>\n
Soares: After-tax contributions to retirement accounts can be helpful. If you\u2019ve already paid taxes on those contributions, withdrawals in retirement are generally not taxed.<\/p>\n
That applies broadly across IRAs and 401(k)s. It\u2019s also relevant for those pursuing early retirement strategies. Managing cash flow and avoiding sudden increases in taxable income \u2014 what we often call \u201ccliff events\u201d \u2013 is key.<\/p>\n
Housing costs also play a role. Hawaii home prices often range from $900,000 to $1 million or more, especially on Oahu. The mortgage interest deduction cap \u2013 currently tied to the Tax Cuts and Jobs Act \u2013 may limit deductions for some homeowners.<\/p>\n
Property taxes: lower than many states<\/p>\n
Powell: Let\u2019s turn to property taxes.<\/p>\n
Soares: Hawaii offers a homestead exemption that reduces the taxable value of a primary residence by about $100,000.<\/p>\n
For example, a $1 million home may be taxed as if it were worth $900,000. Property tax rates themselves are relatively low. A homeowner might pay $3,000 to $4,000 annually on a $1 million property.<\/p>\n
There are additional benefits for military retirees, including full exemptions in some cases for those with 100% disability ratings.<\/p>\n
General excise tax: broader than sales tax<\/p>\n
Powell: What about sales taxes or similar levies?<\/p>\n
Soares: Hawaii uses a general excise tax (GET) instead of a traditional sales tax. It applies to both goods and services.<\/p>\n
The base rate is about 4.5%, though it may appear higher \u2013 around 4.712% \u2013 due to how it\u2019s passed through to consumers. Unlike most states, services like financial advising or tax preparation are subject to this tax.<\/p>\n
The big picture: a balanced system<\/p>\n
Powell: So when you put it all together, Hawaii may not be as expensive from a tax standpoint as it first appears?<\/p>\n
Soares: That\u2019s correct. While income tax rates are higher, other factors offset that. Property taxes are relatively low, and the GET is moderate.<\/p>\n
Unlike states such as Pennsylvania, Hawaii does not impose local income taxes. Compared with states like Texas or Florida, which rely heavily on property taxes, Hawaii\u2019s overall system can be considered moderate when viewed holistically.<\/p>\n
Focus on your situation<\/p>\n
Powell: Anything retirees should keep in mind?<\/p>\n
Soares: Focus on your individual situation. If you still have income \u2013 from a business or other sources \u2013 your tax picture changes.<\/p>\n
There are also exemptions, such as not applying the GET to certain out-of-state income. Because rules vary widely, working with a financial planner or tax professional is essential.<\/p>\n
#Hawaii #taxes #retirees<\/p>\n","protected":false},"excerpt":{"rendered":"
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