Retirees considering where to live often start with taxes. 

In Ohio, several tax policies — including the exemption of Social Security benefits — may make the state attractive for retirement, according to Chuck Grimm, a senior wealth advisor with MAI Capital Management.

In an interview, Grimm, also a member of the American Institute of CPAs’ PFP Champions task force, said Ohio has reduced income tax rates over the past decade and eliminated its state estate tax. That, combined with other factors, makes Ohio an attractive place to retire.

Below is a transcript of that interview, edited for clarity and brevity.

Why Ohio may be an attractive place to retire

Robert Powell: Ohio’s tax-friendly policies and relatively low cost of living may make the Buckeye State an appealing place to retire. Here to talk about that is Chuck Grimm, senior wealth adviser at MAI Capital Management. Chuck, welcome.

Chuck Grimm: My pleasure, Bob.

Setting the stage: Living in Ohio

Robert Powell: Let’s do a little table setting before we talk about the specifics of the tax structure in Ohio. Tell us a bit about the state overall.

Chuck Grimm: Well, if you could see out my window, it’s getting better. We experience four seasons in Ohio. Unfortunately, in March we’re wrapping up winter and approaching spring. It’s been challenging this year, as it has been in most parts of the country. But overall, it’s a pretty good experience living here.

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Ohio personal income tax rates

Robert Powell: When people think about taxes, they usually start with the state’s personal income tax. Tell us how that works in Ohio.

Chuck Grimm: The personal state income tax situation has improved over the years. Currently, personal income up to $26,050 is not taxed. Income from $26,100 is taxed at 2.75%, and income above $100,000 is taxed at 3.125%.

To give some perspective, in 2020 the rate on income above $100,000 was about 3.8%. Back in 2010 it was around 5.7%.

I believe Ohio has realized that when people retire they often want to stay in the place where they grew up, and taxes can affect that decision. Lower rates may help keep people here.

How retirement income is taxed in Ohio

Robert Powell: With the state income tax, that obviously applies to earned income. Does it also apply to interest, dividends and capital gains?

Chuck Grimm: Yes. Similar to the federal Form 1040, those types of income are generally included.

However, Ohio does offer some exclusions for retirees. Social Security benefits are not taxed in Ohio. Military retirement benefits and railroad retirement benefits are also excluded.

Robert Powell: Many retirees also rely on income from IRAs or 401(k) or 403(b) plans.

Chuck Grimm: Right, and those distributions are taxed at the normal state income tax rates.

Ohio tax credits available to retirees

Robert Powell: Are there any credits available for seniors with respect to retirement income?

Chuck Grimm: Yes, there are a couple of credits available. One is a retirement income credit. If you receive $8,000 or more in retirement income, you can qualify for a $200 credit. It’s not large, but it is a credit available to retirees.

There are also other credits, depending on income levels.

Another important one is the homestead exemption for people age 65 or older. Ohio property taxes are based on the county and municipality where you live, but the homestead exemption can reduce the value of your property for tax purposes, which lowers property taxes. To qualify, you must meet certain income requirements.

Ohio’s cost of living and housing affordability

Robert Powell: I believe the price of a home in Ohio is significantly lower than the national median. 

Chuck Grimm: Yes, it’s very attractive to live here. According to Forbes estimates, the cost of living is about 8% to 12% below the national average.

Home prices are generally very affordable. Along the lakefront, prices have increased over the years. That can make it more challenging for longtime residents because as property values increase, property taxes also rise.

But the lakefront is very attractive, so it remains a popular place to live.

Estate and inheritance taxes

Robert Powell: What about estate or inheritance taxes? Should retirees be concerned about those?

Chuck Grimm: Ohio abolished its state estate tax in 2013.

Before that, in 2012, the lifetime exclusion was $338,000, which was relatively low. Estates above that threshold were taxed roughly between 6% and 7%.

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That could be significant depending on the size of the estate, especially on top of the federal estate tax at the time.

Eliminating the estate tax removed a major concern for many residents.

Sales taxes in Ohio

Robert Powell: What about the state sales tax?

Chuck Grimm: The statewide sales tax is currently 5.75%. Depending on where you live, additional county or city taxes may apply.

Some school districts also impose a school district income tax. But generally speaking, the statewide rate starts at 5.75%.

529 plan tax benefits

Robert Powell: Many retirees want to set aside money for grandchildren in 529 plans. Are there any state tax benefits for doing that?

Chuck Grimm: Yes. Contributions to 529 plans in Ohio are deductible up to $4,000 per beneficiary.

We also have a scholarship credit that was introduced a couple of years ago. It’s a dollar-for-dollar credit against your Ohio state taxes.

Initially, you had to make that contribution during the calendar year, which made planning difficult because you had to estimate your tax liability. Now the state allows contributions up to April 15.

Single filers can claim up to a $750 credit, and married couples filing jointly can claim up to $1,500.

That credit has become very attractive, especially as private-school tuition has increased.

Why retirees should evaluate the full financial picture

Robert Powell: For someone currently living in Ohio or considering moving there in retirement, it seems worthwhile to consult a financial professional to run “what-if” scenarios.

Chuck Grimm: Absolutely. You have to look at the big picture.

For example, Ohio ranks around 14th highest for state income taxes. But nine states have no income tax at all.

If you look at a state like Florida, which has no income tax, the overall cost equation may still be different. Property taxes and homeowners insurance costs, especially after recent hurricanes, can be significantly higher.

So while you may save on income tax, you could pay more in other areas. Looking at the entire financial picture is essential when deciding where to live in retirement.

The role of financial planning professionals

Robert Powell: You’re also a member of the Personal Financial Planning Champions Task Force at the American Institute of CPAs. People watching this conversation can go to the AICPA website to find a professional who can help with these scenarios.

Chuck Grimm: Yes. The Personal Financial Planning program is designed to expand our reach and help the public understand that CPAs can offer planning advice along with tax preparation.

Members in that program hold the PFS credential through the AICPA. We’re trying to encourage people to reach out and discuss their planning needs with professionals who have experience in these areas.

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