Here Are Thirteen States That Do Not Tax USG Corporation Retirement Income

'USG Corporation employees choosing their retirement relocation options should also take into consideration the tax issues of the state where they plan to retire, as this will have a great deal of impact on their retirement finances in the long run,' advises Paul Bergeron, a financial expert at The Retirement Group, a division of Wealth Enhancement Group.

'Selecting a retirement destination is based on more than just climate preferences; tax effects on your retirement benefits are an important factor in consideration,' says Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement Group, advising USG Corporation employees to thoroughly research state tax regulations.

In this article, we will discuss:

Tax Variations by State: Information on how states tax retirement income, including 401(k) distributions and IRA withdrawals, is important for USG Corporation employees making plans for their retirement destinations.
State-Specific Tax Exemptions: Emphasizing the states that do not impose taxes on retirement income, with examples of the states that do not have state income tax or exempt pension from tax.
Other Factors: Other financial factors like property and sales taxes and how these affect other aspects of life when choosing a retirement location are discussed.

It is very important for the USG Corporation employees who are planning on retiring to realize that the large majority of retirees will have to make the decision of where to spend their retirement years. It is crucial to understand the cost of living in different areas and, depending on where you live, you might have to pay different taxes. It is important to note that states tax retirement income like 401(k) distributions and IRA withdrawals differently. The following information is important for the USG Corporation employees who are planning to relocate to a more tax-friendly state:

States without a state income tax:

This way, 401(k) and IRA distributions are considered as taxable income. Does this mean that there are no states in the United States that do not tax income? Fortunately, Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming are included in the list of states that do not tax retirement distributions. New Hampshire is another state that excludes retirement income from taxation; interest and dividends are taxed. Because these types and many others are among the most common types of income in retirement portfolios, those looking to relocate to New Hampshire may want to take note of this. The tax could also be avoided by a distribution. There is a distribution that would qualify as income and therefore would not be taxed by New Hampshire if the income-generating assets were held in a tax-advantaged plan.

States that don’t tax pension income

In addition to traditional income tax withholding states, USG Corporation employees and retirees should look at the number of states that don’t touch retirement income. The following four states do not tax retirement income; the following information is pertinent.

Illinois Illinois has a flat state income tax of 4.95% and exempts from taxation nearly all retirement income, including Social Security retirement benefits, pension income, and retirement savings account income. Sales and property taxes are also through the roof, so if you’re retiring from USG Corporation and thinking of moving to Illinois, you should know this is one of the nation’s highest taxed states. The Illinois state sales tax rate is 6.25%, and local governments can levy another 5.25% on top of that. The Tax Foundation says this is an average combined rate of 8.73% in this state. The median property tax rate is also quite high at $2,073 per $100,000 of assessed property value per individual.

However, USG Corporation retirees are allowed a homestead exemption of up to $5,000 ($8,000 in Cook County and beginning in 2023, in neighboring counties as well). A person must be 65 years of age or older and meet certain other qualifications to qualify for these exemptions. Seniors with a household income of $65,000 or less can have the assessed value of their property frozen. In addition, qualified residents aged 65 or over with a household income of $65,000 or less can defer property tax payments of up to $7,500. Cities, villages, or incorporated towns may also refund property taxes paid by certain senior citizens, 65 years of age or older.

Iowa

A new law that will take effect in 2023 will exclude all individuals over 55 years of age who retire and move to any of the USG Corporation companies and relocate to Iowa from paying taxes on their retirement income. As of 2023, the income tax rate in the state of Iowa has 4.4% - 6%. It will decrease until it reaches the minimum of 3.9% in 2026. The median property tax rate in Iowa is $1,501 per $100,000 of the assessed property value.

Like Illinois, property tax exemptions are offered to senior citizens by Iowa. Homeowners and occupants 65 years of age or older are eligible for a property tax credit of up to $1,000. Effective 2022, the citizens who are 70 years of age or older and whose total household income does not exceed 250% of the federal poverty level, the credit shall be computed as follows:

Mississippi

The income tax rates in Mississippi are 0% to 5%, and retirement income is exempt from tax if the plan meets the requirements. This means that early distributions from retirement plans may not be considered retirement income and may be subject to tax and penalty for USG Corporation employees. Another point of interest is that the median property tax rate in Mississippi is $753 for every $100,000 of the market value of the home. Also, seniors’ tax exemptions exist in this state as well. Property tax exemption applies to homeowners who are 65 years of age or over and totally disabled, or to homeowners who are 65 years of age or over. Also, there is no estate or inheritance tax in this state.

Pennsylvania

To understand the tax environment in Pennsylvania, USG Corporation retirees should know that the state has a flat income tax of 3.07 percent. Retirement income is taxed exempt in Pennsylvania provided that plan requirements are met; however, early withdrawals from retirement plans are treated as normal distributions and may be subject to taxation. Also worthy of mention is the median property tax rate in Pennsylvania is $1,358 per $100,000 of the value of the home. An individual must be 65 or older, or be a widow or widower aged 50 or over to qualify for the Property Tax/Rent Rebate Program, which offers rebates on property taxes or rent paid. In general, the maximum standard rebate is $650, but extra rebates can bring the total to $975 for owners of property with high taxes.

The income limits are as follows: a household must not earn more than $35,000 ($15,000 for renters), but 50% of Social Security and Railroad Retirement benefit payments are not counted toward the eligibility income. Some school districts also provide property tax credits to senior volunteers. There are restrictions on who can claim the credits: age 60 or older; legal residency in Pennsylvania for at least 90 days; ownership of real property within the school district; and participation in the school district’s volunteer program.

Other aspects of retirement income tax

While the above states exclude retirement income from taxation, you may also want to check if other states offer exemptions for USG Corporation retirees. Some states treat pension income differently from other retirement distributions, and others exclude military duty pay from taxation. Moreover, some countries tax Social Security benefits while others do not, and most countries do not tax these benefits at all. First, however, USG Corporation retirees searching for a permanent residence must know the tax consequences of the area they choose. Other factors like sales and property taxes are also important. When considering the pros and cons, you may decide that paying a higher tax rate is worthwhile if the state offers other advantages.

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Conclusion

This paper has identified 13 states that do not tax retirement income for USG Corporation employees, and still many more that provide exemptions. It is important that USG Corporation employees check the tax consequences when planning to relocate to avoid surprises. It should also be noted that, while a low tax liability is desirable for a comfortable retirement, it is not the only factor to consider. If you are unsure of which state to retire in, you may want to consult with a professional. To get a free cash flow analysis and speak with a consultant who can help you determine which decision is best for you, contact The Retirement Group.

Sources:

1. Kiplinger Staff. 'Thirteen States With Zero Tax on Retirement Income.' Kiplinger , 2021, www.kiplinger.com/taxes/state-tax/603293/states-with-no-tax-on-retirement-income .

2. SmartAsset Editorial Team. 'States That Do Not Tax Retirement Income.' SmartAsset , 2022, smartasset.com/retirement/states-that-do-not-tax-retirement-income.

3. EZTaxReturn Editorial Team. '10 States That Don't Tax Retirement Income.' EZTaxReturn.com , 2022, www.eztaxreturn.com/blog/states-that-dont-tax-retirement-income/ .

4. Truss Financial Group Analysts. 'Tax Free Retirement: States that Don't Tax Pensions.' Truss Financial Group , 2021, www.trussfinancialgroup.com/tax-free-retirement-states .

5. eTaxReturn Editorial Team. '10 States That Don't Tax Retirement Income.' eTaxReturn.com , 2022, www.eztaxreturn.com/blog/10-states-that-dont-tax-retirement-income/ .

How does the retirement plan structure at USG Corporation impact both final average earnings participants and cash balance participants, especially regarding their eligibility and benefits accrued over time? In what ways does the differentiation between these two categories influence the retirement outcomes for employees of USG Corporation?

Retirement Plan Structure: USG Corporation's retirement plan differentiates between Final Average Earnings Participants and Cash Balance Participants. Final Average Earnings participants, who joined before January 1, 2011, accrue benefits based on their final average earnings and years of service, which can result in higher benefits for longer-serving employees. Cash Balance participants, who joined after January 1, 2011, have their benefits calculated based on a cash balance account, which grows with contributions and interest credits. These differences affect retirement outcomes, as Final Average Earnings participants may see higher pension payments if they have longer service or higher wages, while Cash Balance participants have more predictable but potentially lower benefits based on their account balance(USG Corporation_Retirem…).

USG Corporation's Retirement Plan allows for different age-specific rules regarding early retirement. How do the "Rule of 90" and "Rule of 82" affect the financial planning of employees considering an early retirement option, and what should they consider regarding their long-term financial security?

Rule of 90 and Rule of 82: The "Rule of 90" allows employees to retire early without a reduction in benefits if their age plus years of service total 90, provided they retire at or after age 62. The "Rule of 82" permits early retirement with reduced benefits for those whose age and years of service total 82. Employees planning early retirement must consider these rules as they directly affect the amount of benefits they receive, making it important to assess how long-term financial security will be impacted, especially if they retire before age 62(USG Corporation_Retirem…).

Could you elaborate on the process through which employees at USG Corporation can change their beneficiaries within the retirement plan? What steps need to be taken, and what are the implications of these changes on the benefits received upon the participant's death?

Changing Beneficiaries: To change beneficiaries, USG Corporation employees must contact Your Benefits Resources™, where they can designate a primary and contingent beneficiary. If married, the spouse must provide notarized consent to name a different primary beneficiary. The process involves completing a form, and any changes affect who receives benefits upon the participant's death. Failing to update the beneficiary could result in benefits being paid to unintended individuals(USG Corporation_Retirem…).

As part of the retirement process at USG Corporation, how are pensionable earnings calculated? What factors are included in this determination, and how might they vary among different employees based on their roles within the organization?

Pensionable Earnings Calculation: Pensionable earnings at USG Corporation include regular pay, shift differentials, and bonuses but exclude items like nonqualified deferred compensation, severance, and stock awards. These earnings are used to calculate benefits based on formulas that take into account an employee’s service years and earnings over the 36 highest consecutive months of the last 15 years of participation(USG Corporation_Retirem…).

How does the automatic enrollment in the USG Corporation Retirement Plan work, and what options do employees have if they initially chose not to participate? What implications might this have for their retirement savings strategy?

Automatic Enrollment and Opting In: Employees at USG Corporation are automatically enrolled in the retirement plan unless they choose to opt out. If employees decide not to participate initially, they can enroll later by contacting Your Benefits Resources™. Failure to participate from the start could result in lower retirement savings due to fewer years of contributions(USG Corporation_Retirem…).

In the context of USG Corporation, what are the potential tax consequences for employees withdrawing their retirement benefits, especially regarding the mandatory withholdings? How might employees effectively manage these tax liabilities when planning for retirement?

Tax Consequences of Withdrawals: Employees withdrawing their retirement benefits from USG Corporation will face mandatory federal income tax withholdings, typically 20% for lump sum distributions, unless the distribution is rolled over into an IRA. Employees must plan for these taxes when withdrawing to avoid unexpected liabilities and ensure they maximize their after-tax retirement income(USG Corporation_Retirem…).

How do employees at USG Corporation access the necessary documents related to their retirement benefits, and what is the process for obtaining copies of these documents if needed? What are the responsibilities of the Plan Administrator in this process?

Accessing Retirement Documents: Employees can access documents related to their retirement benefits through Your Benefits Resources™ online or via phone. If additional copies are needed, employees can request them from the Plan Administrator for a small fee. The Plan Administrator oversees ensuring these documents are provided to participants as required by ERISA(USG Corporation_Retirem…).

What unique provisions exist for USG Corporation employees who experience a break in service? How do these provisions impact their accumulated benefit service and overall benefits upon reemployment?

Break in Service Provisions: USG Corporation allows employees who experience a break in service to retain their accumulated benefits if they are reemployed within one year. If reemployed after one year, their previous service may not count toward future benefits unless they were vested prior to termination. This can affect the total benefits an employee accrues if they leave and later return(USG Corporation_Retirem…).

What options do employees of USG Corporation have for managing their benefits if they return to work after retirement? How does this affect their pension benefits and the overall strategy for maximizing retirement income?

Returning to Work After Retirement: Employees returning to work after retirement at USG Corporation will have their pension payments suspended and recalculated based on additional years of service. This recalculation takes into account prior payments, meaning employees should consider the impact of returning to work on their long-term pension strategy(USG Corporation_Retirem…)(USG Corporation_Retirem…).

How can employees of USG Corporation contact their Benefits Resourcesâ„¢ for more information on their retirement plan options? Are there specific channels preferred for different types of inquiries, and what resources are available to assist them?

Contacting Benefits Resources™: Employees can contact Your Benefits Resources™ via the web or a toll-free number to inquire about retirement plan options. Different inquiries, such as changes to beneficiaries or requesting benefit estimates, can be handled through these channels. Resources such as detailed benefit estimates are available to help employees plan for retirement(USG Corporation_Retirem…).