Ready for retirement in the Midwest? Let’s compare Tim Walz’s Minnesota to the Great State of Iowa.
According to the Minnesota House of Representatives House Research Department, here is what will happen to your money when you retire in Minnesota:
Minnesota taxes pension income, whether derived from governmental or private pensions, on the same basis as wages, interest, dividends, and other income. So, you are taxed just like you were when you worked.
The Minnesota tax code also does not allow an exclusion, deduction, or credit for any other type of pension income.
Minnesota follows the federal income tax rules in taxing Social Security benefits – meaning those are also taxed (very few states still do this).
To summarize, if you are a retiree in Minnesota expect to pay taxes on your retirement income at skyrocketing rates from 5.35% to 9.85%.
What about Iowa?
Remember the tax cut that was signed into law in 2022? It was largest tax cut ever passed in Iowa and it put retirees in a great position with the following provisions:
Retired Farmer Lease Income Exclusion
Provides that a retired farmer’s income from rental of their property is exempt from tax. The farmer must be 55 / farmed for at least 10 years. This change began in tax year 2023.
Who does this help?
Farmers do not always have access to traditional retirement vehicles and accounts. They have been investing their entire lives in their “retirement account” – their land! This exclusion allows a farmer to rent their land to the next generation and not pay taxes on that “retirement” income.
Retirement Income Exemption
Iowa Code used to provide for an income tax exclusion for the first $6,000 of retirement income. This provided that all retirement income would be excluded from tax. The change also began in tax year 2023.
Who does this help?
Retired teachers, nurses, and police officers. Any kind of qualified retirement plan would be tax free. This includes IPERS, 401(k)s, 403(b)s, IRAs, etc. Unlike Minnesota, Iowa wants people who grew up, worked, and raised families in Iowa to keep Iowa as their home in their golden years. This provision makes that dream a reality.
And Social Security?
Iowa has not taxed that in more than 15 years. Get with the times Minnesota! Last month Forbes’ best states to retire in came out and Iowa came in at a strong 9th place. Where was Minnesota? You had to read most of the list to get to Minnesota at number 41.
When folks are making decisions on where they want to spend their retirement years, they’re quickly finding out their money goes farther here in Iowa.
Rep. Taylor Collins resides in Mediapolis and represents Iowa House District 95, encompassing all of Louisa, and large parts of Des Moines, Henry, and Muscatine Counties.
