New Jersey might not be the first state that comes to mind when considering retirement-friendly locations, mainly due to its relatively high cost of living and property taxes. However, the state offers several advantages that appeal to retirees. There are tax benefits for retirees, diverse landscapes, and access to exciting cultural hubs. Despite the potential financial drawbacks, these perks make New Jersey a viable option for those seeking a balance between urban convenience and scenic tranquility.

Pros and Cons of Retiring in New Jersey

Retiring in New Jersey offers several advantages:

1. Tax Benefits for Retirees: New Jersey provides favorable tax treatment for retirees. The state does not tax Social Security benefits and offers a significant exclusion on other retirement income, such as pensions and withdrawals from retirement accounts. This can be especially beneficial for those with higher retirement incomes.
2. Healthcare Access: New Jersey boasts high-quality healthcare facilities, with numerous top-ranked hospitals and specialty clinics. This accessibility is crucial for retirees who prioritize proximity to excellent medical care.
3. Cultural and Recreational Opportunities: The state has a rich cultural scene, including theaters, museums, and historical sites. New Jersey’s diverse landscape includes beautiful beaches along the Jersey Shore, numerous state parks, and forested areas, providing plenty of opportunities for outdoor activities.
4. Proximity to Major Cities: Living in New Jersey puts retirees close to major urban centers like New York City and Philadelphia. This allows for easy travel to these cities for dining, entertainment, and other attractions without the need to live in a more expensive urban environment.
5. Diverse Communities: New Jersey’s population is diverse, and the state offers a variety of community types—from bustling urban areas to quiet seaside towns and rural countryside—allowing retirees to choose a lifestyle that fits their preferences.
6. Public Transportation: The state has a strong public transportation network, which is especially beneficial for retirees who prefer not to drive. NJ Transit provides comprehensive bus and rail services, making it easier to travel throughout the state and region without a car.

While these factors make New Jersey an attractive option, there are also some challenges to consider:

1. High Cost of Living: New Jersey is known for its high cost of living, especially in housing. This can be a challenge for retirees on a fixed income or those looking to stretch their savings further.
2. Property Taxes: The state has some of the highest property taxes in the U.S., which can be a burden for retirees who own their homes. However, the NJ Senior Property Tax Freeze, which caps your property tax at a certain base amount and reimburses you for overages, helps curb this.
3. Traffic and Congestion: Areas near major cities like New York often experience heavy traffic and population density. This can be frustrating for those who prefer a slower-paced environment.
4. Weather: New Jersey experiences hot, humid summers and cold, snowy winters. The winter weather can be particularly challenging for older adults, affecting comfort, mobility, and access to services.
5. Limited Senior Discounts: Compared to other states, New Jersey offers fewer tax breaks specifically for seniors outside of general retirement income exclusions.[
6. Estate and Inheritance Taxes: While New Jersey has repealed its estate tax, it still imposes an inheritance tax depending on the beneficiary’s relationship to the deceased. This may be important for retirees concerned about the financial legacy they leave behind.

These factors should be carefully weighed against the potential benefits the state offers.

Learn more about the NJ Exit Tax here.

What Is the Retirement Age in NJ?

In New Jersey, the retirement age generally follows federal Social Security guidelines. For full Social Security benefits, the age is 67 for anyone born in 1960 or later, and between 66 and 67 for those born earlier. You can start taking benefits as early as 62 with reduced payments.

For New Jersey state employees, full retirement benefits are available at age 60 if hired before November 2008, or at 62 if hired afterward.

Does NJ Tax 401k Contributions?

No. Employee contributions to 401k plans are not taxable in New Jersey as of January 1, 1984. However, distributions are fully taxable since they were not taxed when contributed.

A Roth 401k works the opposite way—contributions are made with after-tax money and grow tax-free, with no taxes paid upon withdrawal.

What Is the 3-Year Rule for Pensions in NJ?

The “three-year rule” in New Jersey is used to calculate pension benefits for public employees. It’s based on the average salary of the last three years of employment—or any three consecutive years that yield the highest average salary, whichever is greater.

This system, which applies to teachers, police officers, firefighters, and other public employees, multiplies a percentage of that average salary by years of service to determine benefits. It ensures fair representation of an employee’s compensation at retirement and prevents inflated pensions from last-minute salary increases.

What Is the Pension Exclusion in NJ?

New Jersey offers a pension exclusion for eligible retirees (age 62 or older) with an income of $150,000 or less.

• Single filers with income of $100,000 or less can exclude up to $75,000.
• Married couples filing jointly can exclude up to $100,000.
• Married individuals filing separately can exclude up to $50,000.

This exclusion applies to various retirement income sources, including pensions, annuities, and IRAs. For those earning between $100,001 and $150,000, the exclusion amount gradually decreases.

At What Age Do You Stop Paying Taxes on Your Pension in NJ?

In New Jersey, you never completely stop paying taxes on your pension based on age alone. However, retirees can use the pension exclusion to reduce the amount of state income tax owed. To qualify, you must be at least 62 years old or disabled and have a total income of $100,000 or less to exclude up to $75,000 (single filers) or $100,000 (married filing jointly). For incomes between $100,001 and $150,000, the exclusion decreases.

Does NJ Tax IRA Distributions?

Yes. Withdrawals from traditional IRAs are subject to New Jersey state income tax. Distributions from Roth IRAs, however, may not be taxed if certain conditions—like the required holding period—are met.

What Retirement Income Is Not Taxable in NJ?

Certain retirement income is not taxable in New Jersey, including:

• Social Security benefits (for most taxpayers)
• Pension income for residents over 62 or those receiving disability benefits
• Roth IRA distributions (if requirements are met)
• Military retirement pay

Other retirement income may be taxable depending on your specific circumstances.

Is There an Estate Tax in New Jersey?

New Jersey eliminated its estate tax on January 1, 2018, to make the state more appealing for retirees. However, it still imposes an inheritance tax, which depends on the beneficiary’s relationship to the deceased. The tax applies to transfers to certain beneficiaries who are not direct descendants or spouses.

While there is no estate tax, the inheritance tax remains an important factor for estate planning in the state.

Have any questions about retiring in New Jersey? Contact Zynergy Retirement Planning today.