Fee-Only Financial Advisor Rhode Island – Eliot Rose Wealth Management

Rhode Island State Taxes: What Retirees Need to Know in 2024

Last updated 6/03/2024 • By Jason Siperstein, CFA, CFP®, RMA®6

Ready to dive into Rhode Island’s tax details for 2024? Let’s break it down in an easy-to-understand way, so you can make the best financial decisions as you head into retirement.

What is Estate Planning?

Here’s how Rhode Island’s income tax brackets look for 2024:

Rhode Island taxes both short-term and long-term capital gains as ordinary income, which means they fall under the same tax brackets as your regular income.

Example Scenario
Imagine you’re a single filer making $100,000 in 2024. Here’s how your taxes will add up:

  • First $73,450 taxed at 3.75%:
    $73,450 * 0.0375 = $2,753.13
  • Next $26,550 taxed at 4.75%:
    ($100,000 – $73,450) * 0.0475 = $1,261.13

Total State Tax:

  • $2,753.13 + $1,261.13 = $4,014.26

Rhode Island Taxation of Social Security Benefits and Retirement Income

  1. Social Security Benefits: Rhode Island is one of 9 states that tax Social Security. However, you will pay no state taxes if your adjusted gross income (AGI) is under $101,000 for single filers or $126,250 for married couples filing jointly. To qualify you must meet all of the following criteria:
    • Your federal AGI includes taxable income from Social Security.
    • You’ve reached Full Retirement Age (FRA) +.
    • Your AGI is less than the limit of $101,000 (single) or $126,250 (married).

Example #1

Sue, 67, is single. For 2024, her federal AGI is $90,000, which is made up of the following:

    • $15,000 in taxable Social Security retirement benefits
    • $50,000 in IRA distributions
    • $25,000 from a defined benefit pension plan

Since Jane’s AGI is under $101,000, she has reached Full Retirement Age (FRA), and her federal AGI includes taxable income from Social Security, she won’t pay Rhode Island state taxes on her Social Security benefits.

Example #2

John and Barbara, both 68, are married and filing jointly (MFJ). For 2024, their combined federal AGI is $127,000, which is made up of the following:

    •  $20,000 in taxable Social Security retirement benefits
    •  $57,000 in IRA distributions
    • $50,000 from a defined benefit pension plan

Since their AGI exceeds the $126,250 limit for married couples, even though they have both reached Full Retirement Age (FRA) and their federal AGI includes taxable income from Social Security, they will pay Rhode Island state tax on the portion of their Social Security benefits that is federally taxable.

2. Retirement Accounts: Rhode Island is one of 9 states that tax Social Security. However, you will pay no state taxes if your adjusted gross income (AGI) is under $101,000 for single filers or $126,250 for married couples filing jointly. To qualify you must meet all of the following criteria:

401(k)s, 403(b)s, annuities, and pensions are taxable, but if you’ve reached Full Retirement Age (FRA), you can exclude up to $20,000 of this income from taxes. This exclusion does not apply if your income is over $101,000 (single) or $126,250 (joint). To qualify you must meet all of the following criteria:

      • Your federal AGI includes taxable income from pensions, 401k plans, annuities, etc.
        • IRAs (of any type) are not eligible for this RI tax break.
      • You’ve reached Full Retirement Age (FRA).
      • Your AGI is less than the limit of $101,000 (single) or $126,250 (married).

Example #1

Kirby and Elaine, both 68, are married and filing jointly. For 2024, their combined federal AGI is $120,000, which includes income from their retirement accounts. Their AGI is made up of the following:

    • $30,000 from John’s 401(k)
    • $40,000 from Mary’s 401(k)
    • $50,000 from John’s defined benefit pension plan

Since both John and Mary have reached Full Retirement Age (FRA), and their AGI is less than $126,250, each spouse can exclude up to $20,000 from state taxes on their retirement income.

Example #2

David, 69, and Susan, 61, are married and filing jointly. For 2024, their combined federal AGI is $100,000, which includes income from their retirement accounts. Their AGI is made up of the following:

    • $30,000 from David’s IRA
    • $40,000 from Susan’s SEP IRA
    • $30,000 in dividends from a joint brokerage account

Since their AGI exceeds the $126,250 limit for married couples, even though they have both reached Full Retirement Age (FRA) and their federal AGI includes taxable income from Social Security, they will pay Rhode Island state tax on the portion of their Social Security benefits that is federally taxable.

Neither David nor Susan can exclude any income from state taxes for the following reasons:

    • IRAs (of any type) do not qualify for the Rhode Island state tax exemption.
    • While they meet the income requirement, Susan has not reached Full Retirement Age (FRA), which is another criterion for the exemption.

3. Military Service Modification: Military service pensions are fully exempt from Rhode Island taxes. There are no age or income limits for this exemption. This exemption also applies to surviving spouse. Exemption criteria:

      • Your federal AGI must include the military pension.

Example #1

 Michael, 72, and his wife, Laurie, 70, are married and filing jointly. For 2024, their combined federal AGI is $210,000, which includes various sources of income. Their AGI is made up of the following:

    • $30,000 from Michael’s military pension
    • $70,000 from Emily’s 401(k) distributions
    • $10,000 from Michael’s IRA distributions
    • $65,000 in dividends from a joint brokerage account
    • $25,000 from a part-time consulting job Michael took on after retirement

Despite their diverse income sources, Michael’s military pension is fully exempt from Rhode Island state taxes. This exemption applies regardless of their total AGI or their ages. If Michael passes away, Laurie, as the surviving spouse, will continue to benefit from this exemption, and the military pension will remain fully exempt from Rhode Island state taxes.

Important Notes

You can qualify for all these exemptions simultaneously but cannot deduct the same income twice.
Unlike marginal tax rates, these deductions are all or nothing. For example, if you are $1 over the income limit, you are subject to RI full taxation without the benefit of the exemption.

 

Proposed Changes for 2025 and Beyond

1. Millionaire’s Tax:

In February 2024, Representative Alzate and Senator Murray proposed a 3% surtax on incomes over $1 million. Inspired by Massachusetts’ recent law, this surtax would be added to the current tax brackets.

2. Social Security Tax Proposals:

      • Complete Elimination: In February 2023, Senator Morgan proposed to remove Rhode Island state taxes on Social Security benefits regardless of income level.
      • Increased Thresholds: Another bill, also introduced in February 2023, suggests raising the income limits for Social Security state tax exemptions to $110,000 for single filers and $140,000 for joint filers, instead of eliminating the tax entirely.

After hearings, the Committee recommended that the measures be held for further study. There has been no progress since then.

Planning Tips

1.Manage Your Income: Pay close attention to tax brackets. If you are nearing income limits, consider pulling funds from another source to stay below the threshold, as the tax impact is all or nothing.

2. Charitable Giving: Donations can reduce your taxable income, making you eligible for exemptions while supporting your favorite charities.

3. Investment Strategy: Since Rhode Island treats capital gains as ordinary income, it’s important to manage your investments strategically to minimize tax impact.

By Jason Siperstein, CFA, CFP®, RMA®

Jason Siperstein is a fee-only financial planner that specializes in retirement planning. He is based in Rhode Island and serves clients locally and across the country. Jason is called on by local and national news to share his insights.

Scroll to Top