Recently, a friend asked me how much state tax would be due when withdrawing money from an IRA after retirement. My answer was simple: if the conditions are met, you might not have to pay much state income tax in Georgia.

They looked skeptical. So today, I will explain Georgia's Retirement Income Exclusion in detail.

To get straight to the point, residents of Georgia who are 65 or older can exclude up to $65,000 of retirement income from state taxation per person. For those aged 62 to 64, the limit is $35,000.

If you are under 62 but have a permanent and total disability, you can also qualify for the same $35,000 limit. Just remember that the criteria are based on age and disability.

So, what counts as retirement income? It includes pensions, annuities, interest, dividends, rental net income, capital gains, and royalties.

Money withdrawn from an IRA or 401(k) is also included. Most of the avenues for accessing living expenses after retirement fall under this category.

The Georgia Department of Revenue also states that earned income can be included in this exemption up to a maximum of $5,000. However, this is not added separately; it is calculated within the overall limit.

Social Security is treated separately. Georgia does not impose state income tax on Social Security benefits, and this amount does not reduce the retirement income exclusion limit.

Here's the most important point: this exclusion is calculated on a per-person basis, not a household basis.

If both spouses are 65 or older and file jointly, each can claim $65,000, for a total of up to $130,000 in exemptions. Social Security is tax-free in addition to this.

If we simply apply Georgia's tax rate of 4.99% to $130,000, the state tax would be $6,487. Thinking about saving this amount each year is certainly not a small sum.

However, there is a catch. The exclusion only applies to retirement income received in each person's name.

In many Korean households, it is common for the husband to hold the IRA and 401(k) accounts. In this case, the husband may exceed his limit while the wife's limit remains unused.

Interest or dividends from jointly held accounts, as well as rental income from jointly owned properties, can be split between spouses. Therefore, how you allocate asset ownership before and after retirement can make a significant difference.

The second strategy is a Roth conversion. When you move a traditional IRA to a Roth IRA, that amount is counted as income for that year, but in Georgia, it is also recognized as retirement income.

This means that if other retirement income does not reach the limit in a given year, you can convert the remaining space to Roth without incurring state tax. It would be a waste to simply let the remaining limit go unused.

However, federal taxes are separate. The Georgia exclusion only applies to state income tax, so you need to consider federal tax brackets and Medicare IRMAA thresholds as well.

The third strategy involves planning for those aged 62 to 64. During this period, the limit is $35,000, so you can adjust your withdrawal amounts to fit within that limit, and then increase withdrawals once you turn 65 and the limit increases.

Since it is now mid-October, anyone considering a Roth conversion or IRA withdrawal for this year should complete it by December 31. Once the year ends, you cannot use this year's limit again.

There is also good news. With the signing of HB 463 by Governor Kemp in May, the state income tax rate will decrease from 5.19% to 4.99% starting January 1, 2026.

According to the same law, the retirement income exclusion limit for those 65 and older will increase to $70,000 starting in 2027. For couples, this means a maximum of $140,000.

The $35,000 limit for those aged 62 to 64 has not changed this time. I hope this point is clear.

Personally, I see this policy as a clever strategy for Georgia to attract retirees. Compared to states like Florida or Tennessee, which have no income tax at all, the practical difference for middle-class retirees is not significant.

Of course, property taxes, sales taxes, and access to healthcare must also be considered for a true comparison. I would not recommend making a move based solely on taxes.

When filing, apply the exclusion on Schedule 1 of Georgia Form 500, and calculate the amounts using the worksheet in the IT-511 guide. Even if you use software, make sure to check that income is properly divided by spouse.

However, results can vary depending on factors such as the type of pension, military retirement benefits, and the timing of the move. Since it varies by individual circumstances, I recommend consulting a tax professional before proceeding.

In summary, individuals aged 65 and older can exclude $65,000 each, couples calculate separately, and filling unused limits through asset allocation and Roth conversions is key.

If I were approaching retirement, I would start by calculating the remaining limits for each spouse during the remaining two and a half months of this year. The saying that you can reduce taxes by knowing them applies perfectly to this policy.