Retiring in Maryland? Here’s How to Minimize Taxes on Your Retirement Income

Retiring in Maryland comes with a lot to enjoy, with access to world-class healthcare, proximity to Washington D.C. and the Chesapeake Bay, and a rich mix of small-town and suburban communities.

But Maryland’s tax system can surprise new retirees if they don’t plan ahead. With the right strategy, you can keep more of your hard-earned savings and enjoy retirement on your terms.

Below are key tax considerations and planning opportunities every Maryland retiree should know.

1. Understanding Maryland’s Tax Landscape

Maryland has a progressive income tax ranging from about 2% to 5.75%, plus local county taxes that add roughly 2.25%–3.3%. Combined, retirees can face an overall rate near 8% in some areas.

Property taxes average around 0.95% of a home’s assessed value, which is roughly in line with the national average. The Homestead Tax Credit helps limit annual assessment increases for long-term homeowners.

Maryland’s sales tax is 6% statewide, with no additional local sales taxes.

2. How Retirement Income Is Taxed in Maryland

• Social Security benefits are exempt from Maryland income tax.
• Pensions and annuities may qualify for the Maryland Pension Exclusion, allowing retirees aged 65+ (or those who are disabled) to exclude up to roughly $39,500 from taxable income each year.
• Traditional IRA and 401(k) withdrawals are fully taxable in Maryland and do not qualify for the pension exclusion.
• Roth IRAs and Roth 401(k)s remain tax-free at both the federal and state level when rules are met.
• Investment income (dividends, interest, and capital gains) is taxed as ordinary income in Maryland, with no special capital-gains rate.

3. Withdrawal Strategies to Minimize Taxes

Your withdrawal order matters.

• Use taxable accounts first to keep taxable income low and manage Medicare and tax brackets.
• Strategically withdraw from traditional IRAs and 401(k)s to fill lower tax brackets while converting portions to a Roth IRA when appropriate.
• Preserve Roth accounts for later retirement years when tax-free income flexibility can be most valuable.

Coordinating withdrawals with your financial planner and tax professional can help minimize unnecessary state and federal taxes over time.

4. Maryland-Specific Tax Breaks for Retirees

• Pension Exclusion: Exclude up to approximately $39,500 of eligible pension income from state taxes if you are 65+ or disabled.
• Military Retirement Subtraction: Retired service members can exclude up to $12,500 (or $20,000 if age 55+) of military retirement income.
• Senior Tax Credit: Residents 65+ with income below certain limits may qualify for a modest credit.
• Homestead and Homeowner Property Tax Credits: Limit property-tax increases and provide relief for retirees on fixed incomes.

5. Estate and Legacy Planning in Maryland

Maryland is one of the few states that imposes both an estate tax and an inheritance tax:

• The 2025 estate tax exemption is about $5 million per individual.
• The 2025 inheritance tax is 10% on transfers to anyone other than close relatives like children or spouses.

Proper estate planning through trusts, lifetime gifts, or charitable strategies can help minimize these taxes and ensure a smoother wealth transfer to your heirs.

6. Relocation and Residency Strategies

If you are moving into or out of Maryland, residency rules matter. Maryland considers you a resident if it is your primary home, where you vote, work, and spend most of your time.

Those seeking to move to a lower-tax state must spend at least 183 days per year there and establish significant ties such as a driver’s license, home, and accounts.

If you plan to stay, review which county you live in since local income-tax rates vary significantly and can impact your after-tax income.

7. Work with a Tax-Savvy Financial Advisor

Tax planning in retirement is complex, especially in a state with overlapping local and state rules like Maryland.

A qualified financial advisor can help you:

• Coordinate withdrawal and conversion strategies
• Reduce state and federal tax exposure
• Integrate estate and property-tax planning
• Align your income plan with your long-term goals

Thoughtful planning can make a meaningful difference. The earlier you start, the more flexibility you will have to protect your retirement income and enjoy life in Maryland with confidence.

MY Wealth Management, Inc. is a Registered Investment Adviser. This newsletter is for educational and informational purposes only and should not be construed as personalized investment, tax, or legal advice. Advisory services are only offered to clients or prospective clients where MY Wealth Management, Inc. and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by MY Wealth Management, Inc. unless a client service agreement is in place.

All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. Commentary reflects the personal views and analyses of MY Wealth Management, Inc. employees at the time of publication and should not be considered a description of advisory services or client performance.

Information provided herein should not be relied upon as the sole basis for making financial decisions. Readers should consult with their professional adviser regarding their individual situation before making any financial, tax, or legal decisions.