When you envision your retirement years, you might picture exploring the historic streets of Ellicott City, enjoying the beaches of Ocean City, or spending quiet afternoons near the Chesapeake Bay. For many residents of Maryland and across the country, retiring in the state is an appealing choice because of its scenic landscapes, vibrant communities, and access to cultural and recreational opportunities.
However, easing into retirement from working life requires more than just choosing a destination. It requires careful preparation as well. Retirement planning in Maryland involves navigating a unique set of state-specific rules, taxes, and benefits. While the state offers incredible resources and a centralized location, the cost of living and complex tax structure call for thoughtful financial planning.
This guide explores the essential aspects of retirement planning in Maryland to assist you as you prepare for this life transition.
| Key takeawaysMaryland retiree taxes are unique in that withdrawals from retirement accounts and private pensions are generally taxable, while Social Security benefits are not.It is one of the few states in the country that levies both an estate and inheritance tax.Maryland is home to world-class healthcare institutions, including Johns Hopkins Hospital and the University of Maryland Medical Center, both of which regularly appear on U.S. News & World Report’s list of top-ranked hospitals in the country.Business owners must be aware of the state mandate requiring them to offer a retirement plan to their employees.Working with a fiduciary wealth management advisor can help you explore approaches that may support more tax-efficient investment structuring and cost of living management — though outcomes will vary based on your individual financial circumstances. |
Phase 1: Navigating the Maryland financial and tax landscape
To achieve your retirement goals, your financial planning must account for how the local government treats your money. According to Kiplinger’s State-by-State Guide to Taxes
on Retirees, Maryland falls in the middle of the pack when it comes to retirement tax friendliness. While the state’s exemption of Social Security income is a meaningful benefit, the taxation of retirement account withdrawals, private pensions, and the presence of both an estate and inheritance tax means that Maryland retirees generally benefit from proactive, personalized financial planning to help preserve and manage their wealth. Because Maryland’s tax rules can be complex and are subject to change, we recommend working with a qualified tax professional alongside your financial advisor to ensure your retirement plan accounts for your specific tax situation.
Income taxes: What is and isn’t taxed?
The most significant benefit for retirees is that Maryland does not tax Social Security income. However, the state does tax other common sources of retirement savings, including:
- Retirement account withdrawals: Distributions from a traditional IRA or a 401(k) are subject to state income tax.
- Pensions: While public pension income may be partially exempt under certain conditions, private pension income is generally subject to Maryland state income tax. However, Maryland residents aged 65 and older — as well as certain qualifying disabled individuals — may be eligible for the state’s pension exclusion, which allows them to exclude up to $36,200 of pension income per year from their Maryland taxable income. Your eligibility and exact exclusion amount will depend on your filing status, total income, and other individual factors.
- Wages: If you choose to work part time during retirement, those wages are taxed at normal state and local rates.
How should you manage required minimum distributions (RMDs) in Maryland?
Whether you are retiring in Maryland or elsewhere, federal rules regarding RMDs apply. Once you reach a certain age (currently age 73), the IRS requires you to withdraw a specific amount from your tax-deferred retirement accounts each year.
Because Maryland taxes these RMDs, taking large withdrawals can increase your state income tax liability. Many retirees work with a Wealth Management advisor to explore strategies to manage this, such as using qualified charitable distributions to satisfy their RMDs without adding to their taxable income.
The double taxation consideration: Estate and inheritance taxes
Maryland is one of the few states in the country that imposes both an estate tax (on the total value of the deceased’s estate) and an inheritance tax (on the assets received by certain beneficiaries). So, when you start planning your legacy, it is important to keep these taxes in mind to help ease the administrative burden for your heirs.
Phase 2: Budgeting for lifestyle, housing, and healthcare
A successful retirement plan goes beyond taxes; it must support your desired lifestyle. Because of its proximity to major metropolitan areas like Washington, DC and Baltimore, Maryland has a higher cost of living than the national average, heavily driven by housing costs.
When helping individuals plan their next steps, MY Wealth Management often reviews housing options, from downsizing in Ellicott City to exploring independent senior living communities across the state. Fortunately, the state offers homestead tax credit, which can provide property tax relief for eligible residents over age 65.
Another major component of any retirement plan is healthcare. Maryland’s healthcare system is widely regarded as one of the strongest in the nation. Johns Hopkins Hospital and the University of Maryland Medical Center regularly appear on U.S. News & World Report’s list of top-ranked hospitals in the country, giving Maryland retirees access to advanced, world-class medical care close to home.
As you approach age 65, you need to review your Medicare options. While Original Medicare provides a good foundation, many retirees find supplemental coverage (such as a Medicare Supplement or Part D plan) helps manage out-of-pocket expenses.
Phase 3: Navigating career-specific retirement rules
Your career path in Maryland dictates some of the steps you must take as you approach your transition to retirement.
State Retirement Agency (SRA) benefits for public employees
If you are a state employee, a teacher, or a member of the Maryland State Retirement and Pension System (SRPS), you need to take the following steps:
- Use the estimator: Log in to your mySRPS account to estimate your monthly benefit.
- Attend a webinar: The SRA hosts online webinars to help members learn about their benefits and options.
- Purchase service credit: If eligible, you can submit a Request to Purchase Previous Service to increase your creditable service time.
- Prepare paperwork early: The SRA advises completing your final paperwork and submitting your formal letter of retirement to your employer at least two months prior to your retirement date.
The Maryland retirement plan mandate for business owners
In Maryland, if you employ at least one W-2 employee, have been in business for the past two calendar years, and use an automated payroll system, you are required to facilitate a retirement savings program.
Business owners have two main options:
- Register for MarylandSaves: Use the state-run Roth IRA program that features automatic enrollment for employees. There is little to no cost for employers to participate, making it the lower-cost option for satisfying the mandate.
- Offer an alternative plan: You can satisfy the mandate by offering a private employer-sponsored retirement plan, such as a 401(k), which often offers higher contribution limits and potential tax deductions for the business.
Business owners must register or claim their exemption (typically by December 31) to qualify for a waiver of the $300 annual report filing fee.
Start planning for your retirement
Retiring in Maryland offers a vibrant lifestyle, proximity to nature and major cities, and access to top-tier healthcare. However, the state’s specific tax codes and higher living costs mean that a one-size-fits-all approach to financial planning may not address every individual situation. You need a plan that accounts for state taxes, manages your RMDs, and seeks to align your investments with your retirement goals.
MY Wealth Management offers retirement planning services designed for the specific financial needs of Maryland residents, including navigating the state’s tax structure, managing RMDs, and building a plan aligned with your long-term retirement goals.
If you have at least $750,000 in investable assets and are approaching retirement, we invite you to connect with our team. We offer a complimentary retirement evaluation to review your current portfolio and retirement income strategy — helping you feel more informed and prepared for what comes next.
Start your FREE retirement evaluation today to review your options and gain clarity around your current retirement plan.
