By Steve Dinnen
About that Social Security payout bump: What a difference a year or two can make.
For all you seniors qualifying for Social Security, you’ll see a 2.5% hike in payouts, starting next year. So come Jan. 1, a current $2,000 monthly benefit will grow to $2,434.
That pales in comparison with 2023, when the largest payout rise in 40 years hit 8.7%. In 2024, it was 3.2%. Since 2021, Social Security payments have risen 21.7%.
These are known as cost-of-living adjustments (COLAs) and are designed to keep up with inflation. They don’t, really, but they’re better than nothing.
Iowa joins 10 other states in exempting Social Security income from taxes. That includes states that have no income tax at all, such as South Dakota and Texas, and states with income taxes but an exemption for Social Security payouts, such as Illinois and Mississippi.
Iowa is now considered a rather tax-friendly spot for retirees. In addition to the new exemptions for Social Security income, Iowans age 55 and older are also exempt from paying state taxes on retirement income, including distributions from 401(k)s, IRAs, pensions, annuities and other assets.
The state is also moving toward a flat tax rate of 3.9%, starting in 2026. As recently as 2021, the state’s graduated tax rate topped out at 8.53% for incomes above $78,435, one of the higher rates in the nation.
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