Moving for retirement tax reasons

[Brian]

For those who have done an in depth evaluation, please give me the major financial factors/considerations when evaluating moving for tax reasons.


I’m within 5 years of being financial able to retire (not sure if I’ll be emotionally ready) and wonder if I should at least “consider” moving for retirement tax reasons as part of the planning. The only reason I’ve even thought of it is because a couple of recent company retirees; whom I respect, have both set up residences in other states (Florida and Hawaii). While at first glance Florida (with no state tax) seems reasonable, Hawaii with high cost of living doesn’t. Both of these retirees own +$3 million in company stock, so I wonder if capital gains may be the driving tax factor.


My wife and I have lived in Iowa our whole lives. We each have extended family living near us and both have parents which play a part of our decision making while they are still alive. I do a fair amount of international travel for work which I enjoy, but I do admit I like being home. I consider our current small town location to be quite reasonable for cost of living and a primary reason we can afford to retire early.


While I would be willing to consider living in another state or even another country, I don’t think my wife would until the kids are thru college which is 8 years minimum (youngest just started high school) and her mom has passed away. It doesn’t look likely that her mom will be passing away anytime in the next 10 years (late 60s and in good health, wife’s grandmother still in reasonable good health at 95).

Since most of you seem to be planners, I'm sure you understand the "need" to consider and evaluate the option even if you don't see it as being a probable option.

[REWahoo]

Move because you want to avoid broiling summers or hate snow or because you want to live in a particular area, but not simply because taxes are lower. Moving for tax reasons alone is the tail wagging the dog.

[Midpack]

Taxes are a consideration, but cost of living (especially real estate and prop taxes) may be more important financially. Some low tax states have very high cost of living, NH, AK and WA come to mind. And I'd put climate, culture, crime, population and other factors ahead of taxes.

[photoguy]

I wouldn't consider moving for tax reasons alone but it is a factor especially when one has the freedom to go anywhere. However, I would definitely put lifestyle and proximity to relatives ahead of taxes.

We're looking at a FIRE date in a few months (hopefully) and Iowa is one of the states we are looking at due to relatives. It turns out with our projected income and mix it is one of the higher states for taxes. (Doing the planning exercise surprised me as I found that CA would be quite low.)

We could move to Iowa but on the other hand another option would be to just have extended visits and stay with the mother-in-law. This might be better anyway as it would give us away time.

[haha]

Quote:

Originally Posted by Brian Since most of you seem to be planners, I'm sure you understand the "need" to consider and evaluate the option even if you don't see it as being a probable option.

I don't see this need, unless an OCD element in you demands it. D

Usually, life gets a lot simpler and better if you just relax and let things be for a while, unless some real and important factor demands change

Nothing wrong with Iowa, are you sure your co-workers don't just happen to like warmer weather?

Remember, the most important thing to most of us is the people we are around.

Ha

[FANOFJESUS]

How much would you save on taxes each year?

[Shawn]

There are several on-line sites, such as this one, that provide state-by-state information about taxes for retirees. Obviously, a lot will be specific to an individual.

I believe the tax environment, or more specifically the total cost of living, is very important for those considering retirement moves. While other criteria are important, there is a good chance people can have it both ways - find a tax-friendly location that suitably matches other criteria. Of course, people may be happy where they are.

[gardenfun]

Quote:

Originally Posted by haha I don't see this need, unless an OCD element in you demands it. D Usually, life gets a lot simpler and better if you just relax and let things be for a while, unless some real and important factor demands change Nothing wrong with Iowa, are you sure your co-workers don't just happen to like warmer weather? Remember, the most important thing to most of us is the people we are around. Ha

Well-said, Ha.

[W2R]

Quote:

Originally Posted by Midpack Taxes are a consideration, but cost of living (especially real estate and prop taxes) may be more important financially. Some low tax states have very high cost of living, NH, AK and WA come to mind. And I'd put climate, culture, crime, population and other factors ahead of taxes.

+1

[bUU]

My spouse and I have had some initial discussions. The reason to move, unequivocally, would be to be closer to family. However, within that context, there is still decisions to be made, and decisions where I feel taxes should have a very substantial role to play.

First, we would have to decide which family to move closer to, the choices being the New York City metro area family (my family) and the Knoxville metro area family (my spouse's family). If the latter, then that's then end of the matter. Tennessee is a decent place to move to taxes-wise, and from there it is just a matter of finding a community that has other aspects of what we want. However, that's a less likely scenario. More likely, we'll be moving closer to the New York City metro area family.

To be specific, that family is found in western Morris County, New Jersey, and Orange County, New York. Neither New York or New Jersey are good places to move to based on taxation, but for retirees Pennsylvania actually is pretty decent. It's taxes aren't as low as, say, Tennessee, but unlike New York and New Jersey, Pennsylvania doesn't tax withdrawals from tax-advantaged retirement accounts. That's a 6% advantage. And Stroudsburg, PA happens to be a reasonable distance away from where family lives in New York (84 minutes) and New Jersey (36 minutes, and 65 minutes).

The big problem is the Delaware River. Living in Pennsylvania means driving over a bridge whenever we want to visit family. It's not a consideration for me, but my spouse is bridge-averse. By the same token, I'd like to think that I'll be with my spouse (and therefore could drive) whenever a visit to family in New York or New Jersey is in the offing.

We'll have to see how things shake out. If family moves around a bit over the next ten years, then the math may be different and there won't be a decision to make.

[MichaelB]

We moved after retirement. Cost of living was part of the decision, but other lifestyle factors were also important. In retirement, expenses like property taxes can be more significant than state income taxes.

[marko]

Quote:

Originally Posted by haha I don't see this need, unless an OCD element in you demands it. D Usually, life gets a lot simpler and better if you just relax and let things be for a while, unless some real and important factor demands change Nothing wrong with Iowa, are you sure your co-workers don't just happen to like warmer weather? Remember, the most important thing to most of us is the people we are around. Ha

+1 Ha! However...pocketing $5K-$10K in state income tax while sitting on a beach in January does have a certain attraction. One can always do the "six months plus a day" plan without permanently leaving friends and family. Hell, they'll be visiting most of the time anyway.

[marko]

Then again, there's a reason that Tiger, Lebron et al live in Florida, and it's not about the weather. 5% to 10% of bottom line profit right in the ol' pocket.

[pb4uski]

Quote:

Originally Posted by marko +1 Ha! However...pocketing $5K-$10K in state income tax while sitting on a beach in January does have a certain attraction. One can always do the "six months plus a day" plan without permanently leaving friends and family. Hell, they'll be visiting most of the time anyway.

Just keep in mind that where you spend your time is but one factor in tax residency. Just as important is where you are registered to vote, your primary mailing address, property ownership, car registration, driver's license and a bunch of other considerations. You can spend more time in one state but still be a resident of another depending on the circumstances.

[marko]

Quote:

Originally Posted by pb4uski Just keep in mind that where you spend your time is but one factor in tax residency. Just as important is where you are registered to vote, your primary mailing address, property ownership, car registration, driver's license and a bunch of other considerations. You can spend more time in one state but still be a resident of another depending on the circumstances.

Goes without saying. Anyone familiar with the great (tax) states of NY, MA, CA etc doesn't expect them to let you off the hook just because you "say" you've moved. Lawyers actually have ads in FL offering to help you make the switchover.

[haha]

Quote:

Originally Posted by marko +1 Ha! However...pocketing $5K-$10K in state income tax while sitting on a beach in January does have a certain attraction. One can always do the "six months plus a day" plan without permanently leaving friends and family. Hell, they'll be visiting most of the time anyway.

This is for sure correct. I have at times wondered if our local redistributionists might not manage to get a state income tax through, and what I would do if they did. As long as my family were here, I doubt I would leave. And if I did I am almost certain that I would not go to Florida. Probably I would just pay and stay.

My only beef with WA is that I have not met anyone with whom I could share political ideas since leaving Eastern WA many years ago. There are plenty conservatives in some well to do outlying areas, but I don't meet them. I do have a hyper-liberal childhood friend who lives l nearby, and we talk politics, but our mutual respect goes back 60 years so we get along. I like liberals, they are so sweet! -but I just am afraid of the policies they might enact. Normally, conservatives are as welcome in Seattle as heretics were in 16th century Spain. Luckily it does not bother me to be cloaked politically.

Ha

[travelover]

This is on my mind these days. When DW joins me in retirement, we plan to move to the greater Portland, OR area. The suburbs in WA look tempting when I take into consideration the difference in income tax between OR and WA. DW is skeptical.

[woodguy00]

travelover you are spot on. When one is planning to move for lifestyle, family, cost of living, weather or other 'good' reasons, then look if there is an opportunity to also save on taxes.

We lived in Camas, WA, right across the river from Portland for almost ten years. No income tax and no sales tax across the bridge. A bit quieter on the WA side too. If I was to move back to the NW it would be a border town again - just not on the wet side of the mountains.

We will be moving in ER and like the the mountains of the SW but aren't tied to any particular area. Arizona looks a lot better than NM due to the taxes. No way will we move to California.

[ERhoosier]

Taxes analysis needs to include an eye towards the future. While some areas have notoriously high taxes with no real push to change, other areas with rel low current taxes are running serious deficits which likely mean tax hikes are on horizon.

[travelover]

Quote:

Originally Posted by woodguy00 .......... We lived in Camas, WA, right across the river from Portland for almost ten years. ......

DW is worried about the paper mill odors. For the difference in taxes, I'd keep the windows closed.