When I was a kid, “retirement” and “moving to Florida” meant pretty much the same thing. It seemed as if everybody’s grandparents moved to the Sunshine State immediately after grandpa’s retirement party. Back then, I figured this great migration was all about mild winters and sandy beaches.
Then, I learned about taxes.
Moving to a state, like Florida, that has no state income tax can take serious pressure off your retirement nest egg, especially if you live in a high tax state such as New York, California or Illinois.
Seven states currently do not have an individual income tax: Alaska, Nevada, South Dakota, Texas, Washington, Wyoming and Florida. Tennessee taxes only interest and investment income, but that’s about to go away, too. You won’t be surprised to learn that six of these states – all but Wyoming – can be found atop every list of the most popular destinations for relocating retirees.
Another 12 states with income taxes offer various breaks on retirement income, including Social Security, pensions and IRA distributions.
All 19 of these states may become even more popular thanks to the recently enacted Tax Cuts and Jobs Act, which limits the federal deduction for state and local taxes to $10,000. Prior to this legislation, taxpayers could deduct all their state and local taxes on their federal returns.
There are, of course, other money factors beyond taxes to consider as you look at a possible relocation. Chief among these is cost of living. To use an extreme example, yes, Washington has no state income tax, but moving anywhere near Seattle could bust your housing budget. Travel costs are another consideration. If your entire family is in Maine, and you enjoy spending time with them, is it really cost effective to retire to state income tax-free Florida?
Lifestyle and happiness are also important to this decision. Alaska is tax-free, but if you hate cold weather, maybe it’s not for you. If you know and love the big city bustle of the East Coast, South Dakota’s tax-free vistas probably aren’t for you.
Which brings us to the importance of following the residency rules. States take a dim view of folks who try to claim residency in a low tax state while still spending considerable time back in their high-tax “home” state. Among the signs that you are truly a resident are changing your driver’s license and keeping your most valuable and sentimental belongings at your new home.
Bottom line: You probably shouldn’t relocate only to save on taxes; but if you’re looking to add some cushion to your retirement resources, you shouldn’t rule out a re-lo.
Check Out: 3 Sunny Locations To Retire In Comfort And Ease On Just Social Security Alone
