Are you fed up with paying state income taxes? Before you pack your bags and move to a no income tax state you’ll want to listen to this episode. Moving to a different state to save money on taxes could cost more than you think.
After listening to the retirement headline, make sure to stick around to hear Doug’s question about where to save extra money for retirement–my response may surprise you.Moving to a different state to save money on taxes could cost more than you think. Click To Tweet
Outline of This Episode
- [1:22] Don’t move to save on income tax
- [6:33] Should I invest additional money in my tax-deferred 457B account?
Just because a state doesn’t have income taxes doesn’t mean that you’ll save money
When I saw Cheryl Munk’s article called Why Moving to a State with Low Income Taxes Could Cost You over at Barrons, I knew I had to discuss it on the show. Moving from a high-income tax state to one with little or no income taxes is something that many retirees consider. But before you load up the U-Haul you’ll want to evaluate your choices carefully.
Even though their income taxes might be low, many states make up the difference with higher property taxes, sales tax, high insurance rates and other cost-of-living expenses that could minimize or completely erase the financial benefit that incentivized the move.Before you load up the U-Haul you’ll want to evaluate your choices carefully. Click To Tweet
Before moving, consider these points
The overall tax picture – Consider the full tax picture of the state including income taxes, property taxes, sales tax, and estate or inheritance taxes. Many people fail to look at the overall tax burden when deciding where to move.
Sources of income – While the common misconception is that if you move to a state with low or zero income tax, this rate will apply to all of your income, that analysis is more complicated if you earn income from multiple states.
Cost of living differences – You may not realize how vastly different the cost of living may be in your newly chosen state. You wouldn’t want to have to spend your retirement working a part-time job to offset higher living expenses.
Special considerations for retirees – Some states may not tax your income at all depending on your adjusted gross income. Moving to a zero income tax state could end up costing you more once you factor in other taxes and the cost of living.
States have to collect taxes from somewhere
It’s important to think through all the lifestyle implications and the potential associated costs before making any life-altering decisions.
Since every state needs to raise funds from their residents to pay for their costs there will always be taxes. Each state raises funds in different ways whether it’s through income tax, sales tax, or property tax. Since these taxes affect various parts of your budget it can be challenging to compare expenditures in different states.Choose to move because you think the place will provide you a better life in retirement. Click To Tweet
Choose to move if it is the best decision for your lifestyle
I liken moving in retirement to the way we give to charity. We don’t donate money to charities to save on taxes. We do so because we believe in the cause the tax benefits are secondary to our genuine desire to give back.
You should choose to move because you think you will have a better life in retirement. If a certain state calls to you because you have family there, more opportunities for a robust social life, better weather, or the ability to engage in an active lifestyle, then, by all means, go for it! Just make sure that taxes are not your primary motivation.
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