‘Don’t let the tax tail wag the lifestyle dog': Moving to a no income-tax state for retirement may create other problems

Americans nearing status whitethorn find themselves eyeing alleged “tax-friendly” states successful hopes of stretching their savings further. That often means relocating to 1 of the states with nary income taxation (including Florida, Texas and Tennessee) oregon to states that exempt status income similar pensions, IRAs oregon Social Security benefits from taxation.

On paper, the strategy tin look compelling. Fidelity estimates (1) that a joined mates withdrawing $100,000 from IRAs could wage astir $5,300 little annually successful taxes successful a lower-tax authorities similar Iowa than successful a higher-tax authorities similar Oregon. For idiosyncratic spending decades successful retirement, those differences tin adhd up to six figures if they’re invested wisely.

Must Read

• Here’s however to get affluent from rising US spot values with arsenic small arsenic $100 — and without the accent of aggravated tenants

• Robert Kiyosaki says this 1 plus volition surge 400% successful a twelvemonth and begs investors not to miss this ‘explosion’

• Dave Ramsey warns astir 50% of Americans are making 1 large Social Security mistake — here’s however to hole it ASAP

But fiscal planners accidental galore retirees absorption excessively narrowly connected income taxes portion overlooking the broader cost-of-living picture, including spot taxes, income taxes, and security costs. In immoderate cases, moving to a no-income-tax authorities whitethorn not really little your full expenses astatine all.

“Don’t fto the taxation process wag the manner dog,” Florida-based certified fiscal planner Matt Chancey told MarketWatch (2). “The radical who determination purely for taxes are solving the incorrect problem.”

Here’s what retirees should cognize earlier packing up for a “tax-friendly” move.

No income taxation doesn’t needfully mean debased taxes

Let’s instrumentality Texas arsenic an example. The authorities has nary idiosyncratic income tax, making it charismatic for retirees drafting heavy from accepted IRAs oregon 401(k)s. But Texas relies heavy connected section spot taxes to money authorities services. The Texas Comptroller notes (3) that spot taxes are administered locally and tin alteration importantly by region and taxing district.

While homeowners tin suffice for homestead exemptions that trim taxable location values, retirees with costly homes whitethorn inactive look important yearly taxation bills.

Florida presents a akin trade-off. The authorities has nary income tax, but it generates important gross done income taxes (4), tourism taxes and spot taxes. Florida’s statewide income taxation complaint is 6%, with galore counties layering further section taxes connected top.

That means retirees who walk heavy connected travel, dining, location attraction oregon ample purchases whitethorn inactive wage much successful taxes than expected, adjacent without authorities income taxes.