Things to Consider When Deciding to Move Out of a High-Tax State

One of the top reasons surveyed for moving out of one's existing residency state after retirement is taxes. If you currently live in a high-tax state, you may have considered one of the reasons for moving is to take advantage of lower taxes. Unfortunately, the decision isn’t as simple as just finding a state that does not have a state income tax. Therefore, Ideal-LIVING spoke with Financial Advisor Lawrence Tundidor, AIF®, AAMS®, AWMA® of the Tundidor Wealth & Investment Group to find out where the potential tax savings may lie and what five things to consider when deciding to make the move.

Income Levels and Type of Income

According to the website, "The Balance," all but seven states have a form of income tax. For those individuals that plan on having a high level of income in retirement, the exact tax burden must be considered and compared to their existing tax jurisdiction. Some states have a flat tax on all income, while others will tax higher levels of income disproportionately higher. The type of income an individual plans to receive can also have an impact on whether that income is even taxed at all. For example, some states will not tax distributions from Retirement accounts, Pensions, or Social Security but will tax dividend income and capital gains. Other states offer a portion of an individual's income to be exempt from taxes up to a limit. It is important to have a professionally written Financial Plan and Income spend-down timeline to determine how much income one will need in retirement year by year to quantify the tax burden accurately.

Property Taxes

For many, a potential reduction in property taxes is easily the most quantifiable savings they can realize. According to the Treasury department with the passage of the Tax Cuts and Job Acts Bill, those filing beginning in 2018 saw a cap on state and local tax deductions limited to $10,000 year. Not only are the taxes for many in some jurisdictions higher than the cap, but they are also used for many services that a retiree may no longer need or utilize, such as schools. With some states losing more residents per year than they gain, one may be able to conclude that taxes in those states may have to increase to cover the lost revenue. It is important to note that some states also impose a tax on property such as cars, boats, and RV’s, which must also be considered.

Insurance Costs

In some states, the cost of certain insurance like car insurance may be lower, but other insurances like homeowners or health insurance may be higher. In addition, one may need different types of insurance that they may not have needed in their previous state such as flood insurance or wind and hail coverage. Evaluate needs for coverage in retirement as well as minimum coverage laws in the state you are moving to which may be higher or lower than your current coverage.

Existing home’s ownership costs

Those considering a move after retirement may have lived in their existing property for many years. As properties age, they require a higher level of maintenance, and that cost that must be taken into account. Replacement and upgrades of windows, roof, HVAC, as well bathrooms and kitchens can be of considerable cost even if the existing home no longer has a mortgage. In contrast, when buying a new home, those expenses are deferred many years down the road.

Cost of Living

Many states, specifically those close to major metropolitan areas, have a higher cost of living than those states that are more attractive to retirees. While individuals typically live near those metropolitan areas in their working years, the burden of higher living costs can outweigh the benefits in retirement. Any savings from reducing living costs can be redirected to discretionary spending such as travel and leisure.

To learn more about the topic above, please attend Lawrence’s seminar held at the New Jersey Ideal-LIVING Virtual Expo in September. In the meantime, if you have any questions on your specific situation or would like to review your existing Financial Plan, feel free to contact Lawrence at LawrenceT@VoyaFA. com.

Investment adviser representative and registered representative of, and securities and investment advisory services offered through Voya Financial Advisors, Inc. (member SIPC).Neither Voya Financial Advisors nor its representatives offer tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation. Tundidor Wealth & Investment Group is not a subsidiary of nor controlled by Voya Financial Advisors.

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