October 22, 2020

Relocating In Retirement To Save On Taxes

Relocating In Retirement To Save On Taxes

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It is common knowledge that states and cities have the autonomy to impose their own taxes on their residents. With that autonomy, it is natural that the tax code of each state is unique and varies in the degrees and types of taxes it imposes.

But what effect should those tax codes have on your decision to move?

It’s fine… for now.

If you live in a high tax state, like New York, California, or my home state of Maryland, you’re likely making a comparably higher wage than you would be in states with a lower cost of living, and you’re able to collect your income while taking considerable tax deductions. You’re fine.

But once you’re no longer receiving a paycheck and you transition to living off of the assets you’ve accumulated throughout your life, it may no longer make sense to be paying such a high tax rate when there are states that have more favorable state or local tax codes.

What I have found is that many retirees coming from high tax areas go in one of three possible directions.

Go west.

States like Wyoming and Utah are seldom the first that come to mind when thinking about retirement. But the opportunities there are plentiful.

Going out west means living in a low tax state with a lower cost of living but having a level of assets substantially higher due to spending your working years in a higher cost of living state.

The mid Atlantic.

If you’re on the east coast, you don’t have to cross time zones to find a good retirement state. Virginia and Delaware are very popular options for those in surrounding states like New York, Maryland and New Jersey.

These states are considerably lower in cost of living than those around them and offer perks like scenic coastlines and sales tax-free shopping in Delaware.

Majority rules.

Two of the most popular states for retirees to relocate to are Florida and Colorado—two locations that are vastly different from each other.

Florida is popular for its weather, beaches and lack of state income taxes, while Colorado is known for its mountains, landscapes and considerably low tax rates.

Making the move.

Relocating in retirement is highly popular and often makes sense from a tax perspective—but taxes should not be the only factor in your decision. While finances do play a role in all of our choices, remember that quality of life is not all about money.

Remember to factor in distance from friends and loved ones, climate and lifestyle preferences and even unique factors like distance to major airports for avid travelers or local cuisine types for foodies.

The lesson:

When looking into relocating in retirement, do your research. State and local tax rates can be found online so you’ll know what to expect. If you know in advance that you’ll be moving once you retire, talk to your financial advisor about how that move can affect your retirement projections. And for those planning to retire to Delaware, I’ll see you there in (hopefully) eight to 12 years.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Brotman Financial Group, Inc. and BFG Financial Advisors are not affiliated with Kestra IS or Kestra AS.

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