8.04.2014

Retirement and Taxes



Taxes to Watch Out for in Retirement

Excerpt:
Taxes are likely to be one of your biggest bills in retirement, especially if you have done most of your saving in tax-deferred retirement accounts. But where you live plays a big role in the tax rate you pay on your retirement income. "Taxes are not the only thing that matters for retirement, but they can definitely have a sizable impact as people start to narrow down which states they are considering for retirement," says Scott Drenkard, an economist for The Tax Foundation. "I think one of the driving reasons to move to Florida is because the weather is a lot nicer, and there's no tax on income." Here are the taxes to consider as you select a place to retire:

Income tax. If your retirement income is high enough that you will owe taxes on it in retirement, you can reduce your tax burden if you move from a state with high income taxes to one without an income tax. Seven states do not have an individual income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two other states -- New Hampshire and Tennessee -- tax dividend and interest income only. However, reducing your income tax bill isn't a guarantee that your overall tax bill will decline. "Before impulsively moving to a state without an income tax, though, the retiree should make sure he or she isn't trading one tax for another," says Twila Slesnick, co-author of "Nolo's Essential Retirement Tax Guide." "For example, although Texas does not have an income tax, the average property tax rate in the state is quite high. You might find that you are paying more in property taxes in the new state than you were paying in income tax and property tax combined in the old state."
Comment: We don't really have a tax avoidance plan. My brother is planning on moving to Wyoming (May 2016). He loves the West. He and his wife formerly lived in Colorado and she has family there. One of my brother-in-laws is preparing to re-domicile in Florida (from Edina MN). They own a condo in Naples and are already gone from the state (MN) for almost 6 months. His main reason to re-domicile is estate taxes. I used to talk about moving to Tennessee but of late (the last 2 years) we have planned to stay in Minnesota. One child has moved away. If one more would move away we would move. But the other two are planning on staying here. Image source with a related article


3 comments:

  1. Jim, From over at this blog called SI I have learned that America really sucks and is just a terrible country. How dare we as citizens try to keep our own money. The state deserves it all! After all, just like the original rebellion, having the audacity to live free and independent lives is immoral. I am against Obama because I don't think he taxes the country enough. I want taxes raised on the rich and the poor!

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    1. Of course I'm speaking in jest. I just can't believe that you are associated with a site that has such zany, loony, outlandish topics as "Was the American Revolution an evil act because it was rebellious?" I have a suggestion for all the members of SI. If you think America is such a bad country, why don't you join your local community organizers and do all you can to stick it to the country and destroy it, just to show the British that you feel guilty for living here. :) Give the government ALL your money.

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  2. Sorry, Jim. I'm not trying to conflate two totally separate blogs too much, other than I see a link between the two. I like that other site, but actually taking the time to argue and debate over whether Americans are rebels and "bad" for having the audacity to break free from England is, in my opinion, beyond nonsense. But hey, I've learned from that site too, so even though I don't have any feelings of guilt for giving Prince Charles all my money, I won't stop anyone else from doing do.

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