• Choosing a Retirement Destination

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    Tammy Glivinski

    Tammy Glivinski

    Tammy Glivinski

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    By Tammy Glivinski

    With health care, housing, food, and transportation costs increasing every year, many retirees on fixed incomes wonder how they can stretch their dollars even further. One solution is to move to another state where income taxes are lower than the one they currently reside in.

    But some retirees may be in for a surprise. While federal tax rates are the same in every state, retirees may find that even if they move to a state with no income tax, there may be additional taxes they’re liable for including sales taxes, excise taxes, inheritance and estate taxes, income taxes, intangible taxes, and property taxes.

    In addition, states tax different retirement benefits differently. Retirees may have several types of retirements benefits such as pensions, social security, retirement plan distributions (which may or not be taxed by a particular state), and additional income from a job if they continue to work in order to supplement their retirement income.

    If you’re thinking about moving to a different state when you retire, here are five things to consider before you make that move.

    1. Income Tax Rates

    Retirees planning to work part-time in addition to receiving retirement benefits should keep in mind that those earnings may be subject to state tax in certain states, as well as federal income tax if your combined income (individual) is more than $25,000. Combined income is defined as your adjusted gross income + Nontaxable interest plus 1/2 of your Social Security benefits.

    If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you see this scenario in your future, it may be in your best interest to consider a state with low income tax rates (Pennsylvania, Arizona, or New Mexico for instance) or no income tax such as Florida, Nevada, Alaska, or Washington state.

    2. Income Tax on Retirement Income

    Income tax on pension income varies for each state. In 2014, three states, including Pennsylvania, Illinois, and Mississippi do not tax it at all. In twenty-one other states a portion of pension income is exempt, and fifteen states tax pension income in its entirety. Remember however, that state tax laws, like federal tax laws are always changing. Call us if you have any questions about tax law changes in your state.

    3. Tax on Social Security

    In 2014, fourteen states tax social security income in addition to taxing social security income at the federal level. Among them are Colorado, Connecticut, Montana, New Mexico, Vermont, and West Virginia.

    4. State and Local Property Taxes

    Despite a decline in property values, property taxes have not decreased for most homeowners. Some states however, offer property tax exemptions to retirees who are homeowners and renters. Again, this varies by individual state. Please consult us if you have any questions about your state or the state you are planning to move to.

    5. State and Local Sales Taxes

    State and local sales taxes may or may not be a factor in the overall decision about where you decide to retire, but keep in mind that only five states, Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose any sales or use tax.

    6. Estate Taxes

    Estate tax may or may not matter, depending on your estate and whether you care about what happens to your estate after you die. Like other state taxes, estate tax varies depending on which state you reside in. In eighteen states, there is a tax on estates below the federal threshold amount ($5.34 million in 2014). Three states, Delaware, Hawaii and North Carolina, use the same threshold amount as the IRS when figuring federal estate tax, and three states have no estate tax whatsoever–Kansas, Oklahoma, and Arizona.

    So what’s the bottom line?

    When it comes to retirees, relocating, and taxes there are a number of factors to consider–including the overall tax burden. And, as you’ve read here, not all states are created equal. If you’re thinking about retiring to another state, please consult us first. We’ll help you figure out which state is best for your particular circumstances.

    You can reach Tammy at capecodcfo.com or email her.

     

     

     

     

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    May 22, 2014