If I retire to a State that has no State taxes...

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crypto11
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If I retire to a State that has no State taxes...

Post by crypto11 » Wed Oct 10, 2018 8:30 pm

If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct? If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?

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lakinui
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Re: If I retire to a State that has no State taxes...

Post by lakinui » Wed Oct 10, 2018 8:40 pm

That is correct. You will owe taxes to whichever state your come from for however many months you lived there during the tax year.

Gill
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Re: If I retire to a State that has no State taxes...

Post by Gill » Wed Oct 10, 2018 8:45 pm

There is no generic method to become a resident of a new state for income tax purposes. State laws differ and you must also abandon your old residence. Florida makes it fairly clear through a form that can be filed called an Affadavit of Domicile but you still must take other steps to make it clear you are a resident of the new state. Also, the income tax laws of your old state may have a bearing on whether you can then escape that state’s tax on distributions.
Gill

bb
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Re: If I retire to a State that has no State taxes...

Post by bb » Wed Oct 10, 2018 8:53 pm

Gill wrote:
Wed Oct 10, 2018 8:45 pm
Also, the income tax laws of your old state may have a bearing on whether you can then escape that state’s tax on distributions.
Gill
My understanding is that is not true.

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MP123
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Re: If I retire to a State that has no State taxes...

Post by MP123 » Wed Oct 10, 2018 9:42 pm

It depends on the state(s). You will likely owe some to your previous state prorated for the part of the year you lived there.

Which states are we talking about?

Some tax investment income but not wages for example.

billfromct
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Re: If I retire to a State that has no State taxes...

Post by billfromct » Wed Oct 10, 2018 9:48 pm

When my daughter moved down south for grad school, she sent a letter to the town clerk (the town she moved from) stating that she moved & to remove her name from the voter registration list. She did this just to make sure her move was documented so her old state would not come after her for state income taxes.

She also got a new driver's license from her new state.

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Re: If I retire to a State that has no State taxes...

Post by Spirit Rider » Wed Oct 10, 2018 9:49 pm

bb wrote:
Wed Oct 10, 2018 8:53 pm
Gill wrote:
Wed Oct 10, 2018 8:45 pm
Also, the income tax laws of your old state may have a bearing on whether you can then escape that state’s tax on distributions.
Gill
My understanding is that is not true.
It is your understanding that is mistaken.

Many states have relatively easy requirements for new residence status.

However, some states have very stringent requirements for you to be no longer considered a tax resident. Two examples of this are CA and NY.

StealthRabbit
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Re: If I retire to a State that has no State taxes...

Post by StealthRabbit » Wed Oct 10, 2018 10:25 pm

If you wait to take RMD until you are a FT (or at least meet criteria for resident) of another (income tax free) state, you should not have a problem taking distributions. DO follow this up with ALL states you will be filing tax status for this tax yr.

BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.

If you have expensive toys (Boats, airplanes, $3m RV...) FT RVr's will form a MT LLC (no sales tax) to own and register their expensive items. Rules apply... but LIFETIME plates available for some RV's!

Big Dog
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Re: If I retire to a State that has no State taxes...

Post by Big Dog » Wed Oct 10, 2018 10:36 pm

However, some states have very stringent requirements for you to be no longer considered a tax resident. Two examples of this are CA and NY.
CA is not that stringent. Just move and do the normal things that you would do anyway, e.g., get a local driver's license and bank account, register car and to vote in new state. Assuming that you don't keep any property in California, you just file a final tax return as a 'part-year resident', and allocate the income to the old (CA) and new state. (Allocation is based on days of the year that were spent in California, or when income is earned. For example, move in August but receive a dividend/distribution in Dec, 100% of that income goes to new state. )

In fact, California tax residency is NBD.

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Re: If I retire to a State that has no State taxes...

Post by MathIsMyWayr » Wed Oct 10, 2018 10:47 pm

Does anybody know to which state one has to pay the state tax for the discount on ESPP purchase if he becomes a legitimate tax resident of another state and dispose his ESPP shares years later? Will his previous state claim that the event (discount=income) happened while he was a resident of the state?

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Re: If I retire to a State that has no State taxes...

Post by AlphaLess » Wed Oct 10, 2018 10:54 pm

crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct? If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?
Might want to wait until you are in the new state for a full year, though.

AlphaLess
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Re: If I retire to a State that has no State taxes...

Post by AlphaLess » Wed Oct 10, 2018 10:56 pm

StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.

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Re: If I retire to a State that has no State taxes...

Post by Gill » Thu Oct 11, 2018 5:48 am

Spirit Rider wrote:
Wed Oct 10, 2018 9:49 pm
bb wrote:
Wed Oct 10, 2018 8:53 pm
Gill wrote:
Wed Oct 10, 2018 8:45 pm
Also, the income tax laws of your old state may have a bearing on whether you can then escape that state’s tax on distributions.
Gill
My understanding is that is not true.
It is your understanding that is mistaken.

Many states have relatively easy requirements for new residence status.

However, some states have very stringent requirements for you to be no longer considered a tax resident. Two examples of this are CA and NY.
Thank you, Spirit Rider.
Gill

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Re: If I retire to a State that has no State taxes...

Post by likegarden » Thu Oct 11, 2018 6:07 am

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JoMoney
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Re: If I retire to a State that has no State taxes...

Post by JoMoney » Thu Oct 11, 2018 6:12 am

Need to consult the tax laws of the specific state you're leaving and going to.
You'll likely be a part-year resident of the state you left for the first year.
There can be some significant differences between states, for example, Tennessee has no income tax but does tax dividends.
Some states that have income taxes don't tax pension and some retirement account distributions (like Hawaii, Pennsylvania, Mississippi )
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Re: If I retire to a State that has no State taxes...

Post by SchruteB&B » Thu Oct 11, 2018 7:08 am

JoMoney wrote:
Thu Oct 11, 2018 6:12 am

Some states that have income taxes don't tax pension and some retirement account distributions (like Hawaii, Pennsylvania, Mississippi )
And Illinois.

MichCPA
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Re: If I retire to a State that has no State taxes...

Post by MichCPA » Thu Oct 11, 2018 8:47 am

AlphaLess wrote:
Wed Oct 10, 2018 10:56 pm
StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.
Rest assured, if you sped more than half of your year in one state, you will be a resident. If all your mail is sent to that state, you might be a resident. If you belong to community/ religious organizations only in that state you are probably a resident. If your bank doesn't have physical branches in the state you are fake moving to and does in the state you are fake moving from, that is a problem. Where do you vote? Even if SD says you are a resident after one day, a state like NY, IL, or MN could call BS if they wanted and would most likely win that court case.

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Re: If I retire to a State that has no State taxes...

Post by grabiner » Thu Oct 11, 2018 6:13 pm

MP123 wrote:
Wed Oct 10, 2018 9:42 pm
It depends on the state(s). You will likely owe some to your previous state prorated for the part of the year you lived there.
It won't be prorated. If you are a part-year resident of a state, you owe tax to that state on all income you earned while a resident, and not at all on income earned while a non-resident (unless it has a source in the state, such as wages earned for work done there, or property sold there).

Usually, if you move to another state, you give up residency in your old state and gain residency in the new state on the same day, so all your income is taxed by only one state. However, you have to check the state tax laws to be sure you don't remain a resident of the old state.
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Re: If I retire to a State that has no State taxes...

Post by Gill » Thu Oct 11, 2018 8:03 pm

Keep in mind that if your state of residence is not clear you may have more than one state claiming you as a resident and attempting to tax all your income or other adverse tax consequences.
Gill

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MP123
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Re: If I retire to a State that has no State taxes...

Post by MP123 » Thu Oct 11, 2018 8:06 pm

grabiner wrote:
Thu Oct 11, 2018 6:13 pm
MP123 wrote:
Wed Oct 10, 2018 9:42 pm
It depends on the state(s). You will likely owe some to your previous state prorated for the part of the year you lived there.
It won't be prorated. If you are a part-year resident of a state, you owe tax to that state on all income you earned while a resident, and not at all on income earned while a non-resident (unless it has a source in the state, such as wages earned for work done there, or property sold there).

Usually, if you move to another state, you give up residency in your old state and gain residency in the new state on the same day, so all your income is taxed by only one state. However, you have to check the state tax laws to be sure you don't remain a resident of the old state.
Hmmm...

If I live in CA for 6 months and move to NY for 6 months both states will expect a part year return and taxes on income earned in their respective state, right? :confused

rgs92
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Re: If I retire to a State that has no State taxes...

Post by rgs92 » Thu Oct 11, 2018 8:10 pm

Is there some easy resource to see every US state's rules on how retirement income is taxed?

Big Dog
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Re: If I retire to a State that has no State taxes...

Post by Big Dog » Thu Oct 11, 2018 8:16 pm

If I live in CA for 6 months and move to NY for 6 months both states will expect a part year return and taxes on income earned in their respective state, right?
Correct. You just allocate income to the state in which you resided when you earned that income. And you file state tax returns in both CA and NY. (TurboTax does this extremely well, btw.)
Last edited by Big Dog on Thu Oct 11, 2018 8:20 pm, edited 1 time in total.

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Re: If I retire to a State that has no State taxes...

Post by indexfundfan » Thu Oct 11, 2018 8:18 pm

MP123 wrote:
Thu Oct 11, 2018 8:06 pm
grabiner wrote:
Thu Oct 11, 2018 6:13 pm
MP123 wrote:
Wed Oct 10, 2018 9:42 pm
It depends on the state(s). You will likely owe some to your previous state prorated for the part of the year you lived there.
It won't be prorated. If you are a part-year resident of a state, you owe tax to that state on all income you earned while a resident, and not at all on income earned while a non-resident (unless it has a source in the state, such as wages earned for work done there, or property sold there).

Usually, if you move to another state, you give up residency in your old state and gain residency in the new state on the same day, so all your income is taxed by only one state. However, you have to check the state tax laws to be sure you don't remain a resident of the old state.
Hmmm...

If I live in CA for 6 months and move to NY for 6 months both states will expect a part year return and taxes on income earned in their respective state, right? :confused
I had to deal with this issue recently. The following might help you understand

https://money.stackexchange.com/questio ... calculated
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Re: If I retire to a State that has no State taxes...

Post by Fulltimer » Thu Oct 11, 2018 8:50 pm

AlphaLess wrote:
Wed Oct 10, 2018 10:56 pm
StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.
We are full time RVers. We were formerly residents of WI. We sold our home in WI and stayed with a family member while our RV was being built for us. Some months later we went to SD, stayed one night, got our drivers licenses, registered to vote, changed our vehicle registrations, opened a credit union account, got a library card and left SD. Our mailing address is a mail service in SD but we travel the country 100% of the time. You have to be domiciled in one of the 50 states in the US. If not SD, what other state would we be domiciled in?

cap396
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Re: If I retire to a State that has no State taxes...

Post by cap396 » Fri Oct 12, 2018 8:18 am

If I move from North Carolina to Florida and sell some mutual funds after moving to Florida, then I don't have to pay North Carolina state tax on the capital gains from selling the mutual funds even though I lived in NC for part of the year. Is that correct?

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Re: If I retire to a State that has no State taxes...

Post by NYC_Guy » Fri Oct 12, 2018 8:28 am

Fulltimer wrote:
Thu Oct 11, 2018 8:50 pm
AlphaLess wrote:
Wed Oct 10, 2018 10:56 pm
StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.
We are full time RVers. We were formerly residents of WI. We sold our home in WI and stayed with a family member while our RV was being built for us. Some months later we went to SD, stayed one night, got our drivers licenses, registered to vote, changed our vehicle registrations, opened a credit union account, got a library card and left SD. Our mailing address is a mail service in SD but we travel the country 100% of the time. You have to be domiciled in one of the 50 states in the US. If not SD, what other state would we be domiciled in?
You are still clearly a Wisconsin resident. You never had a good faith intent to make SD your new domicile. So you keep the old one. Resident status isn’t lost until another is eatablished. NY would bring a case (if enough money was at stake). And NY would win on these facts.

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Re: If I retire to a State that has no State taxes...

Post by Murgatroyd » Fri Oct 12, 2018 9:03 am

We have moved 7 times across states. (Chasing the corporate dream...) All 7 times I have paid taxes to both states based on actual dollars earned while residing in each.

Minnesota, Maryland, Missouri, Tennessee, Oklahoma, Texas, Illinois.

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Re: If I retire to a State that has no State taxes...

Post by grabiner » Fri Oct 12, 2018 11:47 am

cap396 wrote:
Fri Oct 12, 2018 8:18 am
If I move from North Carolina to Florida and sell some mutual funds after moving to Florida, then I don't have to pay North Carolina state tax on the capital gains from selling the mutual funds even though I lived in NC for part of the year. Is that correct?
This is correct. You may have to report the capital gains, but you won't pay tax on them. In most states, you compute the tax on your full income, and then multiply this tax by the fraction of income you earned while a resident. Thus, if you earn $50K inside the state and $50K outside, you pay half the tax on $100K, rather than the tax on $50K. (Some states do tax part-year residents counting only income earned while a resident; if you move to or from such a state, your tax will be a bit lower that year as a result.)
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Re: If I retire to a State that has no State taxes...

Post by indexfundfan » Fri Oct 12, 2018 12:17 pm

grabiner wrote:
Fri Oct 12, 2018 11:47 am
cap396 wrote:
Fri Oct 12, 2018 8:18 am
If I move from North Carolina to Florida and sell some mutual funds after moving to Florida, then I don't have to pay North Carolina state tax on the capital gains from selling the mutual funds even though I lived in NC for part of the year. Is that correct?
This is correct. You may have to report the capital gains, but you won't pay tax on them. In most states, you compute the tax on your full income, and then multiply this tax by the fraction of income you earned while a resident. Thus, if you earn $50K inside the state and $50K outside, you pay half the tax on $100K, rather than the tax on $50K. (Some states do tax part-year residents counting only income earned while a resident; if you move to or from such a state, your tax will be a bit lower that year as a result.)
I noticed that NC has a flat state income tax bracket, so you won't end up paying NC state tax.

But for some other states, you might pay a tiny bit more if the CG is large enough that it moves the total income into a higher state tax bracket. This is because, as noted above, the state tax is computed based on the full income (which is now higher) and then prorated by the income earned while a resident.
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Re: If I retire to a State that has no State taxes...

Post by StealthRabbit » Fri Oct 12, 2018 1:43 pm

NYC_Guy wrote:
Fri Oct 12, 2018 8:28 am
Fulltimer wrote:
Thu Oct 11, 2018 8:50 pm
AlphaLess wrote:
Wed Oct 10, 2018 10:56 pm
StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.
We are full time RVers. We were formerly residents of WI. We sold our home in WI and stayed with a family member while our RV was being built for us. Some months later we went to SD, stayed one night, got our drivers licenses, registered to vote, changed our vehicle registrations, opened a credit union account, got a library card and left SD. Our mailing address is a mail service in SD but we travel the country 100% of the time. You have to be domiciled in one of the 50 states in the US. If not SD, what other state would we be domiciled in?
You are still clearly a Wisconsin resident. You never had a good faith intent to make SD your new domicile. So you keep the old one. Resident status isn’t lost until another is eatablished. NY would bring a case (if enough money was at stake). And NY would win on these facts.
You are clearly a SD resident if you stayed your one night per lifetime, filed your DL, Voting, mailing addy, filed this form...(as have many thousands of FT travelers with SD residency for past 50+ yrs)
https://dps.sd.gov/download_file/501/194

AND do not trigger domicile elsewhere (rules vary)

There are legitimate and legal reasons many of us are 'Stealth'. I Did the same while working overseas for 30 yrs... know the rules and comply (not all are 183 days / yr). While I do keep properties and homes in (3) income tax free states in USA, I have not been in any one place long enough to trigger domicile since I retired (13 yrs ago) and many yrs before that.

Follow the rules, do not create an "intent to tax evade"... Most of us are legit. I am not keen on filing paperwork, so I also keep my investments / income / legal docs ALL originating in income tax free USA states. Many (internet businesses) are far more intent than I. They LEGALLY use US Protectorates as legal taxing entities / domiciles.

Autos, boat, airplane, RV registrations... Sales tax free MT has an entire industry to support (please be legal and follow ALL the rules! (of MT and any other state you happen to reside LT or ST) .

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dm200
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Re: If I retire to a State that has no State taxes...

Post by dm200 » Fri Oct 12, 2018 1:49 pm

All states have lots of taxes - they just have many and sometimes different ones. Real estate taxes, sales and use taxes, income taxes, utility taxes, non-resident income taxes (if you work in that state), car ownership taxes -- and so on.

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Re: If I retire to a State that has no State taxes...

Post by Mr. Jelly » Fri Oct 12, 2018 3:46 pm

This plays on my mind as I live fifty feet from the state line between Iowa and South Dakota. Iowa state tax is 8%. We can't move yet as my spouse and I have government jobs. We'll totally retire in nine months. The hard part is I really like where I life right now.

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Re: If I retire to a State that has no State taxes...

Post by dm200 » Fri Oct 12, 2018 4:01 pm

Mr. Jelly wrote:
Fri Oct 12, 2018 3:46 pm
This plays on my mind as I live fifty feet from the state line between Iowa and South Dakota. Iowa state tax is 8%. We can't move yet as my spouse and I have government jobs. We'll totally retire in nine months. The hard part is I really like where I life right now.
You must be a resident of the state where employed?

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Re: If I retire to a State that has no State taxes...

Post by LadyGeek » Fri Oct 12, 2018 4:24 pm

This thread is now in the Personal Finance (Not Investing) forum (taxes, retirement planning).
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Re: If I retire to a State that has no State taxes...

Post by grabiner » Fri Oct 12, 2018 6:18 pm

dm200 wrote:
Fri Oct 12, 2018 4:01 pm
Mr. Jelly wrote:
Fri Oct 12, 2018 3:46 pm
This plays on my mind as I live fifty feet from the state line between Iowa and South Dakota. Iowa state tax is 8%. We can't move yet as my spouse and I have government jobs. We'll totally retire in nine months. The hard part is I really like where I life right now.
You must be a resident of the state where employed?
You don't have to be a resident, but you don't gain much in taxes if you commute from a no-income-tax state. You will pay tax as a nonresident at the same rate as residents on the money you earn there; you avoid taxes only on investments and other income with a source outside the state. This will likely hurt you if you commute from a state with no income tax, as you will pay income tax on most of your income, and also pay higher property or sales taxes because your home state has to get revenue from some source. (Some pairs of states have a reciprocity agreement not to tax wages earned in the other state; residents of MD who work in VA don't pay VA taxes on their wages, but they do pay MD tax. But I don't think there is any state which has no income tax and has a reciprocity agreement.
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Re: If I retire to a State that has no State taxes...

Post by SoAnyway » Sat Oct 13, 2018 12:29 am

rgs92 wrote:
Thu Oct 11, 2018 8:10 pm
Is there some easy resource to see every US state's rules on how retirement income is taxed?
Google "state taxes in retirement". The first results page brings up a number of such resources. Bear in mind that tax laws are constantly changing, so some info might be out-of-date. That said, it's a decent starting point. FWIW, there are 7 states that have no income tax: AL, FL, NV, SD, TX, WA and WY. It gets more complicated from there, as far as which pieces of earned and unearned income are taxed in a particular state. Also recognize that income taxes are only one part of the tax equation. All states need to fund their operations, so it's worthwhile to research sales taxes, property taxes, other types of taxes and fees that the state governments levy. Finally, taxes aside, there's the important piece of just where one prefers to live based on one's priorities/needs/wants.
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct?
Yes, I believe that's correct if it's one of the 7 states listed above.
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?
OP, what state are you currently in, what state(s) are you considering moving to, and when? As others have noted, you need to research the laws of both the state you're moving to and the laws of the state you're leaving, e.g. what's required to establish residency in your "new" state; what's required to prove you've abandoned residency in your "old" state (some state taxing authorities are very aggressive in going after former residents); how long it will take you to do so in each; how part-year residency for the "transition year" will affect your state taxes, etc.

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Re: If I retire to a State that has no State taxes...

Post by Spirit Rider » Sat Oct 13, 2018 8:59 am

SoAnyway wrote:
Sat Oct 13, 2018 12:29 am
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct?
Yes, I believe that's correct if it's one of the 7 states listed above.
One caveat based on your use of the term "exercise".

If by exercise you just mean capital gain on the sale of a stock you own. Then @SoAnyway is correct.

However, if by exercise you mean exercise and sell certain stock options. Then I believe at least one state taxes such exercises if the option grant occured while a resident of that state, even if you are a resident of another state when you exercise and sell.

TXPT
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Re: If I retire to a State that has no State taxes...

Post by TXPT » Sat Oct 13, 2018 11:18 am

crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct? If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?
Keep in mind that there is no free lunch. While a state may not have income taxes, it has to feed the monster somehow, so expect higher sales tax and higher real estate taxes. So you may no come out all that much better in reality. I'm sure there is someone out there who has done all the math, so I reserve the right to be wrong.

Spirit Rider
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Re: If I retire to a State that has no State taxes...

Post by Spirit Rider » Sat Oct 13, 2018 12:24 pm

TXPT wrote:
Sat Oct 13, 2018 11:18 am
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct? If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?
Keep in mind that there is no free lunch. While a state may not have income taxes, it has to feed the monster somehow, so expect higher sales tax and higher real estate taxes. So you may no come out all that much better in reality. I'm sure there is someone out there who has done all the math, so I reserve the right to be wrong.
There are several places that compute the state-local tax burden. While there are some minor differences, all of the results differ markedly from your premise.

While it is true that the percentages of state revenues from income, sales, property, etc... taxes vary across states. The majority of the 10 states with the lowest state-local tax burden are the states with no/limited income taxes. All of the states with the highest state-local tax burden also have some of the highest income taxes.

However, those are averages and you still need to model your circumstances. For example, some states tax Social Security, some states exempt some or all pension distributions and some states exempt some or all other retirement account distributions. The towns in my state have rather high property taxes, but in my town I get a rather substantial veterans credit and there is a six-figure elderly property tax exemption that increases every five years from age 65 - age 85.

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dm200
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Re: If I retire to a State that has no State taxes...

Post by dm200 » Sat Oct 13, 2018 1:10 pm

TXPT wrote:
Sat Oct 13, 2018 11:18 am
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct? If so, how long do I need to live in the state to be considered a resident and pay no state taxes on RMDs/capital gain?
Keep in mind that there is no free lunch. While a state may not have income taxes, it has to feed the monster somehow, so expect higher sales tax and higher real estate taxes. So you may no come out all that much better in reality. I'm sure there is someone out there who has done all the math, so I reserve the right to be wrong.
Sometimes there are - for some folks. Depends a lot on the politics and many other factors. The more "free lunches" are given out - the more other folks are billed for them.

[OT comments removed by admin LadyGeek]

Blake7
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Re: If I retire to a State that has no State taxes...

Post by Blake7 » Sat Oct 13, 2018 1:38 pm

rgs92 wrote:
Thu Oct 11, 2018 8:10 pm
Is there some easy resource to see every US state's rules on how retirement income is taxed?
Here's my go-to for State tax info. It also summarized total tax burden, taking into account all state taxes:

https://files.taxfoundation.org/2018041 ... ompare.pdf

This might be more to your question:

https://files.taxfoundation.org/2018031 ... F576-1.pdf

https://taxfoundation.org

:happy

ryman554
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Re: If I retire to a State that has no State taxes...

Post by ryman554 » Sat Oct 13, 2018 5:50 pm

Spirit Rider wrote:
Sat Oct 13, 2018 8:59 am
SoAnyway wrote:
Sat Oct 13, 2018 12:29 am
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct?
Yes, I believe that's correct if it's one of the 7 states listed above.
One caveat based on your use of the term "exercise".

If by exercise you just mean capital gain on the sale of a stock you own. Then @SoAnyway is correct.

However, if by exercise you mean exercise and sell certain stock options. Then I believe at least one state taxes such exercises if the option grant occured while a resident of that state, even if you are a resident of another state when you exercise and sell.
The exercising of options and any subsequent wage (not CG) income is indeed sourced to the state at the grant date. The W2 will have the right state, so make sure to follow it

SoAnyway
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Re: If I retire to a State that has no State taxes...

Post by SoAnyway » Sat Oct 13, 2018 9:35 pm

ryman554 wrote:
Sat Oct 13, 2018 5:50 pm
Spirit Rider wrote:
Sat Oct 13, 2018 8:59 am
SoAnyway wrote:
Sat Oct 13, 2018 12:29 am
crypto11 wrote:
Wed Oct 10, 2018 8:30 pm
If i retire to a State that has no state taxes, I wont pay any state taxes on my RMDs and long term capital gain that I exercise after moving to that state. Is that correct?
Yes, I believe that's correct if it's one of the 7 states listed above.
One caveat based on your use of the term "exercise".

If by exercise you just mean capital gain on the sale of a stock you own. Then @SoAnyway is correct.

However, if by exercise you mean exercise and sell certain stock options. Then I believe at least one state taxes such exercises if the option grant occured while a resident of that state, even if you are a resident of another state when you exercise and sell.
The exercising of options and any subsequent wage (not CG) income is indeed sourced to the state at the grant date. The W2 will have the right state, so make sure to follow it
OP, I overlooked your use of the word "exercise" in your post which I had simply glossed over as RMDs/capital gains received from passive accounts unrelated to employment, i.e. outside the context of stock option exercises which are a whole different kettle of fish. Many thanks to Spirit Rider and ryman554 for the sharp eyes.

I believe they are correct: Years ago, I exercised some vested options from a former employer in the short time period they allowed me per the plan for "exercise-before-forfeiting" after I'd left that job and moved to a new state for a new job. IIRC, in my part-year tax returns for that "transition year" I paid tax on those gains to my former state and got a credit for it in my new state. In other words, I didn't get double-taxed nor did I pay at the rate of my "new" state.
Last edited by SoAnyway on Sat Oct 13, 2018 9:53 pm, edited 1 time in total.

SoAnyway
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Re: If I retire to a State that has no State taxes...

Post by SoAnyway » Sat Oct 13, 2018 9:52 pm

SoAnyway wrote:
Sat Oct 13, 2018 12:29 am
rgs92 wrote:
Thu Oct 11, 2018 8:10 pm
Is there some easy resource to see every US state's rules on how retirement income is taxed?
Google "state taxes in retirement". The first results page brings up a number of such resources. Bear in mind that tax laws are constantly changing, so some info might be out-of-date. That said, it's a decent starting point. FWIW, there are 7 states that have no income tax: AL, FL, NV, SD, TX, WA and WY. It gets more complicated from there, as far as which pieces of earned and unearned income are taxed in a particular state. Also recognize that income taxes are only one part of the tax equation. All states need to fund their operations, so it's worthwhile to research sales taxes, property taxes, other types of taxes and fees that the state governments levy. Finally, taxes aside, there's the important piece of just where one prefers to live based on one's priorities/needs/wants.
BTW rgs92, for those who've been maxing retirement accounts during the accumulation years in 1 of the 43 states with a state income tax, the real "state tax arbitrage" bonanza lies with the subset who resided in states that excluded (or allowed deduction for) those retirement contributions from AGI for state tax purposes in the earning years, and who then decide to retire to a state that doesn't tax the withdrawals.

EDIT TO ADD: In that case, that socked-away retirement money wouldn't have been taxed at the state level at all. (Woo-hoo!) That said, per the last sentence of my quote above, I'm not suggesting that anyone should necessarily allow the "state tax tail" to wag the "what's important to my life and where I want to live at various times in my life" dog. It's just a consideration.

iamblessed
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Re: If I retire to a State that has no State taxes...

Post by iamblessed » Sun Oct 14, 2018 1:34 pm

Mr. Jelly wrote:
Fri Oct 12, 2018 3:46 pm
This plays on my mind as I live fifty feet from the state line between Iowa and South Dakota. Iowa state tax is 8%. We can't move yet as my spouse and I have government jobs. We'll totally retire in nine months. The hard part is I really like where I life right now.
So when you retire are you are going to move 50 feet?

bsteiner
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Re: If I retire to a State that has no State taxes...

Post by bsteiner » Sun Oct 14, 2018 1:41 pm

TXPT wrote:
Sat Oct 13, 2018 11:18 am
...
Keep in mind that there is no free lunch. While a state may not have income taxes, it has to feed the monster somehow, so expect higher sales tax and higher real estate taxes. So you may no come out all that much better in reality. I'm sure there is someone out there who has done all the math, so I reserve the right to be wrong.
There are variations in the tax systems. For example, California has an income tax with a top rate of 13.3% but no estate tax, whereas Washington State has no income tax but an estate tax with a top rate of 20%.

There are also variations in the level of services. For example, Florida has no income or estate tax, but doesn't do a good job clearing the snow. Some states and communities spend more on schools, whereas in other states those who can afford it use private schools.

Notwithstanding taxes, most people live where they do because of work, or the location of friends and family. Some retirees have two homes, and spend most of their time in Florida and summers in a northern state. If they're able to change their domicile to Florida they can avoid both state income taxes (except on income from other states having a state income tax) and state estate taxes (except on property located in other states having a state estate tax).

criticalmass
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Re: If I retire to a State that has no State taxes...

Post by criticalmass » Sun Oct 14, 2018 10:32 pm

NYC_Guy wrote:
Fri Oct 12, 2018 8:28 am
Fulltimer wrote:
Thu Oct 11, 2018 8:50 pm
AlphaLess wrote:
Wed Oct 10, 2018 10:56 pm
StealthRabbit wrote:
Wed Oct 10, 2018 10:25 pm
BTW: Many FT RV folks use income tax free SD since it only requires one overnight per LIFETIME to become a resident (be careful to NOT trigger residency in another state (rules vary by state). It has become a pain, in that you currently have to return to SD to renew your DL every several yrs. I would hope they go to 'online' renewal soon.
Wow, that just sounds wrong.
There is no de-facto residency relationship.
We are full time RVers. We were formerly residents of WI. We sold our home in WI and stayed with a family member while our RV was being built for us. Some months later we went to SD, stayed one night, got our drivers licenses, registered to vote, changed our vehicle registrations, opened a credit union account, got a library card and left SD. Our mailing address is a mail service in SD but we travel the country 100% of the time. You have to be domiciled in one of the 50 states in the US. If not SD, what other state would we be domiciled in?
You are still clearly a Wisconsin resident. You never had a good faith intent to make SD your new domicile. So you keep the old one. Resident status isn’t lost until another is eatablished. NY would bring a case (if enough money was at stake). And NY would win on these facts.
If NY keeps itself busy bringing cases to determine whether someone lives in South Dakota or Wisconsin, its own taxpayers should ask why they are paying for such nonsense instead of focusing on affairs concerning New York. And following the laws for establishing domicile in South Dakota certainly qualifies as a good faith effort. Many full time RV travelers or overseas residents do the same quite legally by following the rules.

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