How much money can retirees really save by moving to a state without income tax?

[iamblessed]

If I win the lottery I will head to one.

[dodecahedron]

If I win the lottery I will head to one.

Better move BEFORE you buy that winning ticket. In general, states will tax lottery income based on where you purchased it (or possibly where you were living when you purchased it.)

But I guess moving would help with any eventual estate taxes down the road.

[likegarden]

We are retired and live in NY state and pay no NY state income taxes. One of my deductions is 20% of our Long Term Care insurance premiums of $8k. They also give me a sizable reduction in school/property tax.
States with no income taxes must get their money from citizens somehow to pay for services, such as paving roads and police, or you will have a rundown state with less services.

[SchruteB&B]

We changed our domicile from Illinois to Florida. Instantly, the income tax we paid went away. Property tax for the Florida place is actually $5,000 lower than the Illinois place, but the value of the Florida place is double the Illinois place (and FL value increasing, IL declining). The sales tax where we lived in IL was 8%. Where we live in FL, it is 7%. People in Chicago pay 10.25%, along with much higher taxes on gas and other items. The estate tax is another huge difference.

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

To be fair, Illinois does not tax retirement income, so in that respect Florida and Illinois are equal for income tax.

However, I heartily agree with your other points. My mother moved from IL to Florida and the biggest change is the sales tax and property tax are dramatically lower. AND her property in IL had declined in value and continues to decline in value, whereas the Florida house is increasing in value so far.

[MarkerFM]

We changed our domicile from Illinois to Florida. Instantly, the income tax we paid went away. Property tax for the Florida place is actually $5,000 lower than the Illinois place, but the value of the Florida place is double the Illinois place (and FL value increasing, IL declining). The sales tax where we lived in IL was 8%. Where we live in FL, it is 7%. People in Chicago pay 10.25%, along with much higher taxes on gas and other items. The estate tax is another huge difference.

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

How do your utility bills compare? (Winter heating in Illinois vs air conditioning in FL)? And homeowners insurance (hurricane/flood risk)?

The IL house averaged $6,000/year for electric, gas, water, sewer. The FL condo is $2,000/year for electric; gas, water, sewer are included in the HOA dues, which are very high partly because it's a very high service place. Edited to say the IL house was about 1/3 larger. Homeowners insurance is about $5,000 higher in FL, plus another large amount in the HOA dues. Apples to oranges though, because FL is right on the ocean and IL just had a small stream in the backyard. Auto insurance about 20% higher in FL, but not a meaningful $ amount.

As far as the high HOA dues, this also replaces significant costs from IL like landscaping, pool maintenance, snow removal, exterior maintenance, etc. Hard to do a direct comparison because it's a different lifestyle and so many variables changed at once.

[MarkerFM]

We changed our domicile from Illinois to Florida. Instantly, the income tax we paid went away. Property tax for the Florida place is actually $5,000 lower than the Illinois place, but the value of the Florida place is double the Illinois place (and FL value increasing, IL declining). The sales tax where we lived in IL was 8%. Where we live in FL, it is 7%. People in Chicago pay 10.25%, along with much higher taxes on gas and other items. The estate tax is another huge difference.

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

To be fair, Illinois does not tax retirement income, so in that respect Florida and Illinois are equal for income tax.

However, I heartily agree with your other points. My mother moved from IL to Florida and the biggest change is the sales tax and property tax are dramatically lower. AND her property in IL had declined in value and continues to decline in value, whereas the Florida house is increasing in value so far.

Yes, to be fair IL does not tax retirement income that comes in the form of pensions and tax-deferred plan withdrawals. In our case, we have none of that at this point. Our retirement income is all in the form of interest, dividends, and capital gains on the taxable portfolio.

I might also add that costs to get things done in FL seem less expensive than IL. Things like an electrician, plumber, painter, carpenter, etc.

[JoeRetire]

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

Obviously it depends on the two locales you are comparing.

[MarkerFM]

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

Obviously it depends on the two locales you are comparing.

Yes, precisely the point of this entire thread.

[RickBoglehead]

Property taxes in Florida are typically about 2% though they can vary. Florida has no state income tax. So your total tax would probably be somewhat less in Florida. But without an income tax or an estate tax, Florida can't afford to plow the snow in the winter.

I think the sales tax covers that.

and perhaps Hurricane insurance?

Yup. My mother's homeowner's insurance in Florida, miles from the coast, is astronomical.

[JoeRetire]

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

Obviously it depends on the two locales you are comparing.

Yes, precisely the point of this entire thread.

Then "myth" is probably not the right term to use, without qualification. There's no myth. Just different numbers from different locales.

[dknightd]

I think we can agree that taxes are just a part of the puzzle.

[JoeRetire]

I think we can agree that taxes are just a part of the puzzle.

I know I can agree with that.
Maybe it's because I live so near to New Hampshire with their high property tax burden but no income taxes.

[iamblessed]

If I win the lottery I will head to one.

Better move BEFORE you buy that winning ticket. In general, states will tax lottery income based on where you purchased it (or possibly where you were living when you purchased it.)

But I guess moving would help with any eventual estate taxes down the road.

Maybe taking the annuity would work in this case. If a person did not lose more to the annuity than the state taxes would be.

[MathIsMyWayr]

In Oregon it doesn't take much income to run right up to the 9.9% state income tax level. It is one reason I don't find a ROTH to be as beneficial here as I would just as soon place money in tax deferred options and then when I retire in an income tax free state I can instantly save that 10%.

My plan, which appears to be getting more and more popular, is to move to the southern border of Washington state to avoid paying any state income tax on my retirement savings and then to easily cross one of the many bridges to Oregon to purchase items without any sales tax. I am surprised that these types of border situations are not more popular.

The highest California tax bracket is 13.3%, but there are many brackets. The Oregon tax rate is generally more brutal. This is not well known. We are happy in tax-friendly California, sunny and beautiful year around. Snowed in Portland a few days ago.
Oregon
$0+ 5%,
$7,100+ 7%
$17,800+ 9%
$250,000+ 9.9%

California
$0.00+ 1%
$16,446.00+ 2%
$38,990.00+ 4%
$61,538.00+ 6%
$85,422.00+ 8%
$107,960.00+ 9.3%
$551,476.00+ 10.3%
$661,768.00+ 11.3%
.
.
.

[vu8]

income tax is just like mutual fund expense ratio, except hundreds of times worse. If we care a lot about index funds expense ratios, which is maybe a couple basis points apart, why are we all of the sudden taciturn when it comes to state income taxes, which usually ranges from 5% to 15%? if a mutual fund charges a 5% annual fee, are you going to be content?

[randomguy]

A few states do not have an income tax, but they may have other taxes (property tax, sales tax, etc.) to offset that. So it is not clear how much money a retiree or a retired couple may save by moving to a state without an income tax. I am particular interested in Florida (e.g., Tampa) and Nevada (e.g., Las Vegas).

Hypothetically, consider a retired couple with an annual income around $100,000 with a moderate house worth around $300,000. Assume that their current state has a flat income tax of 6% and a property tax 1.2%.

The savings aren't in income taxes in most cases. For example lets look at retired couples
40k of SS
60k of IRA distributions in a couple of high tax states
CA: state income taxes = 1k
New York: 2.1k
Mass 2.6k

Not exactly huge amounts of money. COL changes (i.e. housing prices, food prices, medical costs,....) are a bigger deal for most people.

[mickeyd]

When I left NJ (hi inc.Tax) for TX (No inc.tax) in 1986 I got a big smile for many reasons. I am still smiling, since my CCRC has no property tax either.

[LilyFleur]

income tax is just like mutual fund expense ratio, except hundreds of times worse. If we care a lot about index funds expense ratios, which is maybe a couple basis points apart, why are we all of the sudden taciturn when it comes to state income taxes, which usually ranges from 5% to 15%? if a mutual fund charges a 5% annual fee, are you going to be content?

Well, I don't think state income tax = mutual fund expense ratio.
One involves money only. (And I think most of us BHs agree that lower is better for expense ratios.)

State income tax involves, for many, a move, and a great many more variables that people may or may not think are important--the quality of health care, the mortality rate (yes, it varies widely between, say, the deep South and California), with living near one's children and lifelong friends, with accessibility to healthy outdoor activities, with having cultural activities within easy driving distance, etc. State income taxes have everything to do with those things. For some people, paying lower taxes is more important. For some, a combination of those factors is worth the cost.

[David Jay]

But, SC has income exemptions for seniors, $15,000 each, and $10,000 per person for retirement income (pension). Michigan doesn't.

Incorrect. Michigan has a $20,000 per person ($40,000 for MFJ) exemption for pension income (includes 401K and tIRA) beginning when first spouse reaches age 67.

[RickBoglehead]

But, SC has income exemptions for seniors, $15,000 each, and $10,000 per person for retirement income (pension). Michigan doesn't.

Incorrect. Michigan has a $20,000 per person ($40,000 for MFJ) exemption for pension income (includes 401K and tIRA) beginning when first spouse reaches age 67.

Maybe for you. Were you born before 1957? We weren't. No exemption.

https://www.michigan.gov/taxes/0,4676,7 ... ,00.html#8

[dodecahedron]

The savings aren't in income taxes in most cases. For example lets look at retired couples
40k of SS
60k of IRA distributions in a couple of high tax states
CA: state income taxes = 1k
New York: 2.1k
Mass 2.6k

I won´t attempt comment on the other states, but the NYS couple will not pay anything like 2.1K in tax in your scenario.

Assuming they are both over 59 1/2, each spouse can exclude the first $20K of IRA distributions. None of the SS is taxable.
That leaves $20K in NYS AGI. There is a standard deduction of $16,050 for MFJ in NYS. So NYS taxable income is *at most* $3,950 and tax liability would be 4% of that which is $158. But that is worst case. NYS is pretty generous with itemized deductions and tax credits of various kinds, which could easily wipe out even the $158 in tax liability.

[2tall4economy]

I lived in upstate New York and the highest property tax in the nation for a few years and moved to Illinois with the 3rd highest or so. I was able to get 1.5x the house for the same price.

I also save on income and sales taxes by a few percent.

So I save more money, have a nicer house, and have more to do.

The “high tax state” moniker is well deserved.

Tax rates by definition create winners and loses depending on things like income level and unionization. High tax states benefit the middle and lower class the most, so it’s logical that many would have a better lifestyle in a high tax state than a low tax state.

[krb]

dodecahedron
NY has an income tax, but has very generous tax breaks for retirees (especially government retirees) and it also decoupled from TCJA to allow more generous itemized deductions than the feds do. Therefore, depending on the composition of their income and deductions, a MFJ couple can easily have income well over $100K or so and still pay zero NYS taxes.

As a widow in upstate NY with significant itemized deductions and state-tax-free retirement income, I pay no NYS income taxes but quite a bit in property tax (over $10K per year on a 300K home) and sales tax (8% here.)

But I like it here for many reasons (though the big snow early this week tested my resolve!) Clean air, beautiful mountain views, old growth forest, historic setting, good friends, wonderful cultural organizations and nonprofits doing worthy work I am engaged with as a volunteer, great public libraries and parks, not much traffic congestion, easy airport/train/bus access, good medical facilities. Also good insurance rules that allow me to switch into a Medigap plan at any time without underwriting!

+1 !

Committed Upstater here. People complain about NYS taxes. I say, let them live in a low-tax, no-tax state where the education is lousy and environmental and worker's rights rules are lax, the roads are never repaired, no decent hospitals, and so forth. I have many relatives living in such areas and am very familiar with their tax situations as well as all the stuff they don't have. It's not for me. Sometimes, or often, you get what you pay for.

I'm more than happy to pay for the cleanest air, plentiful clean water, decent livings for public workers, amazing public services, wonderful parks, intelligent and educated neighbors, a strong social fabric and rich local arts and culture. Sure, the state has its huge challenges (can't say more because it veers into politics), but I'm happy to pay income/property taxes that amount to a pittance, at least for us. Even with the few extra thousands in taxes, it's LCOL. Of course, we are extremely lucky to be able to afford our taxes, some can't....so I can't speak for all.

And .... no hurricanes, earthquakes, wildfires (at least not yet), and very few tornados. NY Upstate. A wonder.

A lot of snow. But I like snow.

I laughed when I read that! I live in probably the highest tax state CA. Our schools are atrocious. Metrics for students graduating illiterate are through the roof. Roads are terrible. We are constantly in a drought at least to some extent because of government mismanagement - no new reservoirs since forever. We have the largest body of water on the planet but no desalinization plants so we are told don’t take long showers and don’t water your lawn. Electricity is unreliable and the same - we are told don’t use air conditioning when it’s hot because we haven’t upgraded our systems in forever and you get rolling brownouts.

I would object to high taxes on principle but high taxes and an arrogant government and poor services is not a winning combination. I’d happily move to a low tax state. Job and family keep me here. It’s amusing that people who advocate for higher taxes don’t usually get high services either. Particularly in California.

[krb]

It's incredibly dependent on your level of wealth. Also what size house, etc if the state has high property taxes. if you have a modest retirement and home, it doesn't matter as much.

But I don't buy for a minute that it "all equals out" on the higher levels of income and assets, there are absolutely states that tax way more than other states and it makes a very big difference.

Right, it does not "equal out" for those states where taxation is much higher than the rest. There is a reason that people are leaving NY, NJ, etc. Same reason we're strongly considering leaving MI. SALT cap hurt us - we have several thousand just in property tax over the limit, plus state income tax and sales tax that we simply cannot deduct any longer.

LEAVING MICHIGAN?!? I’m FROM Michigan now in CA. I’d move back in a second!

[elainet7]

350k people moving in to florida yearly
wonder why?????
dam cheap to live here

[Atomic]

My parents moved from MN to WY as part of their retirement plan to pay less taxes. Seems to be going okay for them, but the social isolation from their MN friends is hard. They mentioned medical was okay in their little capitol city. Similar to above they bought more house than they had, for some reason.

Not my idea of a great retirement, but to each their own!

[unclescrooge]

We have lived in California our whole lives and are now retired there. It's very reasonable to live here as retirees if your house is paid for and was bought over 30 years ago. Like most states, SS is not taxed by the state, so our state tax rate is now lower than 9.3% (like when we were working). We walk to many nearby places (shopping, church, a community college nearby) and never, ever, have to clean frost or snow off our car windows.

I was in another state during the summer and fall working on cleaning up a relative's estate. I was flabbergasted to find that the property taxes on our relative's medium sized condo were the same as on our 3,0000+ sq ft California house (since our property taxes are held under control by prop 13). When talking with some estate planning lawyers there, I commented on that and told them the value of our house which would sell today for 6 times the value of the condo. Their jaws dropped and they looked like I was crazy. Now that the condo is waiting to be sold and is empty, I had to leave the heat on so the pipes wouldn't burst. Then there are the HOA fees.

The funny thing (for those who live in winter snow weather) is that I had to go somewhere at 6am one morning in October. The rental car was covered with the white fuzzy stuff, preventing me from seeing inside the car. It was "undriveable" and I had to get somewhere. I started calling local relatives to see what I should do to get the frost off but no-one answered. I was panicking and freezing (since I only brought summer clothes, not expecting to be there that long). Then I realized I should at least get in the car and turn on the heat so I wouldn't be so cold. What do you know? After five minutes, the problem resolved itself!

Prop 13 is highly underrated. We save at least $12k a year on our house.

I grew in a place with lots of rain and snow. Even as a kid I thought this was terrible. But when I was eight, I got a better understanding of where to live once we visited SoCal. We also visited Orlando in the same trip and I figured out where to never live too!

[unclescrooge]

dodecahedron
NY has an income tax, but has very generous tax breaks for retirees (especially government retirees) and it also decoupled from TCJA to allow more generous itemized deductions than the feds do. Therefore, depending on the composition of their income and deductions, a MFJ couple can easily have income well over $100K or so and still pay zero NYS taxes.

As a widow in upstate NY with significant itemized deductions and state-tax-free retirement income, I pay no NYS income taxes but quite a bit in property tax (over $10K per year on a 300K home) and sales tax (8% here.)

But I like it here for many reasons (though the big snow early this week tested my resolve!) Clean air, beautiful mountain views, old growth forest, historic setting, good friends, wonderful cultural organizations and nonprofits doing worthy work I am engaged with as a volunteer, great public libraries and parks, not much traffic congestion, easy airport/train/bus access, good medical facilities. Also good insurance rules that allow me to switch into a Medigap plan at any time without underwriting!

+1 !

Committed Upstater here. People complain about NYS taxes. I say, let them live in a low-tax, no-tax state where the education is lousy and environmental and worker's rights rules are lax, the roads are never repaired, no decent hospitals, and so forth. I have many relatives living in such areas and am very familiar with their tax situations as well as all the stuff they don't have. It's not for me. Sometimes, or often, you get what you pay for.

I'm more than happy to pay for the cleanest air, plentiful clean water, decent livings for public workers, amazing public services, wonderful parks, intelligent and educated neighbors, a strong social fabric and rich local arts and culture. Sure, the state has its huge challenges (can't say more because it veers into politics), but I'm happy to pay income/property taxes that amount to a pittance, at least for us. Even with the few extra thousands in taxes, it's LCOL. Of course, we are extremely lucky to be able to afford our taxes, some can't....so I can't speak for all.

And .... no hurricanes, earthquakes, wildfires (at least not yet), and very few tornados. NY Upstate. A wonder.

A lot of snow. But I like snow.

I laughed when I read that! I live in probably the highest tax state CA. Our schools are atrocious. Metrics for students graduating illiterate are through the roof. Roads are terrible. We are constantly in a drought at least to some extent because of government mismanagement - no new reservoirs since forever. We have the largest body of water on the planet but no desalinization plants so we are told don’t take long showers and don’t water your lawn. Electricity is unreliable and the same - we are told don’t use air conditioning when it’s hot because we haven’t upgraded our systems in forever and you get rolling brownouts.

I would object to high taxes on principle but high taxes and an arrogant government and poor services is not a winning combination. I’d happily move to a low tax state. Job and family keep me here. It’s amusing that people who advocate for higher taxes don’t usually get high services either. Particularly in California.

I briefly dated a highly school English teacher about 9-10 years ago. She worked for LA Unified School District near downtown and told me that a third of all the high school girls were pregnant.

I don't know where I'm going with this, but I don't know anyone whose kids go to LAUSD. Most have figured out how to get into a chartered school, many moved to a place with a good good school district, and a handful pay $30k+ per kid for private school.

Some of the ones with private school have modest houses and benefit from prop 13, so I guess it all balances out.

The only reason we live here is because my wife has family and friends.

[Boglegrappler]

It all depends. The higher your income, the more you save.

Here's an outlier point that can give food for thought (to taxpayers, and state policymakers).

https://www.nytimes.com/2016/05/01/busi ... dered.html

[David Jay]

But, SC has income exemptions for seniors, $15,000 each, and $10,000 per person for retirement income (pension). Michigan doesn't.

Incorrect. Michigan has a $20,000 per person ($40,000 for MFJ) exemption for pension income (includes 401K and tIRA) beginning when first spouse reaches age 67.

Maybe for you. Were you born before 1957? We weren't. No exemption.

https://www.michigan.gov/taxes/0,4676,7 ... ,00.html#8

I believe you are only looking at Tier 1 and Tier 2. The $40,000 is Tier 3, shown in the linked document on Page 2, 3rd column: https://www.michigan.gov/documents/taxe ... 4900_7.pdf

[edit] It may be that the calculator you linked to moves the eligibility a year for each tax year - so that a Tier 3 is always age 67 but if neither spouse has reached 67 in a given tax year it doesn’t show eligibility.

[celia]

I briefly dated a highly school English teacher about 9-10 years ago. She worked for LA Unified School District near downtown and told me that a third of all the high school girls were pregnant.

I don't know where I'm going with this, but I don't know anyone whose kids go to LAUSD. Most have figured out how to get into a chartered school, many moved to a place with a good good school district, and a handful pay $30k+ per kid for private school.

There are a lot of good high schools in LAUSD, but they are not in downtown LA. (Think of the San Fernando Valley and Westside.) Of course, there is a correlation with academic success and family income.

[krb]

We have lived in California our whole lives and are now retired there. It's very reasonable to live here as retirees if your house is paid for and was bought over 30 years ago. Like most states, SS is not taxed by the state, so our state tax rate is now lower than 9.3% (like when we were working). We walk to many nearby places (shopping, church, a community college nearby) and never, ever, have to clean frost or snow off our car windows.

I was in another state during the summer and fall working on cleaning up a relative's estate. I was flabbergasted to find that the property taxes on our relative's medium sized condo were the same as on our 3,0000+ sq ft California house (since our property taxes are held under control by prop 13). When talking with some estate planning lawyers there, I commented on that and told them the value of our house which would sell today for 6 times the value of the condo. Their jaws dropped and they looked like I was crazy. Now that the condo is waiting to be sold and is empty, I had to leave the heat on so the pipes wouldn't burst. Then there are the HOA fees.

The funny thing (for those who live in winter snow weather) is that I had to go somewhere at 6am one morning in October. The rental car was covered with the white fuzzy stuff, preventing me from seeing inside the car. It was "undriveable" and I had to get somewhere. I started calling local relatives to see what I should do to get the frost off but no-one answered. I was panicking and freezing (since I only brought summer clothes, not expecting to be there that long). Then I realized I should at least get in the car and turn on the heat so I wouldn't be so cold. What do you know? After five minutes, the problem resolved itself!

Prop 13 is highly underrated. We save at least $12k a year on our house.

I grew in a place with lots of rain and snow. Even as a kid I thought this was terrible. But when I was eight, I got a better understanding of where to live once we visited SoCal. We also visited Orlando in the same trip and I figured out where to never live too!

I grew up in Michigan. When I was in training in Atlanta my partner had grown up in SoCal. Atlanta has if I recall a couple weeks of freezing weather. We came out and our cars were covered in snow. He was grimacing and using his coat to get the snow off but then there was ice and he couldn't get it off as it was fused to the windshield. I pulled out my magic snow device. I used the brush to brush off the snow, then the chipper to chip off the ice, then the brush and the rubber wipe to wipe off the ice. He was astounded. The window deicer is truly the pinnacle of evolution of all of man's inventions. It is the perfect solution for the problem it addresses.

[krb]

I briefly dated a highly school English teacher about 9-10 years ago. She worked for LA Unified School District near downtown and told me that a third of all the high school girls were pregnant.

I don't know where I'm going with this, but I don't know anyone whose kids go to LAUSD. Most have figured out how to get into a chartered school, many moved to a place with a good good school district, and a handful pay $30k+ per kid for private school.

There are a lot of good high schools in LAUSD, but they are not in downtown LA. (Think of the San Fernando Valley and Westside.) Of course, there is a correlation with academic success and family income.

The San Fernando Valley schools generally are bad, unless you are lucky enough to get into a magnet.

[JoeRetire]

income tax is just like mutual fund expense ratio, except hundreds of times worse. If we care a lot about index funds expense ratios, which is maybe a couple basis points apart, why are we all of the sudden taciturn when it comes to state income taxes, which usually ranges from 5% to 15%? if a mutual fund charges a 5% annual fee, are you going to be content?

Hmm, let's see...

Maybe it's because moving takes just a bit more effort and involves just few more life decisions than selling one mutual fund and buying another?

Income tax is nothing at all like mutual fund expense ratio. Perhaps it's just me.

[carolinaman]

How much money can retirees really save by moving to a state without income tax?

Not enough to justify a move away from family, friends, and personal activities in the hopes of saving on income tax.

+1

[Jack FFR1846]

I feel that to find a low cost state to move to, first, list all taxes that the target states levy, then add other expenses like insurance, electricity, water, etc with an eye on use. What I mean by that is that AC use in Houston is going to be more than AC use in New Hampshire, so the cost per kWHr isn't enough. Car registration and taxes, gas cost, etc. Without all the costs, who cares that one state has a 10% income tax and another 0% if property tax makes up for that plus more. Something else worth considering is protections. CA and MA have limits on property tax increases. When I worked in NH (no sales tax, no income tax), my cubemate lived in a NH town who started construction on a new high school and his property tax skyrocketed. In MA, in my town, we built a new high school and 80% of the cost was covered by the state and our property tax didn't go up at all.

C/N: you really need to get all the costs. Just knowing income, sales and property taxes isn't enough to decide. Finally, do you really want to live in East Awfulgosh to save $20 a year?

[grayfox]

A few states do not have an income tax, but they may have other taxes (property tax, sales tax, etc.) to offset that. So it is not clear how much money a retiree or a retired couple may save by moving to a state without an income tax. I am particular interested in Florida (e.g., Tampa) and Nevada (e.g., Las Vegas).

Hypothetically, consider a retired couple with an annual income around $100,000 with a moderate house worth around $300,000. Assume that their current state has a flat income tax of 6% and a property tax 1.2%.

It is more about LCOL vs HCOL, which includes everything including taxes, property prices, rent, gasoline prices, etc. But the savings can be substantial when you move from HCOL to LCOL area.

At the end of 2015, I moved from a LCOL state to the HCOL state which I had formerly lived and worked in 15-25 years ago. Mostly I moved for the nice weather and beaches, etc.

But I found that it was no longer how I remembered it. The quality of life had gone way down since 15-25 years previous. Homeless problem out of control. And the costs were double or triple. I finally through in the towel in the middle of 2018 and moved from the HCOL to LCOL state. I moved to a vacation area, and the quality of life is much higher here than where I moved from.

Most of the high expenses in the HCOL is the cost of housing and taxes. Here are my expenses, normalized to 2014 when I was in LCOL area.

Code: Select all

2014 100.0         lived whole year in LCOL state
2015 113.9         moved to HCOL state at end of year
2016 155.2    
2017 217.2
2018 141.8         moved to LCOL area in middle of year
2019  99.9 est.    full year in LCOL area

My floor living expenses, i.e. housing, utuliites, food, have been more than cut in half. My entire monthly budget in the LCOL area is less than my monthly housing expenses were in the HCOL area.

But the huge savings is when doing Roth conversions. The HCOL state taxes IRA distributions, the LCOL state does not. I did a mega conversion in 2019 and will also in 2020, 2021, 2022. I saved tens of thousands per year in state taxes by moving.

[flyingaway]

A few states do not have an income tax, but they may have other taxes (property tax, sales tax, etc.) to offset that. So it is not clear how much money a retiree or a retired couple may save by moving to a state without an income tax. I am particular interested in Florida (e.g., Tampa) and Nevada (e.g., Las Vegas).

Hypothetically, consider a retired couple with an annual income around $100,000 with a moderate house worth around $300,000. Assume that their current state has a flat income tax of 6% and a property tax 1.2%.

It is more about LCOL vs HCOL, which includes everything including taxes, property prices, rent, gasoline prices, etc. But the savings can be substantial when you move from HCOL to LCOL area.

At the end of 2015, I moved from a LCOL state to the HCOL state which I had formerly lived and worked in 15-25 years ago. Mostly I moved for the nice weather and beaches, etc.

But I found that it was no longer how I remembered it. The quality of life had gone way down since 15-25 years previous. Homeless problem out of control. And the costs were double or triple. I finally through in the towel in the middle of 2018 and moved from the HCOL to LCOL state.

Most of the high expenses in the HCOL is the cost of housing and taxes. Here are my expenses, normalized to 2014 when I was in LCOL area.

Code: Select all

2014 100.0         lived whole year in LCOL state
2015 113.9         moved to HCOL state at end of year
2016 155.2    
2017 217.2
2018 141.8         moved to LCOL area in middle of year
2019  99.9 est.    full year in LCOL area

My floor living expenses, i.e. housing, utuliites, food, have been more than cut in half. My entire monthly budget in the LCOL area is less than my monthly housing expenses were in the HCOL area.

But the huge savings is when doing Roth conversions. The HCOL state taxes IRA distributions, the LCOL state does not. I did a mega conversion in 2019 and will also in 2020, 2021, 2022. I saved tens of thousands per year in state taxes by moving.

OP here.

Your experience is very useful. Of course, I want to avoid the need to move to somewhere, find it is not good, and need to move to somewhere else. I just want to move once after my retirement.

[StealthRabbit]

You need to do a spreadsheet with all costs and weighted benefits.

We chose a border region of income tax free state 5 minutes to a sales tax free state. (More important during earning / spending years).

Camas / Vancouver WA
Moderate climate. No AC required / low heating requirement / low utility bills, free water (rain and well), excellent sustainable gardening and edible landscape, wild salmon and sturgeon -5 min away. Low food costs.
Great airport 5 min away (for sun escapes)... Used $19.90 flights to San Diego a lot!
25+ colleges
1 hr to coast
1 hr to mountains
1000 food trucks
Wonderful flower gardens to enjoy and volunteer
Much medical + access to medivacations (flights)
Acceptably close to Puget Sound, BC Canada, CA, ID, MT
Varied terrain and climate locally. (2 hrs to high desert)
Very diverse economy / jobs / tax base.

Your choices / needs will vary.
Some things really bug me, no few real bugs... Unlike my Texas and Thailand homes (yikes!)
All my investment property is and will remain in income tax free states to save time... Not money.

Since I travel 50%+ of the time, my retirement domicile will likely become SD, and a MT LLC will own, insure, and register vehicles, boats, airplanes....

I really planned to retire back to Wyoming, but my spreadsheet and spouse objected.... I will be in SNF there if needed. Application is all prepared (Thermopolis!)

[tibbitts]

In Oregon it doesn't take much income to run right up to the 9.9% state income tax level. It is one reason I don't find a ROTH to be as beneficial here as I would just as soon place money in tax deferred options and then when I retire in an income tax free state I can instantly save that 10%.

My plan, which appears to be getting more and more popular, is to move to the southern border of Washington state to avoid paying any state income tax on my retirement savings and then to easily cross one of the many bridges to Oregon to purchase items without any sales tax. I am surprised that these types of border situations are not more popular.

In many cases you have to cross many miles of relative desolation to reach any destination on either side of the border. And those miles will always be under construction.

[sperry8]

I moved from CA to Florida >2 years ago. Tax savings are ~$8k p/yr and will rise as my tax losses run off soon.

Cost of living is down too (restaurants and rents are cheaper here, for example). I rent to keep costs even lower. Tons of amazing properties for rent in Miami (owned by many foreigners from South America who likely needed to move their money to a more stable environment). When I run the #'s they are likely losing money renting to me - and yet I get a high end luxury condo with gorgeous views and absolutely no headaches.

Sales taxes are lower in FL than in CA (by about 1%). Overall, it's a decent savings. Not life changing, but decent. If you're pinching those retirement pennies it's a no brainer imo, assuming you don't buy again. Why bother... just rent something fab.

[HomeStretch]

A family member who moved a couple years ago to FL from a state with high taxes said the savings are not as high as expected/hoped. In FL, auto insurance rates doubled, home insurance and property taxes are more expensive and HOA fees were an added expense as non-HOA available properties were not suitable.

On the plus side, they are looking forward to doing Roth conversions in a tax-free state.

[JediMisty]

Hypothetically, consider a retired couple with an annual income around $100,000 with a moderate house worth around $300,000. Assume that their current state has a flat income tax of 6% and a property tax 1.2%.

I am in Georgia in a suburb of Atlanta where there is a retirement income exclusion of $65K($130K for a couple) once you are 65, that is in addition to not taxing Social Security. I do not expect to pay any state income taxes in in retirement.

I am in one of the few counties that exempt seniors from paying school property taxes so my property taxes are about $700 a year(not a typo) on a home that is worth about $300K. Without the senior exemption the property taxes would be over $3K. Even with that the county is known for its good schools and good services and is considered a desirable, but not prime, area but there is a lot of suburban sprawl.

I don't know what your definition of "moderate home" is but here you can get a circa 1980 2,000 sq. ft. track home like mine that is in good condition on a quarter acre lot for a bit less than $300K. Most new homes are $500K+ and are McMansions. Houses closer to downtown can be a lot more expensive since the commute time is so important in Atlanta.

The sales tax varies by county but it is 6% in my county but a some things like food are at least partially exempt from sales tax. I don't track it but I would guess that I might pay three or four thousand dollars a year in sales tax.

Car registration fees were changed a few years ago and now you pay a one time registration fee of 7%(for new or used) but this is instead of sales tax. After that it is $20 a year.

Other than the sales tax I don't pay much in state and local taxes.

What counties north of Atlanta do you recommend that have low property tax? I'd like to be with an hour's drive of hiking in the mountains and within two hours from ATL. I'm considering this for my retirement.

[ohai]

We changed our domicile from Illinois to Florida. Instantly, the income tax we paid went away. Property tax for the Florida place is actually $5,000 lower than the Illinois place, but the value of the Florida place is double the Illinois place (and FL value increasing, IL declining). The sales tax where we lived in IL was 8%. Where we live in FL, it is 7%. People in Chicago pay 10.25%, along with much higher taxes on gas and other items. The estate tax is another huge difference.

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

One thing that you lose is job opportunities. Many professions are concentrated in Chicago, NY, California, and so on. No tax you would save moving from NY to Florida would make up for 80% loss in gross income. As a result, housing and taxes in these job centers are absolutely more expensive; there is demand by people who need to be in those locations.

So, if you are not tied to job commitments or they expire (i.e. you retire), it might just not make sense to continue living in those places, hence the reason why lots of people move in retirement.

[NJdad6]

We changed our domicile from Illinois to Florida. Instantly, the income tax we paid went away. Property tax for the Florida place is actually $5,000 lower than the Illinois place, but the value of the Florida place is double the Illinois place (and FL value increasing, IL declining). The sales tax where we lived in IL was 8%. Where we live in FL, it is 7%. People in Chicago pay 10.25%, along with much higher taxes on gas and other items. The estate tax is another huge difference.

So while it is true that you have to evaluate tax savings based on your own patterns of income and spending, it is a myth that low/no income tax states have higher other taxes that make up for it.

How do your utility bills compare? (Winter heating in Illinois vs air conditioning in FL)? And homeowners insurance (hurricane/flood risk)?

I have been looking into something similar and my projected results mirror yours. There are significant savings for us to move to a state like Florida. Utilities, insurance, etc are rounding errors. It really depends on your current situation.

Some of the comments are a little silly. There are good and bad parts of every state. In addition great services and schools as well.

[NJdad6]

Here is another perspective:

https://www.cdc.gov/mmwr/volumes/68/wr/mm6810a7.htm

The cost of living is dramatically reduced if you're dead.

There are a number of reasons to describe these results. Good and bad places in every state. I would hope that if I did move to one of the highlighted states I would avoid becoming an opioid addict. The biggest factors of longevity are education level and socio-economic status.

[7eight9]

In Oregon it doesn't take much income to run right up to the 9.9% state income tax level. It is one reason I don't find a ROTH to be as beneficial here as I would just as soon place money in tax deferred options and then when I retire in an income tax free state I can instantly save that 10%.

My plan, which appears to be getting more and more popular, is to move to the southern border of Washington state to avoid paying any state income tax on my retirement savings and then to easily cross one of the many bridges to Oregon to purchase items without any sales tax. I am surprised that these types of border situations are not more popular.

In many cases you have to cross many miles of relative desolation to reach any destination on either side of the border. And those miles will always be under construction.

I guess I'm not seeing the sales tax savings with the proposed plan in bold above unless it is advocating a form of tax evasion.

Many residents don’t realize there are Washington State tax obligations for goods and certain services purchased or acquired without paying sales tax. For instance, even though you don’t pay sales tax when you shop in Oregon, your purchases are subject to use tax when you bring those items into Washington. Use tax also applies on items or certain services used in Washington that were purchased in other states that have a sales tax rate lower than Washington’s. Unpaid use tax costs our state and local governments millions of dollars in revenue each year.
https://www.nmsd.wednet.edu/userfiles/- ... pdf?id=901

[elainet7]

a lot is what you save living in florida

[sperry8]

A family member who moved a couple years ago to FL from a state with high taxes said the savings are not as high as expected/hoped. In FL, auto insurance rates doubled, home insurance and property taxes are more expensive and HOA fees were an added expense as non-HOA available properties were not suitable.

On the plus side, they are looking forward to doing Roth conversions in a tax-free state.

I found the exact opposite. GEICO in florida was 1/2 (unbelievably!) in terms of auto and renters insurance in FL vs CA (where I was with USAA). I do agree re property taxes and HOA fees (which are egregious here). That's why I recommend renting. If you rent, you'll save in income taxes, insurance, COL and then don't deal with property taxes and HOAs.

[unclescrooge]

I grew up in Michigan. When I was in training in Atlanta my partner had grown up in SoCal. Atlanta has if I recall a couple weeks of freezing weather. We came out and our cars were covered in snow. He was grimacing and using his coat to get the snow off but then there was ice and he couldn't get it off as it was fused to the windshield. I pulled out my magic snow device. I used the brush to brush off the snow, then the chipper to chip off the ice, then the brush and the rubber wipe to wipe off the ice. He was astounded. The window deicer is truly the pinnacle of evolution of all of man's inventions. It is the perfect solution for the problem it addresses.

I remember my Dad used to keep one in the glove box.
Luckily I was too young to actually have to do any work.