Once you are approaching your retirement years, you start to think of how you are going to implement your retirement and spend your money. Choosing a place to live can have a profound impact on how far your money goes. In this article taken from a past Retirement Advisor Newsletter, we discuss some of the tax issues associated with where you decide to live your retirement years.
WHERE TO LIVE IN RETIREMENT
There is a growing realization among United States citizens that government services at the Federal level are likely to decline at the same time that taxes are going up. Budget deficits that have accumulated over the years have to be paid off. Where retirees might get hit hardest, could be dependent on where they live. Many state and local governments were hurt deeply by the recession with revenues declining, against the backdrop of significant liabilities. The decision of where you live in your retirement years is dependent on many factors, such as proximity to family, recreational opportunities and even weather. However, the dramatic change in our economy in recent years has made the issue of financial security come to the forefront in many people's decisions on where to retire. It is not a topic that many investment advisors take time to address, as most are usually focused on the bottom line return.
State Income Taxes
Many states have started the new fiscal year with tax codes that are vastly different than last year. And many states are scrambling to raise money. In November, Californians will vote on a ballot initiative that would raise the income tax by a quarter-cent, while taxes would increase on those earning $250,000 or more annually.
It is no coincidence that Florida remains one of the favorite states for retirees. In addition to the warm and sunny weather, Florida does not have any income tax on earned income or unearned income such as interest and dividends. When you are in retirement, interest and dividends can be a key source of money that pays for your living expenses. The less of your interest and dividends that goes to pay taxes, the more that you get to keep and spend in retirement.
There are seven states in the United States that do not levy an income tax on earned and unearned income. These states all provide a possible starting point in formulating a decision of where you might want to spend your golden years. The seven states are: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two others, states, New Hampshire and Tennessee do not levy tax on earned income; nevertheless, they do levy taxes on unearned income and dividend income.
A nonpartisan educational organization, the Tax Foundation, has compiled a detailed analysis of each state’s individual income tax rate and it is now available online. The information includes individual state tax rates, income brackets, personal exemptions and other noteworthy changes.
Local Income Taxes
Depending on where you live, cities, municipalities and other local governmental bodies can institute their own wage, income, and occupational privilege taxes. In 4,943 jurisdictions in 17 states, cities impose a tax on residents. The following URL will take you to a listing of local taxes for the major cities in the United States:
We will post part II of this article in the coming days, be sure to check back. In the meantime, read a sample of our Retirement Advisor Newsletter and learn how to subscribe."The Retirement Advisor"