‘Don’t let the tax tail wag the lifestyle dog’: Moving to a no income-tax state for retirement may create other problems Americans nearing retirement may find themselves eyeing so-called “tax-friendly” states in hopes of stretching their savings further.
That often means relocating to one of the states with no income tax (including Florida, Texas and Tennessee) or to states that exempt retirement income like pensions, IRAs or Social Security benefits from taxation
On paper, the strategy can look compelling. Fidelity estimates (1) that a married couple withdrawing $100,000 from IRAs could pay about $5,300 less annually in taxes in a lower-tax state like Iowa than in a higher-tax state like Oregon. For someone spending decades in retirement, those differences can add up to six figures if they’re invested wisely.
Must Read But financial planners say many retirees focus too narrowly on income taxes while overlooking the broader cost-of-living picture, including property taxes, sales taxes, and insurance costs. In some cases, moving to a no-income-tax state may not actually lower your total expenses at all. “Don’t let the tax tail wag the lifestyle dog,” Florida-based certified financial planner Matt Chancey told MarketWatch (2). “The people who move purely for taxes are solving the wrong problem.” Here’s what retirees should know before packing up for a “tax-friendly” move. No income tax doesn’t necessarily mean low taxes Let’s take Texas as an example.