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Tax Considerations for Retirees Moving to a Different State

July 25, 2019

Saying goodbye to New England winters? Moving to be closer to family? Consider the potential consequences of changing your tax home in retirement.

Looking to move to a different state when you retire? Perhaps you’d like to escape the cold weather, or be closer to your loved ones. Factor state and local taxes into the equation, too. Establishing residency for state tax purposes can be tricky—we’re here to help.

Factor ALL taxes into the equation

While moving to a state with no personal income tax seems like a no-brainer, it’s crucial to identify all applicable taxes before you make your decision. Besides personal income taxes, you must also consider property taxes, sales taxes and estate taxes.
Take a look at what types of income is taxed in the states you’re considering moving. Certain states don’t tax wages but do tax interest and dividends, whereas other states offer tax breaks for retirement plan distributions, social security payments and pension payments.

Don’t forget about state estate tax!

While the federal estate tax doesn’t apply to many (federal estate tax exemption is currently $11.4 million, and $22.8 million for a married couple) some states levy estate tax with a much lower exemption. Also, some states have an inheritance tax in place of (or in addition to) an estate tax.

How to establish domicile

Once you’ve settled on a place to move, you have to establish what’s known as “domicile”. As we’ve covered in a previous blog, you must establish domicile when you make a permanent move to a new state and want to escape taxes in the state you came from.

Generally speaking, domicile refers to your fixed and permanent home location and the place you plan to return, even after periods residing other places. Each state has its own rules regarding domicile.

You don’t want to run into a situation where two states claim that you owe state income taxes, so be sure you successfully terminate domicile in your old state.

To successfully lock in domicile in your new state, it helps to…

  • Change your mailing address at the post office,
  • Change your address on passports, insurance policies, will or living trust documents, and other important documents,
  • Register to vote,
  • Switch your driver’s license and register your vehicle in the new state,
  • Close bank accounts in your old state and open and use bank accounts in the new state,
  • Execute new wills and trusts in your new state,
  • Change doctors to your new state,
  • Join local churches, temples and golf courses,

Also, if you are keeping your other home as a Summer residence, you will have to address how the deed is titled.

Before you pack your bags, it’s crucial to do your research and make sure you aren’t making a move that will not work for you financially. We can help you navigate your tax considerations. Reach out to us.

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