Best State For Retirement Taxes?
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- Опубліковано 2 лип 2024
- The best way to save on taxes in retirement may be choosing to live in the right state. We discuss the details in this week's Fastest Four Minutes in Finance 💲
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TRANSCRIPT
An interesting article caught my eye this week. The headline: “In New York City, a $100,000 salary feels like $36,000.”
We know that states like New York, Illinois, and California have higher tax rates than many southern states, but I’d never seen it laid out like this. The article uses data from an analysis by SmartAsset, a consumer-focused financial information provider. This analysis looked at 76 of the largest U.S. cities to see where $100,000 goes furthest, accounting for taxes, and cost of living.
New York City was the worst. After applying federal, state, and local taxes to the $100,000, then accounting for higher prices, and higher rent, the take-home pay for a New Yorker making that six-figure income, is $35,791.
Also in the bottom 10, were Honolulu, San Francisco, Washington, DC, Los Angeles, Boston, and Seattle.
At the top of the list was Memphis with take-home pay at $86,444. Seven cities in the Top 10 were in Texas. The Lonestar state has no state income tax. Oklahoma City was 3rd.
No Arkansas cities were included in the study.
With data like this, it’s no surprise that generally speaking, southern states are gaining in population, while northern states are dropping. New York City alone lost more than 300,000 residents from July 2020 to July 2021, according to the U.S. Census Bureau. There are other factors included in the population shift, including workplace mobility, and the severity of COVID lockdowns, but, it’s no coincidence that over the past 11 years, Texas had added more residents that any other state.
All of this matters for workers, but it also matters for retirees. The vast majority of a retiree’s assets are in 401ks, IRAs, or other tax-deferred accounts. When they begin taking distributions from these accounts, they will be considered income, and taxed at ordinary income tax rates.
So, obviously, moving to, or already living in, a state where taxes are lower, would allow you have more spendable retirement income. Sometimes, that’s would not even be a long move.
For instance, the top tax rate in California is over 13%, but Nevada, which is next door, has no state income tax. Vermont has a top tax rate of 8.75%, but next door in New Hampshire, retirement income is not taxes, only dividends and interest.
Of course, that doesn’t get around the higher cost of living.
There are also many other factors a near-term retiree must consider before making a move. Obviously, where their family members live is a big one. We often have roots down in our community and our churches, and saving on taxes is certainly less important.
There are other ways the decisions about your home can affect your retirement income.
🏠 Have a plan to pay off your mortgage by the time you retire, which will give you more spendable income. But, don’t make a plan to wipe out a big mortgage when you retire, unless you have cash, or tax-free investments to get it done.
Taking a 💰 lump sum from your tax-deferred accounts can create a huge tax bill. For instance, if you withdraw $100,000 from your IRA to pay off your mortgage, that $100,000 is added to your other income for the year, putting it in your highest marginal rate.
You can also downsize, especially if paying off your mortgage by retirement is not realistic.
Work with a financial advisor to consider where you live in retirement, can be a boost to making sure your money lasts.
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Many folks struggling to cover basic expenses often face this challenge because they didn't save enough during their working years. The choices made in preparing for retirement have significant impacts, as seen in my own family. Different investment strategies led to different outcomes. With guidance from a financial advisor, I'm now enjoying my retirement.
Yes, I'm in my mid-50s, and a few years back, I moved my investments to my wife's wealth manager. While I haven't caught up to her long-term gains, my current earnings and the growth of my retirement fund, compared to just relying on the 401(k), are pretty satisfying.
I totally agree; I am 66 years old, recently retired, with approximately $1.2 million in external retirement funds. I am debt free and have very little money in retirement funds compared to the total value of my portfolio over the past three years. To be honest, I didn't do all this alone, but with the help of a financial advisor. Having one is currently the best way to trade in the stock market, especially for people nearing retirement.
@@mariaguerrero08This is exactly how i wish to get my finances coordinated ahead or retirement. Can you recommend the financial advisor you used to get ahead?
CAMILLE ALICIA GARCIA maintains an online presence. Just make a simple search for her name online.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
Texas has OUTRAGEOUS Property Taxes, so one needs to "Run the Numbers" to make sure that what you'll save by moving there, won't be wiped out by their property taxes!! (I'm originally from Texas, and the "No State Income Tax" argument simply didn't "wash" in our case, for what we'd be paying in Property Taxes). Btw, don't forget to also calculate in the high Home Owners Insurance Rates, due to all of the natural disasters they have down that way!!)
I agree!
After 40 years I left Texas because of insurance and taxes and moved to Delaware. Here we have low taxes and no sales tax. As for the income tax, my social security is not taxed and the first $12500 of my pension is not taxed.
Texas prop taxes were bearable back when housing was dirt cheap, but those days are gone. I left in 2011 and have never looked back, even though I love Texas.
NH is a great state, but property taxes are very high.
yeah NYC is expensive but you are a 5 to 10 minutes away of a urgent care or emergency room. Some other states, I wonder what they do during an emergency.😳🧐There’s no free lunch in America, you get what you pay for.😆🧐
@@1-Wheel-Drive do you know how terrifying is to have a child with a severe injury, a broken bone or an asthma attack and trying to drive miles away to the nearest hospital? That’s the only reason I’m pointing this. Yes, NYC is expensive but you are close to medical care.
I retired to Illinois from Ohio. I looked at the cost of living for the stuff I purchase and housing prices and I wanting to stay in the Midwest. I know the the northern part of Illinois is very expensive to live but in downstate Illinois "the central and southern part of the state" is very affordable. My house here cost a good $100,000 less than a comparable house in other states in the Midwest that I looked at. A hundred thousand dollars can pay for a lot of years of property tax and my Insurance for my house and car is lower here too. Also in Illinois you can purchases car tags at a senior rate too. Illinois doesn't have a city or county income tax and there's no property tax that you pay on your car like many states have. Also in Illinois there is no income tax on any retirement income. I don't drive that much so a higher gas doesn't effect me much though since I live very close to another state so I have the opportunity to go over the state line for lower sales tax if I choose though I must admit I very rarely do. And if I decide not to drive we have free busses for anybody to ride. What I did might and probably wouldn't be a good fit for everybody. Anyway I want to thank you for a good video.
Thanks for watching! 🙌
You hear a lot of bad things about Illinois, but no taxes on retirement income is nice.
I’m looking for a state to move to from Oregon because the taxes and high cost of living are killing us here. I’v been considering colorado and Illinois but colorado is almost as expensive as Oregon. Your comment is helping me decide to do a better search on housing in your state -Any particular area you might recommend? Thank you
@@adrianasoldevila630 I live in Macomb It's a small university town of around 15,000 in West central Illinois. I do go to Peoria at times it's a small city of 110,000 about 75 miles from here to go to the zoo and places. No matter where you decide on living you really need to do your homework comparing the cost. Of course there will be pluses and minuses you just have see what works best for you. And no matter where you decide I would go there for a few weeks or months and see if you could live there. I missed that one, I moved from a metro area of 3 million people to a very small town and what jumped out at me was how quiet it was here and dark yes dark where I live before we didn't need nightlights in the house but here the first night I had to go to Walmart and buy some nightlights now after 3 years I'm use to the small differences. On the plus side with how much darker it is here I have went out at night and see a lot of stars, shooting stars, satellites and the American and the Chinese space stations going overhead.
People live in NYC for a simple reason - the salaries can be really high. There are thousands of jobs in NYC that pay over $500K - you won't find jobs like that our in the boondocks. It is the middle class who are leaving, not the wealthy.
NYC actually exempts both SS and the first $20K of IRA withdrawals from taxes.
1. Florida
2. Texas
3. Nevada
❤❤❤❤
Great, 3 states that I would not want to live in.
Yes, I agree. Florida is on the opposite coast and humidity is more than I can stand. Texas and Nevada are like living on the moon. I guess I’ll stay in SoCal and go broke while I’m enjoying the pacific coast. Lol.
All the lowest are Democrat cities and states, think about that 😮
Texas has very high real estate taxes and. High sale taxes. Homeowners insurance is also expensive in Texas. I move from tex😊Texas to 😅 Delaware and I have a lot more money in my pocket!
NH has no income or sales taxes. Property taxes are a little steep but the quality of life is high.
I found it a bit disingenuous talking about California has a high tax rate like he did. Yes the top tax rate is high but it doesn't tax SS and the tax structure is weighted heavily towards high income earners. Most retirees are not going to be retiring in the highest tax tier. Most are going to be in the 4 - 8% tax rates as the SS isn't taxed at all. Still not 0% but with the property tax increases being limited and if you have owned your home for a while you property taxes are going to be lower than say moving new to Texas. Sales tax is about the same but most retirees don't buy a whole lot.
homeowners insurance if you live in a rural area is beyond ridiculous,i am looking to move from this crap state.
@@speedwayman100 Why would the increases be? Could it be because they paid out huge amounts of money for the fires we have had over the last few years? Insurance is a crap shoot. You pay into it hoping you never need it. When massive losses like what has happened in California, and let's not forget Florida and other states as well, the rates have to go up. They can't afford to pay out billions of dollars with no consequences. They don't keep all the money you and everyone else has been paying to them for massive payouts like what has happened. That money went out for huge mansions and yachts for the executive staff. Do you know how much it costs to have business meetings in Hawaii and have to rent out two separate resorts so they can have their wives in one and their meetings and mistresses in the other.
Just to be fair I live in San Jose, that's a pretty big city, and I have had nothing to require them to pay a dime for and my rates went up about 30% for both my house and cars. So don't feel too bad.
@@bryanwhitton1784 insurance should also be based off of what someone does on their property.I keep my two acres cleared and i have a fire hydrant on the corner so i don't give a rats ass about the fires they had up north as that was the fault of utility companies the bulk of the reason,i'm fed up with paying for other entities lack of preparation.
@@speedwayman100 Oh, I agree with you. As far as I am concerned the executives of PG&E should have been thrown in jail. The company was found guilty of homicide. But essentially paid nothing. I live in a city. No way a fire other than my own house, will burn my house down but my rates went up. Insurance is a collective. We all pay into it so that "others" get fixed if they need it and hope we are never in that group. If they pay out too much then everyone has to pay more. Collectivism at its finest.
The amount of money shelled out on claims has been enormous. As a result everyone has to pay more, a lot more.
The alternative is that the insurance companies go out of business. Then you either go without(banks would never allow that) or the governments have to take on the coverage. Will the rates ever go down? Maybe. But not soon.
@@bryanwhitton1784 i hear ya,we all know insurance companies aren't going to eat it but i've been looking to leave this state for awhile but this may well do it.
You couldn't psy me to live with Gregg Abbott! Sell your soul to live in Texas!
Nevada taxes are lower than California. Nevada cost of living is far less than most of California. Nevada is a better place to raise kids too.
@frankt1720 As long it's not Las Vegas.
@@ralphjohnson3202 Reno. I visit Vegas annually though
Retired empty nesters. Nevada is like living on Mercury. I’ll pass.
You couldn’t pay me to live in Texas. Abbot is a cruel, corrupt governor. Their grid is crap. And of let’s not forget Cancun Cruz, who could care less about his constituents. I’m not saying all Texas people are bad, so don’t come at me. But you honestly couldn’t pay me to live there.
Texas is a great state.
@@johngarceau541 yea I like visiting our relatives in San Antonio but their property taxes are outrageous and I live in SoCal. I like the desert but west Texas is like living on Mercury.