05 Aug Changing States After Retirement: How Moving Can Affect Your Taxes
If you’re retired and thinking about moving to a different state, or planning to move after you retire, you may be wondering how it will affect your income. If so, you probably have a lot of questions—will my taxes change after moving to another state? How will moving affect my social security benefits? What changes do I need to make to my retirement plan? How does moving after retirement affect my taxes?
Our estate planning advisors can answer all of these questions and more. Here’s a brief overview of how moving after retirement might affect your taxes.
Every state has different laws regarding retirement income and social security benefits. Before you move to another state, it’s important to look into the tax laws there. This will help you understand how your income might be taxed differently compared to your current state of residence.
Retirement income can come in many different forms, and so it should! It’s always important to diversify your retirement portfolio. Some streams of retirement income are taxable, however, depending on which state you live in. For example: standard IRA accounts, 401K plans, and military retirement pensions are all taxable sources of income.
Social security income will also be taxed differently from state to state. If you change states after retirement, the amount of your benefits will not change. However, the amount you get to keep may be different because of your new state’s tax laws.
Moving to one of the states that does not tax social security could increase your income. Arizona is one state that does not tax social security. Neither do the states of Florida, Texas, Georgia, and Nevada.
Steps to take before moving:
- Talk to a tax expert to get personalized advice.
- Make sure your decision to move aligns well with your estate plan.
- Consider the pros and cons of different types of state taxes, including property, tax, corporate tax, sales tax, etc.— tax rates can vary greatly from state to state.
For example, if you’re a business owner, and you move your business with you when you change states, you could end up paying more corporate income tax. The corporate tax rate is 4.9% in Arizona, 8.8% in California, and 2.5% in North Carolina.
Arizona Retirement Highlights
Retiring in Arizona can be a wise financial move. Because Arizona offers a lower cost of living compared to many other states, your retirement savings can go further. Plus, Arizona has a relatively favorable tax environment. Here are six points to consider:
- The individual income tax rate in Arizona is set at 2.5%.
- Arizona has no tax on social security benefits.
- Average retirement expenses are $63,600 per year.
- There is tax on distributions from traditional IRAs and 401Ks.
- The property tax rate in Arizona is 0.45% of the appraised value of a primary residence.
- Military pensions are exempt from income tax in Arizona.
Fiscal considerations alone won’t help you decide where to retire. Other factors such as climate, lifestyle compatibility, healthcare availability, and access to public transportation or walkable amenities should also be taken into account. Arizona is a wonderful place to consider for these five big benefits:
- Warm weather all winter long
- Affordable cost of living in many areas.
- Abundant outdoor, cultural, and recreational activities.
- Numerous active adult communities with a variety of amenities.
Meet with an Estate Planning Professional at Phelps LaClair
An estate planning expert can help you with all the finer details, from reducing your taxes to avoiding probate. They can also explain how your retirement plan may be affected if you move out of the state you worked in.
If you’re moving to Arizona and need help with your estate plan and set up an appointment with the legal advisors at Phelps LaClair. We’ve been assisting Arizona families for over 40 years and would be happy to help you.
Photo by Kamelia Hayati on Unsplash on 7.26.2024 | used under the creative commons license for commercial use.