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Best State For Retirement Taxes?

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 💲 #genwealthfinancial #scottinman #fastestfourminutesinfinance #finance #marketupdate #marketcommentary #retirement #investing #financialadvisor #financialadvisors #financialeducation #financialliteracy #financialfreedom ************ 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.  ******** Want more content like this (plus bonus content you won't get anywhere else) delivered straight to your inbox? 📥 Visit fastest4.com! WHAT TO EXPECT: One four-minute video with relevant financial information. Three things you should know from the past week in finance. Two informative or inspirational quotes. One question to ask yourself to make sure you are staying on track with your personal finances. WHAT NOT TO EXPECT: Overly "salesy" material More emails than you signed up for (we hate spam too) Unicorns. You definitely can't expect that. GenWealth Financial Advisors getreadyforthefuture.com Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance. Independent Advisor Alliance and GenWealth Financial Advisors are separate entities from LPL Financial.💲