Where You Live (and Die) in Retirement Matters

Why It Matters:

  • If you’re moving to a new state in retirement, you may want to consider all the costs and taxes first.
  • Where you die may matter as much as where you live, when it comes to taxes.
  • Before moving in retirement, remember 13 states tax Social Security benefits.

Chase Squires tkc.profilePicture Written by: Chase Squires | Transamerica
Sept. 13, 2019

3-4 Min readClock Icon

You’re not alone. Lots of us daydream about our ideal retirement home.

There’s plenty to think about from warmer weather to great skiing, city amenities to country quiet, even all that time with the grandkids. But there’s one more thing to consider: money.

Different states have different rules for Social Security benefit taxation, state income tax, inheritance tax, even how property, vehicles, and purchases are taxed.

You’re probably going to spend a long time in retirement (the Social Security Administration estimates a 65-year-old woman will live on average past 86), so year-by-year, differences in state costs can add up.

What should you consider before establishing your legal retirement domicile?

State income tax

As the saying goes, only two things are certain: death and taxes. Except in some cases, taxes aren’t. At least not state income taxes.

If you live in Fort Collins, Colorado, a 50-mile move north to Cheyenne, Wyoming, might look pretty good. Wyoming doesn’t have a state income tax. Colorado does.

In fact, seven states have no income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. In addition, two others, New Hampshire and Tennessee, have only tax dividend and investment income.

But there may be requirements to establish legal domicile. A domicile is your one real, full-time home. You can have plenty of residences, but only one domicile. Why is this? Because, if a defined home state wasn’t a requirement, we’d all rent a post office box in Wyoming and avoid state income tax. Your current state may not be eager to give up a taxpayer without some proof.

Some factors for establishing domicile could include where you live most of the year, vote, get your mail, or register your car. Florida even has a declaration of domicile, and New York has a list of requirements defining not being a resident for tax purposes (guess which state charges a state income tax).

Tax on Social Security benefits

Hopefully, you already know the federal government may tax your Social Security benefits. But did you know some states may also tax those benefits?

Up to 85% of Social Security income may be subject to federal income tax. But 13 states also tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode island, Utah, Vermont, and West Virginia.

And even among the states that do tax benefits, there are different rules and limits.

Inheritance/estate taxes

It doesn’t just matter where you live, it matters where you die, too. The Tax Foundation reports 12 states and the District of Columbia, have an estate tax and six states have an inheritance tax (and Maryland as of 2017 has both).

If you’re domiciled in a state without an estate tax but die in another state (say at your summer home) that does have an estate tax, how the death certificate is made out could be important. For someone preparing to leave a substantial legacy, it may be worth reviewing the state of domicile’s rules and the rules of any state where they maintain a second residence. For what it’s worth, an error on a death certificate can be corrected, but there can be forms to fill out and fees to pay.

All those other things

As you consider a retirement address, the absence of a state income tax alone doesn’t mean a free ride. It still costs money to run a state, and that money has to come from somewhere.

Remember Wyoming and Alaska, two states with no income tax? Both are in the 10 highest per capita for state and local property tax, according to the Tax Foundation, a nonprofit research group. Additionally, property taxes can vary within a state, depending on city and county taxes, as well as school districts and special taxing districts.

Even vehicle registration fees vary by state, incorporating a hodgepodge of factors such as a vehicle’s weight, age, value, location of registration, along with assorted fees for things such as law enforcement and infrastructure. The National Council of State Legislatures has a list.

Think it over

Nobody looks forward to the shock of an unexpected tax or large bill at the motor vehicles office. That’s why it can make sense to research the little details before packing your bags for that sun-soaked golf course or alpine cabin.

Things to Consider:

  • You may want to investigate all the little costs and tax implications of making a full-time move to another state.
  • If you’re considering a legacy strategy, think about potential estate implications in your state of domicile.
  • If you have houses in more than one state, you may want to take extra steps to ensure the state you claim as “home” is truly your domicile

Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.



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