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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
They're gonna get taxed, and tax laws change. Can you imagine moving your entire life to a place, and then that state changes their tax laws? Welcome to the Retire On Time q and a podcast, a podcast that's a compliment to the book, How to Retire On Time. I'm Mike Decker, the author of the book. We got David Fransen here asking your questions.
Mike:As always, text your questions to (913) 363-1234. The show is all about the nitty gritty. Instead of that oversimplified advice you've heard hundreds of times, let's bring context into the equation. That said, remember this is just a show, not financial advice. David, what do we got today?
David:Hey, Mike. Is it worth moving to a tax free state in retirement? It depends. So there are differences when
Mike:it comes to income taxes. Right? So if you have I mean, you save in your IRA, save in your four zero one k, you take money out. Are you gonna pay income tax or not? Yeah.
Mike:So that is a consideration. And then you have certain states that maybe have an income tax but no IRA distribution tax. There's a couple of those. Oh. Most states won't tax you on Social Security.
Mike:It's just a federal taxation, but still you wanna consider that, all things considered. Right? But but I'm gonna be just a bit facetious here for a second. I don't think it makes sense to move to a state for five years to then accomplish your IRA to Roth conversions and then move back. Right?
Mike:Like, how much are you really saving and what's the cost of moving? Mhmm. And then the other thing too is, okay, they might not have income tax or be more tax efficient that way, but they might have other taxes that will affect you. So for example, Texas is a income tax free state Mhmm. But they have high property tax.
David:Yeah. So it sounds good on paper. Oh, no. I'm not getting taxed by them, but then your property tax bill comes in. Yikes.
Mike:Yeah. So you wanna look at I mean, really, the the the if let's just put five I'm gonna use that as an arbitrary number and fill in the gaps here.
David:Okay.
Mike:Income tax, Social Security tax, and and then IRA distribution tax. Look at those as, like, a starting standpoint, and then look at real estate tax, and then look at sales tax.
David:Oh, yes.
Mike:Those are kind of the big ones that might affect your decision overall. Some of the more tax efficient states for retirees are like Tennessee, Alaska, Florida, for example. Nevada is a pretty good one. They got a higher sales tax, but overall, Nevada's a pretty good state too. But but even then in those states, you need to consider the city that you're living in.
David:Okay.
Mike:Okay. So if you live more towards a metropolis, right, a larger city, higher cost of living.
David:Alright.
Mike:If you live in the middle of nowhere, even if there's income tax, it might just be a more affordable place to live. You know, what's the cost of buying a house or buying a hobby farm? I I think of, you know, we're here in Kansas City, right? Middle of the country, which is a lot of fun. There's a reasonable I mean, it's a reasonable cost of living here.
Mike:Think
David:so. Yeah.
Mike:I think it's more than fair. I came from Seattle, Washington, so it's quite nice here compared to Seattle, Washington. Yeah. But even here, if if we go two hours south, it's extremely cheap to live. And the same is true if you're in Washington, Seattle, Washington.
Mike:If you go to Eastern Washington, it's gonna be a lot cheaper to live for many aspects than it would be living in, let's say, Bellevue, Washington or Seattle, Washington.
David:Yeah.
Mike:So what's the real question here? Is it to make the government as poor as possible? That's kind of a crappy guideline.
David:It seems like the government will still whether it's federal, state, or local, or county, they'll find a way.
Mike:They're gonna get taxed, and tax laws change. Can you imagine moving your entire life to a place and then that state changes their tax laws? Right. Yeah. Or increases one or the other.
Mike:So ask yourself, where do you want to live? Yeah. That's that's the important question. And then within those tax laws, does it make does it make sense to do certain things now before you move and then after or and then just kind of line up that way. Just be aware of it.
Mike:I I don't move to avoid taxes. Live your best life and plan around that. There there is something to be said, though, about maybe, like, the first ten years of your retirement, and then the second ten years of your retirement. I know a lot of people like, for example, Washington State, which is probably the one of the worst states to die in, even though they don't have any income tax. There's the estate tax issues.
Mike:There's a lot of issues in dying in Washington State. Oh. So there's a lot of people I know up there that are gonna try and move to Idaho when they die. Right? So there is something to be said about maybe first half of retirement, second half of retirement, different seasons of retirement.
Mike:When you go to a nursing facility, where are you gonna go, if you go to nursing. So but it's it's not just a tax conversation. It's a lifestyle conversation. It's a support system conversation. It's a I would even say as a connection conversation.
Mike:Because if you move away Yeah. From all of your family
David:Right.
Mike:Is it worth it to be that lonely?
David:Just to not pay state income tax.
Mike:I mean, face time is only as good as face time. It's not as meaningful. So Yeah. You know, don't don't throw the baby out with bath water. Don't just try to avoid taxes.
Mike:Considerate about the whole picture.
David:Sure.
Mike:That's my answer.
David:Yeah. And to your point too, like, would tax laws change? Right? And I know in Missouri right now, as of this recording, they're proposing to get rid of their state income tax. So what if you're in Missouri and you leave to go to a tax free state?
David:Oh, and by the way, Missouri changed, now there's none there.
Mike:Why did you leave? I live in Kansas right now. Yeah. So and my wife's from Kansas. I'm supposed to never wanna live in Missouri.
Mike:But I'll tell you what, if that law passes Uh-huh. Yeah, Brookside's looking very appealing right now. Great neighborhood.
David:Great neighborhood. Love that neighborhood, by
Mike:the way. But we don't and, yeah, that's a whole Yeah. That's a whole situation.
David:Can of worms, but
Mike:What do mean if you're living on the state line Mhmm. Like that wouldn't bug me.
David:Yeah. Yeah. You're in the same metropolitan area. So, these
Mike:these are things to consider. But anyway, tax laws change, tax code's written in pencil, be aware of that, but live your best life. Don't jump over dimes to pick up pennies as they say.
David:That's probably the moral of the whole story here I think.
Mike:Yeah. Good luck with that, but it's important to know these things. Yeah. That's all the time we've got for this question though, if you enjoyed the question. Don't forget to subscribe, leave a rating, subscribe to us on YouTube.
Mike:Go to retireontime.com to get the book, the workbook, access to all of the planning resources that we've made publicly available to you, and join me live in a workshop where I put a plan together live, and then from there, I'll answer your questions. Actually, answer your questions along as the plan is created. All of that is retireontime.com. Thanks for tuning in. We'll see you in the next episode.