What Moving to Another State Can Do To Your Finances

October 1, 2020 | Article

We live in a very mobile society. So when we think about a job change or retirement planning, the option to change our state of residency is usually on the table.

Before you prepare for the big move, however, there are a few things to consider—and not all of them involve scheduling movers or finding a new place to live.

The Financial Impact of Moving to Another State
Change of state location can directly impact your finances and your potential tax burden. Things to consider include:

  • State tax differences
  • Taxation of retirement benefits
  • Cost of living, other than housing
  • Cost of housing
  • Personal considerations

State Tax Differences
States take different approaches to taxing their residents and these differences can have a dramatic change, up or down, on the overall economics of making a move to a different state. There are some states that do not have an income tax, including:

  • Texas
  • Florida
  • South Dakota

But the states that don’t have a state income tax still need to have revenue to operate. Therefore, they will use other taxation items like increased sales tax rates, special taxes such as personal property tax, more versions of property tax and other assessment type taxes to create cash flow for the various levels of state and local governments. There are also still some states that have estate tax requirements that need to be considered.

A detailed comparison of the state tax differences should be one of the first things done when considering a state of residence move, as it usually defines the largest economic effect of the move.

Taxation of Retirement Benefits
Other than employment moves, most state residency moves probably involve retirement. That’s why it is important to find out how, or if, retirement benefits will be taxed. Some states, like North Carolina, make special provisions for military and do not tax military retirement. Other states, like Oklahoma and Pennsylvania, do not tax most, if any, retirement benefits. Therefore, having this information available and applying your facts to the state rules eliminates an after-move surprise.

Cost of Living
Housing isn’t the only thing to consider when it comes to cost of living. The more active you will be, the greater the chance that other cost of living factors will be of major interest to you. There are various reports available that provide statistics from prior years, but it’s best to try and find the most current information specific to the actual location in which you plan to live. Plus, the more limited your retirement funds, the more important cost of living considerations become.

Cost of Housing
It’s just a fact of economics, the more desirable a place to live is deemed to be, the higher the cost of housing will be. Unfortunately, this factor is sometimes one of the last items on the list that people consider, but it should be closer to the top of the list.

Housing cost includes the cost of the property plus the operating expense, including insurance and property taxes, which could be higher based on the location (for example, along the eastern coast of south Florida that is prone to hurricanes.)

Having this information available early in the move decision process will allow you to see if any anticipated tax gains will be enough to offset any increase in housing costs, thereby reducing cash flow anxiety, or if higher housing costs will just dig a deeper negative cash flow hole.

Personal Considerations
This move factor can be assessed by posing the question: “Why do you want to move?” Are you moving closer to family? Are you moving for health or climate issues? Are you moving for employment purposes? Is it a dream you are trying to capture? This is not a decision that is determined through rationalization. Whatever your proposed reasons for the move, you should write them down and confirm why they are important to you, then fully compare the results with the financial ups or downs determined from the other items of consideration. Do they align? And remember, others may offer assistance in the final decision to move, but in the end, the reasons for the move and the acceptance of the financial ramifications of the move, whatever those turn out to be, will be decided by you and those that will be directly affected.

How to Decide Whether or Not A Move Is Right for You
Making the decision to move isn’t easy, but knowing the financial ramifications, in addition to the personal ones, can help make the decision a little easier.

Enjoy the journey.

Moving is just one thing that can impact your financial planning. We’re here to help you plan for the future, regardless of what state you’re in.

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