State Income Taxes – should we move?
Thinking about moving to lower your state income taxes, or eliminate them?
Do the math before you start packing. Take-aways:
1. State income taxes should NOT be the primary decision-making point when considering moving in retirement
2. When comparing New Jersey vs Florida costs, the total estimated average annual savings is about $4,500 ($13,393 in NJ vs $8,892 in FL) when considering state income taxes, homeowners insurance, and property taxes
3. Florida has no state income tax, but has significantly higher homeowners insurance and may have high HOA fees
4. New Jersey has a retirement income exclusion that may allow retirees to exclude pension and retirement account income from state taxes
5. Personal factors like proximity to family and quality of life should be more important considerations than tax savings
State Income Taxes – should we move?
Timestamps:
00:38 State Income Taxes as a Decision Factor
01:40 Example: New Jersey vs. Florida
02:52 Retirement Income Considerations
03:45 Hidden Costs to Consider (HOA fees, etc.)
05:15 Making a Holistic Retirement Relocation Decision
State Income Taxes – should we move? Links
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Watch this episode (State Income Taxes – Should We Move?) on our YouTube Channel
Wall Street Journal article (paywall):
Retirees Who Move to Lower-Tax States May Not Save as Much as They Think
State Income Taxes – should we move? Transcript
Should I move in retirement – to save money on state income taxes?
As advisers in New Jersey…
A high cost of living area here in Monmouth County. Also, New York and New Jersey are two of the highest cost of living states out there.
As advisors we get asked this a lot, is it OK to move to a state with lower state income taxes in retirement?
Should I move in retirement to a lower income tax state, like Florida, Texas or Tennessee?
Those states don’t have any state income taxes.
“So if I move there, there’s usually a lower cost of living associated with that as well.”
“Should I move there?”
And, “does that make sense?”
“Would that help my retirement equation?”
Just want to start out by saying that state income taxes of where you’re moving (to), should NOT be the primary decision-making point for you… in a decision that’s as big of a decision, you know\…. as it is to move and to change where your primary residence is going to be.
That’s a huge decision that you need to know all the ins-and-outs of; and a lot of it is personal.
As advisors it’s our job to quantify the numbers, quantify the financial aspects of it and help you make the decision that’s right for you.
So. I think it’s important to to put all of the numbers together.
We can’t just look at what the state income taxes saved may or may not be.
I want to, you know, throw out some other contributing factors. And I want to also mention quickly, that we are going to be referencing to some numbers from sources cited in a Wall Street Journal article which we’ll link to in the show notes. Go check out the article, it sums it up well.
But I want to compare and contrast New Jersey versus Florida, across three different areas:
– State income taxes
– Homeowners insurance
– Property taxes
When you put all those numbers together, is there savings?
How much savings is there? Let’s get into it.
The average state income taxes payment in New Jersey is $2200 in Florida. It’s zero. There’s no state income taxes there.
Homeowner’s insurance: for a $300,000 dwelling in New Jersey, the average cost of is $1,193 per year.
In Florida, that number is $5,292 per year.
Property taxes here in Monmouth County, I just picked, you know, random counties. Well, Monmouth’s not too random. That’s where we’re based out of and a lot of clients that we work with live there.
The average (property tax) is $10,000 per year. And in Palm Beach, Florida, just picked a random county, it’s $3600 per year.
The average home prices are different in New Jersey. It’s a lot higher than in Palm Beach, Florida too, so you have more wealth (uh, you know, probably?) in New Jersey than you would in Florida.
So put all of those numbers together
– State income taxes
– Homeowners insurance
– Property taxes
all put together in New Jersey, the average per year is $13,393.
In Florida, it’s $8,892.
New Jersey is higher – by about $4500 per year.
So now that you know the numbers, the question for retirees is, is $4500 really going to move — $4500 a year — is that really going to move the needle enough for that to be the primary decision making point in a big move like this?
So is $4500 really going to move the needle from “your retirement plan looking good” to “not looking good”?
Or from “not looking good” to “looking good” if you save that money?
You know, it’s, it’s obviously different in Florida.
(For example,) homeowners insurance is more expensive than it is here in New Jersey because of hurricanes and natural disasters.
I also know that a lot of Florida-based communities are going to have high homeowners association fees.
So that’s just going to even lower the gap in terms of the difference of what you’re saving.
So yes, you’re saving in state income taxes. But it could be offset in other areas.
So you also want to consider the sources of income in retirement. I know New Jersey has a New Jersey retirement income exclusion.
So this is money that you, if you receive money from pension or retirement account – like a 401k (or an) IRA. That money you can exclude from your New Jersey, state income taxes. Also want to quickly throw in that Social Security income is not taxable at the New Jersey state level.
You have to know what your actual New Jersey state income tax bill is going to be. And if it’s, it might not be as much as you think! It depends on on the sources of income. I am not going to get into all the details of that retirement income exclusion, but consult with your tax preparer.
If your total income is under $100,000 you can (may be able to currently) completely exclude pension and retirement account income for the year. So you might not end up owing a whole lot in New Jersey state taxes – if those are your main sources of income.
But the point being, just want to reiterate here, that saving money on state income taxes – while it’s nice in these states like Florida, Texas, or Tennessee that don’t have any state income taxes, it’s a nice bonus.
It shouldn’t be the primary decision making point for you.
There should be, you know, more personal factors like are you moving closer to family?
Are you, do you think your quality of life is going to be better there with, with the warmth and sunshine all year round, instead of the New Jersey’s seasonal changes?
So, from a numbers standpoint, this is how we think you should be thinking about this decision.
Thanks as always for tuning in. We’ll be back with you on the next one.
