Are you, clients, family, or friends planning to relocate from one state to another to help save on living costs? Perhaps you’re considering moving from a state with an income tax, like California, to a state with no income tax, like Washington. We regularly guide clients in effective tax strategies for high earners and those living in high-tax states. In this video, Ann Timoney, CFP®, outlines two tax strategies to consider when planning your move:
We highly recommend consulting with a tax professional if you’re moving to one of the nine states with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Their guidance is an essential part of your comprehensive financial plan when discussing strategies, such as:
- Delaying Sales on Appreciated Assets: If you own appreciated assets and plan to sell them in the future, it’s important to consider the tax implications, such as taxable gains. For example, delaying the sale of assets, such as stocks and real estate, until you’ve established residency in a state with no income tax can lead to significant savings.
- If you live in a state with no income tax and are planning to move to a state with an income tax, you would ideally sell appreciated assets while still a resident of the no-income-tax state. Example: We advised a client moving from Texas to California to consult with his tax professional after stating his intent to sell an extensive stock portfolio. Texas has no state income tax, and California does, with steep progressive brackets. He sold the portfolio while still a Texas resident, avoiding significant California taxes.
- Strategically Timing Retirement Distributions: You can save even more if you’re at or near retirement and have the flexibility to choose when to take distributions on a taxable pension or IRA. You may consider waiting to take those distributions until you’ve established residency in a state with no income tax.
Here are additional considerations:
- Establishing residency involves both IRS and state-specific rules, which you should thoroughly understand before planning a move or employing tax strategies.
- New Hampshire residents must pay income tax on interest and dividends.
- Washington state residents must pay capital gains tax on long-term gains for assets held for one year or longer. Washington state has separate rules regarding income levels and capital gains tax.
With over 35 years of mortgage and financial services experience, Ann has a unique understanding of real estate and how to incorporate it as an asset class with financial planning. She’s committed to sharing her expertise to help clients produce better results and peace of mind. Please contact us to learn more about our services and how we can help you achieve your planning and wealth-building goals. You may also get started with our wealth assessment to get a baseline of your current financial situation.
Opes Wealth Management is a financial advisory and wealth management firm and cannot provide tax advice. This information is intended to alert you to seek professional tax advice when moving to a new state or remaining in your domicile state for tax planning purposes.
Audio Transcript:
Ann Timoney (00:00 – 02:02):
Have you ever thought of moving to a new state to save money on cost of living? I’m going to share some information with you that many people are not aware of. I’m antimony with opus Wealth management. When you’re moving from a state that has state income tax, like California, to a state that has no state income tax, I’m going to give you examples of two strategies that can save money on taxes. First, if you’ve got a stock portfolio that’s increased in value very nicely and you intend to sell all or part of the stock in the near future. Consider delaying the stock sale until after you’ve established residency in the no income tax state. That can save you a lot of money in taxes. Second, if you’re near or at retirement age, and if you can choose when to start taking your taxable pension or taxable IRA distributions. Delay taking those distributions until you have established residency in the no income tax state, and that can save you even more money. By the way, there are nine states that have no state income tax. In the West we have Alaska, Washington, Wyoming and Nevada. In the south, Texas, Tennessee and Florida. Then up in the north, we have New Hampshire, and somewhere in the middle is South Dakota. Now, the IRS has rules about establishing residency when you move to a new state, and each state can have its own rules about establishing residency. So before you make important financial decisions around your move to a new state, consult with your tax professional to get specific advice for your situation.
Written by: Ann Timoney Personal Financial Advisor, CFP®
Disclaimer: Case Studies are provided for illustrative purposes only to provide an example of the firm’s client base, process, and methodology. The experiences portrayed herein are not representative of all firm clients. Other individual outcomes may vary based on their individual circumstances, and there can be no assurance that the firm will be able to achieve similar results in comparable situations. No portion of this case study is to be interpreted as a testimonial or endorsement of the firm’s financial and investment advisory services. Client tax situations are unique and specific, and you are encouraged to consult a tax professional to analyze your specific situation. This material has been prepared for informational purposes only, and is not intended to provide tax, legal or accounting advice; nothing contained in these materials should be taken as such. The opinions expressed in this article are not intended to provide specific advice or recommendations for any individual or on any specific tax strategy or security. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Opes Wealth Management cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Advisory services are only offered to clients or prospective clients where Opes Wealth Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Opes unless a client service agreement is in place.
