- Company Retirement Benefits
- Social Security and Medicare Benefits
- Investments and Taxes
- If You Decide to Move
- Putting It All Together
Pension and Deferred Compensation Issues
After you retire, you may decide to move to a state with lower tax rates or no state income tax. Generally, Federal law prohibits states from taxing nonresidents on most retirement plan distributions. The law applies to amounts received from most employer-provided retirement plans and IRAs.
Sale of Your Principal Residence or Investment Property
If you move to a new state and keep a home in your old state, you have a few issues to deal with.
- If you keep your home in the old state and rent it for more than a temporary period, the home will be no longer be considered your principal residence. When you sell it, you won't be eligible to use the gain exclusion rules, see the section The Role of Your Home in Retirement. Also, when you sell the home, you will have to file a tax return in your old state and report and pay tax on any gain.
- If you maintain a home in both your old state and your new state, you must be very careful as to which state you are considered a resident. If you want to be considered a resident of the new state, make sure you spend more than six months of the year in the new state and center your life in the new state by registering to vote, registering your car, opening checking accounts, etc.
There are a lot of things you can do to help establish your residency in the new state. If this is your goal, or if you have moved and have questions about selling your home, call your tax professional.
Changing Your Locale
The section The Role of Your Home in Retirement examines the pros and cons of trading down your residence. Maybe you'd like a change of climate or locale as well. You may also opt for a different living arrangement. Besides living in a single family home in the general community, you may want to consider adult or retirement communities, condominiums and town houses, or possibly a mobile home, giving you the opportunity to explore the country and live in different locales at different times of year.
IMPORTANT NOTE: Never move to a new locale until you have checked it out thoroughly. You may be making a big investment and may be spending the rest of your life in this chosen location.
Tips on Choosing a New Locale
- Taxes affect your retirement income. Look into the tax structure of the location you are choosing. Compare it to other locations, including your current state. Check out income taxes, inheritance taxes, property taxes and sales taxes.
- Do your research on the new location - consider climate, health care options, cost of living, cultural activities, social environment, local public transportation, airport and train facilities, and community and religious organizations.
SUGGESTION: Health care will be an important concern. Look for excellent hospitals, easy availability of health care, and good doctor to patient ratios. Also, see if the area you may move to has an HMO, if that is your health care preference.
- Read about the new locale in books, magazines, newspapers, and online. Contact the local chamber of commerce for information.
- Experience the new locale in all seasons, not just tourist season.
- Choose an area based on what you already like to do, in addition to what you might like to do in the future.
- Do you want to keep working in retirement? What kind of opportunities will be available?
If it is your goal, establish legal residency in the new location. This will have a bearing on how you are taxed for both income and inheritance taxes. There are many things you can do to help establish your legal residency in the new state. Call your tax professional.
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