Where You Retire and State Tax

The no-income-tax states

A handful of states levy no broad income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and (effectively) New Hampshire. For a retiree drawing six figures from tax-deferred accounts, moving from a high-tax state to one of these can eliminate the state tax on those withdrawals entirely.

States make up the lost revenue elsewhere — sales tax, property tax, fees. A move should weigh the whole cost of living, not just the income-tax headline. (A couple of these states also tax investment income or capital gains in specific ways, so check the details.)

The compounding math

Consider a retiree in California drawing $90,000 a year from retirement accounts. California state tax on that is roughly $6,000+ a year. Relocate to Florida and that drops to $0. Over a 30-year retirement, that's well over $180,000 — before counting the growth on the money you didn't send to the state.

Many states also exempt some or all retirement income (and most don't tax Social Security), so even staying in a tax state, the retiree's effective rate can be lower than during working years. The point is to know the rules of where you are — and where you might go.

The move year is split

In the year you actually move, your income is apportioned: what you earned while a resident of each state is taxed by that state, with credits to prevent the same dollar being taxed twice. So the savings start in earnest the first full year in the new state.

How Horizons uses this

Horizons can model a relocation partway through your plan — switching to the destination state's tax rules at the move month — so you can see the long-run, compounding impact of where you choose to retire.

Check your understanding