For many retirees, the idea of moving to a no-income-tax state feels like a straightforward way to stretch savings. But what looks like a simple tax decision on the surface is more complicated when other costs, timing and lifestyle factors come into play.
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GOBankingRates spoke to financial experts to find out if the cost and savings of moving makes it worth going to a no-tax state.
Why Moving to a No-Tax State Isn’t An Instant Save
At first glance, eliminating state income tax seems like a great way to save. But Julian B. Morris, a CFP and principal at Concierge Wealth Management, explained that this is just one piece in a larger tax puzzle.
“Most people focus on state income tax and ignore how much the rest of their plan interacts with the move, where the income is coming from, how they’ll draw and what they’ll actually spend,” Morris warned.
And, if a retiree still has income coming in from a business or company in the state you moved from, according to Stewart Koesten, CFP and chairman at Aspyre Wealth Partners, they “will more than likely continue to pay income tax on that income in that state” because income “is taxed at the source.”
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These States May Add Other Taxes
States like Florida, Texas, Nevada, Tennessee, South Dakota and New Hampshire are often labeled tax-friendly, but they still generate revenue through taxes, Koesten pointed out.
“You may be subject to higher sales taxes, higher property taxes or licensing fees to make up for the income tax. No-tax states still produce income to support its need for revenue,” he said.
How Other Costs Can Offset Savings
Even if income taxes drop, other costs can rise quickly, sometimes wiping out expected savings. Koesten pointed to car insurance, gas, groceries, dining out and other expenses that can be higher in a larger city versus a smaller one, for example.
If overall spending is higher, retirees may not feel much relief from the lower taxes.
Healthcare Access Can Outweigh Tax Savings
There’s are other costs outside of taxes to consider in a move, Morris said. Healthcare premiums and access become more important over time and can vary widely by location. He pointed out that “quality the access and continuity of care” can change as well.
And while coverage may transfer, Koesten added that established relationships with physicians won’t and finding new ones can be “difficult and time consuming.”
Hidden Relocation Costs Many Retirees Don’t Plan For
Moving itself comes with expenses that aren’t always obvious upfront, Morris said, including “cost of relocation, changes in lifestyle and even the need to travel more frequently … which don’t always show up in a simple comparison.”
The more you plan ahead, the less it may be essential to choose a no-tax state.
When Staying Put Might Be the Smarter Financial Move
In some cases, not moving at all can deliver better financial and personal outcomes.
“There’s a real value and not having to rebuild your financial in personal infrastructure, particularly later in life and retirement,” Morris said.
Koesten agreed that taxes shouldn’t be the only consideration. Ultimately, the decision should come down to balancing quality of life with costs.
How To Know If You’ll Actually Come Out Ahead
A no-income-tax state can create opportunities but only when it fits into a broader, carefully coordinated plan.
The only way to know whether a move will truly save money is to look at the full picture, not just tax rates, Morris said.
“Retirees can estimate whether they’ll actually come out ahead financially by doing a plan, looking at expendable income after everything including taxes, housing insurance healthcare lifestyle cost,” he said.
Koesten suggested using comparison tools and professional guidance to model scenarios before making a move.
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This article originally appeared on GOBankingRates.com: Here’s What Moving to a No-Tax State Really Costs (or Saves) Retirees
