Monday, April 25, 2011

Why It’s UNECESSARY for Retirees to Relocate Because of State Income Tax

Why It’s UNECESSARY for Retirees to Relocate Because of State Income Tax

Allow me to clarify: I’m not trying to suggest to retirees where they should retire. Rather, I’m doing the exact opposite – empowering them with the freedom to choose to retire wherever they’d like, instead of feeling they MUST relocate for the mere reason of avoiding outrageous state income taxes. 
In my humble opinion, traditional financial advice has been dead wrong for decades — and this very subject proves my point. People spend all their lives working, planning, and saving for retirement. And then, just when they should have the freedom to enjoy the fruits of their lives’ work, they are faced with deciding whether to move to a different state for the sole reason of avoiding income taxes so that they can have more spendable income. In fact, certain members of the financial press proudly direct “endangered” retirees toward tax-friendlier states (and away from the tax hawks) so that they can keep more of their money.

Here’s the shocking thing, though. It is completely unnecessary to move just so you can enjoy your retirement income tax free, both on the federal and state levels. Unbelievable, isn’t it?

It’s no secret that Title 26 — which is a fancy name for the U.S. Tax Code — allows every American taxpayer who so wishes to fund specific nonqualified vehicles. These funds can then be accessed later (in this case, for retirement) without creating what the IRS considers a “taxable event,” meaning every penny at the federal level will be income-tax free. What’s more, since funds accessed in that manner are not counted as “earned,” “passive,” or “portfolio” income under the 1986 Tax Reform Act, they are not factored into calculation of one’s “provisional income” — meaning, they will not affect taxation of social security checks in any manner. Pardon those technical terms, but the bottom line here is that by properly setting up and using the right funding vehicle, you could have completely income tax-free money under federal tax laws.

But this whole discussion is really about state income taxes. That’s even simpler and more amazing. You see, 35 out of the 41 states that levy income taxes use your Federal Adjusted Gross Income (AGI) from line 37 on Form 1040,  line 21 on Form 1040A, or line 4 if you use Form 1040EZ, as the starting point for determining your state tax. I know you are smart, so can already see that since those funds assessed from the nonqualified options described above are not included in your federal AGI, neither will they be included in your state numbers. Therefore, by simply following and exercising your legal duty under our tax laws, you can avoid federal and state income taxes. Boy, oh boy, aren’t simplicity and common sense just elegant?

I’m pretty certain that you have some sort of savings program set aside for your golden years. But have you discussed — in detail — exactly how those funds might be taxed or otherwise affected later on? Of course, we can never predict the future with 100 percent accuracy, but wouldn’t you agree that anything short of a detailed simulation would be irresponsible and potentially catastrophic? It’s time to start discussing it so that you know exactly where you’re headed!

Of course, it’s your decision and your decision alone as to where you ultimately live in your retirement. But wouldn’t you agree with me that that sort of decision shouldn’t be driven by income tax considerations? Especially after a lifetime of hard work? In my opinion, enjoying a comfortable retirement must include absolute control over wherever YOU decide to live. 
Contact a professional at Laser Financial Group today to set your risk-free, complimentary appointment to discuss ways to preserve your retirement income so that you can live comfortably wherever YOU want to, when the time comes. 301.949.4449 or

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