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Relocating in Retirement? Finding the Best State Taxes Matters

Rebekah Barsch •  May 17, 2016 | Enjoying Retirement


It’s no surprise that the state of Florida has long been a popular destination for retirees. With its warm climate, ocean breezes, lush golf courses and relaxed style, what’s not to like? And the migration shows no signs of slowing.

According to a U.S. Census Bureau report released in March 2016, the fastest-growing metropolitan area in the U.S. from 2013 to 2014 was The Villages, a retirement community outside Orlando, Florida. In fact, six of the top 20 fastest-growing metro areas were in Florida, followed by the state of Texas with five of the fastest-growing areas.

Aside from warm weather, what do those two states have in common? No state income tax. And that makes them particularly attractive destinations for retirees who want to know that they’re getting the most out of every dollar they saved for retirement.

Zero-state-income-tax states can save retirees thousands or even tens of thousands of dollars a year. Seven states currently impose no individual income tax1: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In those states, no type of retirement income is subject to state income tax—whether it’s coming from Social Security, a pension, a qualified retirement account such as a 401(k) or investments. Among states that do impose an income tax, the rates range from below 1 percent in some states to more than 12 percent in others2.

In addition to state income tax, property taxes and sales taxes also vary widely from one state to another. Five states currently impose no sales tax3: Alaska, Delaware, Montana, New Hampshire and Oregon.

How Does It All Add Up?

To get a sense of the impact of state and local taxes on retirement income, here’s an example of how vastly different the tax burden can be depending on where you live. The hypothetical example compares the combined tax burden (income tax, property tax and sales tax) among several areas of the country and assumes a retired couple:

  • Is age 65.
  • Takes standard tax deductions and files as “married filing jointly."
  • Receives $100,000 in taxable ordinary income each year.
  • Lives in a home valued for tax purposes at $300,000.
  • Buys $10,000 worth of items that are subject to state and county sales tax.

(City, County)

Average State Income
Tax On $100,0004

Approximate Property Tax On $300,0005

Sales Tax
(State + County)6


(Boca Raton, Palm Beach County)



6% or $600


(Houston, Harris County)



8.25% or $825


(Tucson, Pima County)



6.10% or $610

North Carolina

(Asheville, Buncombe County)



7% or $700


(Des Moines, Polk County)



7% or $700


(Portland, Multnomah County)



0% or $0

The amounts in the chart above are intended to illustrate how residency in different states can have different tax effects. The actual tax effect for a particular individual may be very different and you should consult your tax advisor with regard to your circumstances.

The comparison illustrates two important points.

Save Smarter: The Truth About Your 401(k)First, taxes matter. When you consider the combined income, property and sales tax burden of our hypothetical couple, the location where they choose to live can cause significant tax differences. For the states listed above, the difference in one year can be upwards of $7,500 in income and property taxes alone.  Of course, you may need to dig a little deeper to get the complete picture. Typically states or municipalities will pay for services one way or another. That could mean a government with no income tax may have a higher sales tax or property tax. Or, you may not get the same level of service. Still, imagine how the difference in taxes can add up over the course of a 30-year retirement.

Second, if you happen to live in (or choose to move to) a state with a high state income tax, the illustration drives home the importance of having a mix of taxable and non-taxable assets in retirement. If you’ve saved the vast majority of your retirement income in a 401(k), for example, that’s all going to be subject to income tax as you make withdrawals in retirement. If, on the other hand, you have a substantial amount of your income in tax-free or tax-advantaged accounts, such as a Roth IRA, the sting of income tax might not be as painful, and your money can stretch further. 

This could also be true if you have a permanent life insurance policy and no longer have a need for the full death benefit; you may be able to utilize the accumulated cash value to supplement your retirement income.

So if you’re thinking about moving to another state in retirement, ask your financial professional to help calculate the impact of taxes on your retirement income in your chosen state. Maybe even ask for a comparison. Will you have more spending power in Florida or Colorado? Arizona or Texas? Tax rates certainly won’t be your only consideration when choosing a retirement destination, but it should be one of them.

This publication is not intended as legal or tax advice. Financial representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

Each method of utilizing your policy’s cash value has advantages and disadvantages and is subject to different tax consequences. Surrenders of, withdrawals from and loans against a policy will reduce the policy’s cash surrender value and death benefit and may also affect any dividends paid on the policy. As a general rule, surrenders and withdrawals are taxable to the extent they exceed the cost basis of the policy, while loans are not taxable when taken. Loans taken against a life insurance policy can have adverse effects if not managed properly. Policy loans and automatic premium loans, including any accrued interest, must be repaid in cash or from policy values upon policy termination or the death of the insured. Repayment of loans from policy values (other than death proceeds) can potentially trigger a significant tax liability, and there may be little or no cash value remaining in the policy to pay the tax. If loans equal or exceed the cash value, the policy will terminate if additional cash payments are not made. Policyowners should consult with their tax advisors about the potential impact of any surrenders, withdrawals or loans.




4Based on each state’s instructions for calculating and filing income taxes for 2015. Assumes no income is subject to employment taxes.

5Source:   The disclosure on the website indicates data is based on 2009 property tax surveys. This website is one among several that compile data on state taxation.  Northwestern Mutual makes no representations regarding the accuracy of the information and encourages you to consult with your tax advisor.    

6Sources:; http://comptroller.texas.gov;

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