Once you are approaching your retirement years, you start to think of how you are going to implement your retirement and spend your money. Choosing a place to live can have a profound impact on how far your money goes. This is the second half of an article taken from a past Retirement Advisor Newsletter, we discuss some of the tax issues associated with where you decide to live your retirement years.
WHERE TO LIVE IN RETIREMENT
Even if your income is not subject to state income tax, or your state has a low income tax rate, it doesn’t matter too much if what you purchase with your money is subject to high sales taxes. After all, in retirement you are now spending the money you previously saved and you want your dollar to go as far as it can.
State sales tax rates can range dramatically and The Retirement Advisor expects the trend of sales taxes to increase. There are only five states that have no state sales taxes: Alaska, Delaware, Montana, New Hampshire and Oregon. On average, most states levy a sales tax of around 4-5%. However, at least five states have sales taxes that are 7% or higher, including California, Indiana, Mississippi, New Jersey, Rhode Island and Tennessee. Under California's proposed budget the sales tax will reach a whopping 8.25% before local taxes are added.
Even in places where there is low or zero state income tax, if you know you want to live in a major metropolitan area, you should consider what you will pay in taxes to live in that city. For example, Seattle has a 9.5% sales tax, tied with Chicago as the highest among big cities. In the Los Angeles area, five communities have sales taxes of 10%!
A few states have exemptions on sales taxes for such items as food, prescription drugs and non-prescription drugs. The following URL will bring you to a web site that shows a state-by-state breakdown of state and local sales tax rats as of January 1, 2012:
Real Estate Taxes
For retirees wanting to build and live in their dream home, real estate taxes might be a deciding factor. According to Kiplinger, the five states with the lowest median real estate taxes are: Alaska, Louisiana, Mississippi, Alabama and West Virginia. Conversely, the five states with the highest median real estate taxes are: New Jersey, New York, Connecticut, Virginia and Illinois. Kiplinger has a web site that has various lists as to which state is most and least friendly for retirees for different categories at this URL:
This week, Forbes published an article entitled, “The 25 Best Places to Retire in 2012” which explores the average price of a home, the cost of living and the tax burden on retirees. The article can be found at this URL:
There are reasons other than financial to pick a certain place to retire. CNNMoney published a list of the 25 Best Places to Retire that lists towns that offer tons of amenities at a reasonable cost of living. You can find the list at the following URL:
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