Can You Make Your Retirement Tax-Friendly?

Plenty of people think about relocating in retirement. Cost, convenience, proximity to family or friends are some of the factors that can make moving attractive.

Is the hassle of packing up and moving to a new region worth it? About 1 in every 5 of United Van Lines customers said in 2022 that they moved for retirement, according to the company’s National Movers Study. In nine states — Arizona, Delaware, Florida, Maine, New Mexico, South Carolina, South Dakota, West Virginia and Wyoming — at least a third of new arrivals were retirees.

The percentage of non-retirees who say they plan to move after retiring is much higher (40%), Nationwide found in a 2022 survey. But being near family wasn’t the top draw. Lower cost of living and lower taxes (cited by 43% and 34%, respectively) shows these decisions are mostly financial.

One way to reduce costs is to pay less tax. And one thing people don’t want to pay tax on is Social Security.

Most states don’t tax Social Security benefits, and the list of states that do is shrinking. In 2021, 13 states taxed Social Security. Now it’s down to 11. And most of the states that DO tax Social Security offer waivers and deductions to ease the burden.

In Connecticut, for instance, residents can deduct most or all of their benefit income, depending on their adjusted gross income (AGI). Those who are single filers with an AGI of under $75,000 and married couples whose AGI is less than $100,000 do not pay state taxes on Social Security benefits. If your income exceeds those thresholds, 75% of your benefits are tax-exempt.

But remember, income taxes are only one tax likely to change when you relocate for retirement. Other taxes to consider include property, utilities and sales of goods and services.

For more about states that tax Social Security, read Mary Ellen Cagnassola’s story.

— Jill Cornfield, deputy editor

Most employer retirement plans (about 80%) offered a Roth contribution option in 2022. That’s up from 71% in 2018, according to a Vanguard analysis of 1,700 retirement plans. There’s no current-year tax deduction for the Roth contributions, but you can withdraw your contributions and the earnings tax-free if you meet certain conditions.

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