Income Taxes: State Taxes in Retirement - YouTube

Today's cardinal lesson is  going to talk about state  

income taxes, sales taxes, inheritance taxes,  taxes on your social security, at the state level.  

When we're going over this typically we're talking  about the federal income tax, which is the same  

for everybody all over the country and it is the  largest piece of the puzzle, so that's where most  

of our planning is. We haven't talked about the  state taxes, and in my books that I published,  

it really doesn't go over state income  taxes or state taxes in general,  

mainly because they're different in every  state this book would have been much thicker,  

and secondly it's just hard to write about  something that's different in 50 different places.  

Most of the articles that you read in the media  are very good and they're going to break it  

down by state, but the context of them is you  choosing what state you're going to retire to,  

and the reality is most folks don't make  that decision at all, or they don't make  

it based upon income taxes, like I live in the  raleigh-durham-chapel hill area, and we have  

tons of retirees coming in here, mainly because  their adult children and their grandchildren  

live and work here, and they're from different  places, and we've got great universities here,  

and a whole diversity of retirement, people  will choose our area because of that.  

Many folks continue to live where  they're from, they they like it ther,e so  

to get into like making decisions about  where you're going to live in retirement  

based upon taxes, and then state income taxes, I  think is somewhat of a false presumption because  

it is really, it's just a factor. Now where  we do get into this and have gotten into this  

is we do retirement planning and financial  planning for retirees, or getting ready to  

retire peopl,e all over the United States, in  all 50 states, in the District of Columbia,  

and when somebody hires us to do a financial  plan for them, we're going to get in and look up  

all the state income taxes that they  may face in retirement and even in death  

with their estate. So let's talk about this  a little bit, so this differs in every state,  

and what we're talking about here our  state income taxes is really the biggie,  

so like in North Carolina here it's like 5.5%,  that's just a simplified version of it. It doesn't  

have a lot of exemptions, and when you add that  onto the federal tax, it's pretty significant.  

When you're in Florida, there is no state income  tax, so that's why you see a lot of retirees,  

that's one of the reasons, in Florida is because  they don't have to pay any state income taxes  

and a lot of people will choose Florida, you  know, not only for the weather, but that's just  

a side benefit, and if you're one of these people  that's fortunate enough to have two residences,  

to you know, they call them snowbirds down there  in Florida, is that people who live part of the  

year there and part of the year wherever they're  from, you know, then you're going to have to  

pick a state and then you're going to have to  live there more than six months of the year,  

six months and a day, but you're able to  have a little bit of decision over this,  

and we want to make people familiar with this a  bit as a consideration, and we also want them to  

know that we're very familiar with it as financial  planners, so like using Florida as an example,  

you have no state income tax there, and secondly  you don't have any estate or inheritance tax,  

and their property and sales taxes  are just basically around average,  

so that is if you're picking somewhere that is  desirable, you have a lot of people in Nevada  

or Las Vegas or somewhere in Nevada that are  really California people but they have their  

domicile in Nevada and they spend most of the  year in Nevada and then they visit California, or  

they have a second residence, and you're talking  about a difference of like 12% state income tax  

and no state income tax, so that's a, you know,  it's a big incentive to domicile in Nevada. So  

let's go through and talk about some of those  taxes, income taxes, and then you've got a  

state and inheritance taxes, and at the federal  level, estate and inheritance taxes have very  

high thresholds so that most of the population of  the country is going to pay no inheritance taxes,  

and so many states just dovetail in with the feds,  even though they have an inheritance tax, they  

enjoy the same thresholds, but there are plenty of  states that have like a million dollar threshold  

where they're going to hit you with state  inheritance taxes, like New York, Pennsylvania,  

there's a number of them that are going to still  come back and get an estate, and when we're doing  

estate planning as part of retirement planning,  we need to know this stuff and plan for it. Social  

Security taxes, so the feds are going to tax  Social Security, but only based upon your other  

income, and we've done several lessons on that,  and continue to plan, and the federal tax is the  

most important part. Many states exclude Social  Security or income taxes on your Social Security  

period, like North Carolina is one of those, is  that there, you know, even if you have to pay  

federal tax on your Social Security, you're not  going to have to pay any state income tax on your  

Social Security. Then many states, you know, the  the taxes are higher, or their the thresholds are  

lower on the Social Security income tax, so it's  just it's all over the board. Then you got taxes  

on pension distributions, and I'll use my North  Carolina example, they're going to tax your full  

pension ,okay not your Social Security, but your  pension, if you're receiving that, a lot of folks  

don't have those anymore, but if you do you're  going to have a state income tax on that pension.

Taxes on IRA distributions, again you know so  that's what people have in place of pensions.  

The feds, the federal government, is going to tax  distributions from your IRA as a regular income,  

as ordinary income. Some states exclude  that, some states have thresholds,  

and as an example, my state of North Carolina  is going to tax those fully at that 5.5%,  

so when we're doing our planning  and we're making decisions  

we want to take all this into consideration, and  perhaps we're doing like Roth IRA conversions,  

where we're moving money from your traditional IRA  to your Roth, or we're proposing that you do that,  

and we're staggering it over a few years, we need  to take into account the state income taxes that  

you're going to pay on that transfer as well as  the federal income taxes. Sales tax and property  

tax, we don't get into too much planning on that,  but it is a factor and it is a consideration, and  

many states that don't have an income tax, they're  going to make up for that in their property taxes  

and their sales taxes as well to make their budget  balance. So we've got some examples here, you know  

like Florida we've already talked about that a  little bit, we've talked a little bit about North  

Carolina, they exempt the Social Security income,  California is going to tax, taxes income from  

retirement accounts and pensions, so they're going  to get your pension, they're going to get your  

retirement account, or your IRA distributions,  and they also have high property and sales taxes,  

so you put, it's pretty much a high tax state and  they've got a high level of services there, but  

you know, when we have, and we have many clients  in California, we got to plan for this stuff,  

and we need to know that it's coming, you  know, if we suggest something or we put a  

budget over a number of years. I'm Hans Scheil,  I've written a few books on these subjects,  

you can learn about those at  our website cardinalguide.com,  

you can give us a call, I'm Hans  Scheil, and I thank you for listening.