Perhaps a better retirement-tax move would be to Alaska,
Delaware, Oregon, New Hampshire or Montana, the five states that
don't have a state sales tax. Perhaps not. Remember Alaska's local
sales taxes? City, county, school district or other special taxing
jurisdictions (a la Illinois) are common nationwide, even in states
without an overall sales tax.
And even if you do find a suitable retirement spot
in a state without an income or statewide sales tax, you'll likely
come back to that property-tax consideration mentioned earlier.
Every government has to get operational money from somewhere. States
without income or sales taxes, says Logan, tend to have higher
Eventual estate taxes
Sometimes the state collects your money after the fact through estate
and inheritance taxes. Many retirees look for places to settle
where they can be assured they'll be able to leave their family
and friends well taken care of.
The federal estate tax is being gradually phased out and is scheduled
to expire in 2010, but unless lawmakers act it will be right back
in 2011. Meanwhile, the states who tie their estate tax laws to
the federal statute have been working to reconcile the changes.
"Some codes are automatically updated to correspond with federal
law," says Logan. "But in others, the legislature must
act. Some did and some didn't before the effective date of the [federal
estate tax] law."
The upshot, says Logan, is that there are now several jurisdictions
that still have estate tax provisions that could be costly: Illinois,
Kansas, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New
Jersey, New York, North Carolina, Oklahoma, Oregon, Rhode Island,
Virginia, Vermont, Wisconsin, Washington state and Washington, D.C.
A separate, but related, issue is inheritance tax. Estate taxes
are collected from the estate based on its total value of assets
at death. Inheritance taxes are imposed when the estate is distributed
and are based on the amount that each heir receives. States with
inheritance taxes include Indiana, Iowa, Kentucky, Maryland, Nebraska,
New Jersey, Pennsylvania, Ohio, Oklahoma and Tennessee.
Ready to just stay where you are? That might not be such a bad
idea. As Logan puts it, "I don't know that I'd designate any
state a particular tax haven."
His words probably are welcomed by the various state promotion
boards. They also underscore the truth of taxes: You can deal with
just about any of them as long as you know going in what they are,
how they will affect your retirement plans and how you can manage
state tax directory can help you get an idea of your state's
tax laws or those in a state you might like to call retirement home.
You also should check out retirement-income
tax breaks that many states offer.