You might spend your career building your savings with the long-term goal of enjoying the fruits of your labor in retirement. But planning for retirement requires looking at more than the money you are able to save now. The state you plan to retire in also impacts your financial future.
Think about it. As you save money now, you are choosing whether to have pre-tax savings or post-tax savings. The post-tax savings is known as Roth savings and is not subject to tax when using those monies in retirement.
Pre-tax savings are monies that receive preferential tax treatment when contributed into a qualified plan. In other words, you receive a tax deduction when you make contributions into the qualified plan.
When you begin drawing these monies in retirement, by at least age 70 ½, you will pay income tax on these distributions. There are no strategies to avoid paying income tax on the distributions to the federal government. However, where you choose to live during your retirement years can present opportunities to minimize state taxes on the distributions.
No State Income Tax vs. Tax-Favored States
There are seven states that do not tax individual income, and even more that are income tax favored. View state-by-state information in our helpful chart on our blog by clicking here.
About the blogger
Tom Gates, CPA received his Bachelor’s degree and Master of Science degree in accounting with an emphasis in taxation from the University of North Texas. He is a Certified Public Accountant and an Investment Advisor Representative.
Cain Watters & Associates LLC is an investment advisor registered with the Securities & Exchange Commission. Information provided does not take into account individual financial circumstances and should not be considered investment advice to the reader. Request form ADV Part 2A for a complete description of CWA’s financial planning and investment advisory services. There is no assurance that other client actual results will be similar to information presented. Estimated future results may not be obtained due to economic, business and personal circumstances.