moving to a state without income tax ; image- older couple with moving box in front of house

Retiring from federal service? If you’re thinking about moving to state with no income tax, make sure you read this first!

Katelyn Murray, CFP

By: Katelyn Murray, CFP®, ChFEBC®, FBS®, CFT-1™, ECA -

By Katelyn Murray-

Retirement planning can be a challenging and complex process, especially when it comes to determining the best place to live in your golden years. We talk to thousands of retiring Feds every year, and one of the top questions we hear is, “Should I move to a state that won’t tax my pension income?”.  Our answer is always emphatically “maybe… maybe not.” While it may seem like a no-brainer at first glance, we advise our clients to consider all the factors involved before making a decision.

One of the primary benefits of moving to a state with no state income tax is that you can potentially save a significant amount of money on your tax bill each year. For federal government employees with pension income, this can be a compelling reason to consider making a move. However, it's important to keep in mind that just because a state doesn't have an income tax, that doesn't necessarily mean that it's an overall cheaper place to live.

Learn the ins and outs of how your federal benefits are taxed at our next no-cost webinar!

The cost of living in certain states can be significantly higher than in others, which can eat away at any savings you might have retained from not having to pay state income tax. Florida, for example, is one of the most expensive states in the entire country when it comes to housing costs, which can make it difficult to stretch your retirement dollars. High demand, short supply, and increased “snow-birding” following the pandemic have not helped to reduce mortgage costs as of late. Additionally, many states with no income tax make up for that lost revenue by levying higher property taxes, sales taxes, or imposing other local taxes, which can take a significant bite out of your retirement income.

Another consideration is the quality of life in the state you're considering moving to. Just because a state has no income tax doesn't mean that it's a good fit for you and your family’s lifestyle or preferences. Consider the pace of life in the state you’re considering moving to you and whether that fits yours and your spouse’s preferences. Will there be enough activities going on to keep you engaged in the community and active in retirement? If you have children or grandchildren, will they be able to travel to spend time with you often? Are they capable of shouldering those travel expenses? If not, are you prepared to cover the cost of their travel? If you're moving primarily for tax reasons and you don't genuinely want to live in that state, you may find that the tradeoffs aren't worth it. Worse, you could end up feeling isolated and unhappy, which can take a toll on your mental and physical health in retirement.

In short, Feds thinking only “this place won’t tax my pension” could lead to an unhappy outcome. Ultimately, we recommend you only consider moving to a state with no income tax if it's somewhere you genuinely want to live! The tax savings may be tempting, but it's important to look at the bigger picture and consider all of the costs involved. As with many financial planning decisions, there’s more than money involved here. Don't let the proverbial “tax tail” wag the dog on this decision. Instead, focus on finding a place to live that meets you and your family’s needs, preferences, and budget. By taking a thoughtful and deliberate approach to retirement planning, you can ensure that you make the best decision for yourself and your financial future. Of course, our team is here if you’d like some help thinking it through.

**Written by Katelyn Murray, Financial Advisor. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

About the Author:

Katelyn Murray is a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional, a Certified Financial Behavior Specialist® (FBS®), a Certified Financial Therapist™ (CFT-1™), and an Equity Compensation Associate (ECA). A lifelong student, she also holds a Masters Degree in Business Administration as well as a graduate certificate in financial psychology and behavioral finance.

Katelyn has been helping Feds and contractors build the retirement of their dreams for almost a decade. Her unique approach merges financial psychology with traditional wealth management expertise to create an integrated financial planning approach that helps clients make the most of the one resource they can’t get more of: time.

Katelyn has appeared as a speaker on The W Pulse podcast, The Liquidity Event podcast, and has led multiple break-out sessions at national industry conferences. Here at STWS, she writes on financial planning and behavioral finance topics. When she’s not writing for our blog, you can find her serving as a financial advisor and Relationship Team Lead for our STWS clients.

moving to a state without income tax ; image- older couple with moving box in front of house

Federal Employees, Moving to a State Without Income Tax