Considerations for Relocating at Retirement
Ah … retirement! A time to slow down the pace a bit, work on projects you have not been able to get done, play more, travel, or even start a new career. An opportunity to spend more time with those people most important to you. Retirement is a lot of different things to different people.
As part of your retirement, you may be considering a move to a new state to get closer to friends, family, or places you frequently like to visit. For whatever reason you may have, you must consider the tax consequences of the move and what it looks like in the locality you’re considering.
There are a few basic concepts you need to understand in order to know what to expect. Many states use the concept of domicile as a means of defining residency. Others use statutory residency. Domicile is the place you determine is your permanent home—the place you have a substantial connection to and where you will return to after you have had a temporary stay elsewhere. You can only have one domicile at a given time, and once established, it will be deemed your permanent abode until your intent and actions clearly indicate and support you have changed domiciles.
Statutory residency also is a concept states use for people who live in multiple locations over the course of the year. Some states will consider you a statutory resident if you spend a certain number of days in that state or if the state determines you are in the state for more than temporary reasons. As a result, it is possible to be considered a resident of more than one state without careful planning.
Every state is different, so you should consider the rules for each state where you plan to live at least some of the time. This may require some substantial record-keeping on your part to document where you are as well as what financial transactions and travel plans you have over the course of the year. This is especially true if you have vacation homes or spend a large part of the year in different locations.
The easiest way to cut ties with the state in which you currently live is to sell your home and move. You will be taxed for income earned while you were there, but once you leave, as long as you re-establish your permanent residency elsewhere, you will make a clean break. Once this is done, you should not come back to your former state and spend a lot of time there. Visits to see friends, etc., are fine as long as they are temporary. Spending significant time back in the former state could indicate that there are bigger ties to the state and might reclassify you as still a resident even though you may have sold your house and thought you finalized your residency status.
Below is a list of some important things to do as you move to help ensure a clean break from your former state:
- Sell your home and clean out your valuable belongings. Move those to your new state.
- Buy a home in the new state.
- Make sure you get your mail transferred to the new location.
- Don’t work in your former state if possible.
- Don’t spend a lot of time in your former state after you leave it, and move significant professional relationships such as doctors, lawyers, etc., to your new location.
- Close out local banking relationships and move them to the new state. Using a national bank can make this easier. Also move your safe deposit boxes to the new state.
- Use your new state address for tax returns, insurance records, passports, credit cards, Social Security, bank and broker accounts, and membership organizations.
- Change your driver’s license and vehicle license plates once you are settled in your new state. Don’t delay these changes.
- Register to vote in the new state. You can typically do this in many states when you get your new driver’s license and vehicle registrations.
- Transfer or get new memberships such as gyms and country clubs in the new state.
- Plug into your new community by being involved in charities and participating in community events.
If your state allows it, file a statement of domicile in the new community with the county clerk to declare that location as your new domicile.
The key is to know how the state where you are currently domiciled and the state where you wish to establish your new domicile will view your activity (or lack thereof) with regard to domicile and residency. Considering and addressing this prior to any relocation will help you avoid an unexpected tax bill—states continue to be more aggressive in trying to pull people back in when they thought they had left. It is always good as you contemplate a move to consult and plan with your BKD tax advisor to understand the tax implications of making a move.
For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below.