Matt Mikel, CPABy Matt Mikel, CPA

For Upper Midwesterners, the idea of retiring in another state may sound appealing—especially when certain states offer an escape from both winter and income tax. But the process of calling another state “home” may be more complicated than you think. Here are a few things to consider if you plan to retire across state lines.

Income tax savings only go so far

Retiring in an income-tax-free state may seem like a no-brainer. Keep in mind, however, that other taxes, such as property, sales, estate, and/or inheritance taxes, could be higher than those levied by your current state of residence. What’s more, depending on the area, you could face increased costs of living as well as health insurance. So, even if you save on income taxes, you might spend more overall to live in an income-tax-free state.

Making a permanent move to a new state? Be ready to establish a domicile

You can’t just say you’re a resident of a state; you must establish domicile. Generally speaking, domicile is your fixed and permanent home location. It won’t change, even if you temporarily reside elsewhere.

Some of the ways you can establish domicile include:

Why does domicile matter? The short answer: taxes. For example, say you decide to retire in Arizona. Even though you purchase a townhouse in Scottsdale and consider yourself an Arizona resident, you keep your Minnesota driver’s license and vote in Minnesota. As a result, Minnesota could argue that you owe income tax.

Couple Walking On Beach - Retiring in Another State

Pay attention to each state’s rules for statutory residency

The tricky thing is, each state has its own rules for what defines a statutory resident—i.e., someone who spends a certain amount of time in the state even if domiciled elsewhere. For example, if you’ve established a domicile in Florida but you spend more than 183 days in Minnesota AND you own/rent, maintain, or occupy an abode in Minnesota, you would be considered both a Minnesota and a Florida resident for tax purposes. (Minnesota allows exceptions to the 183-day rule if you are a military member stationed in Minnesota or if you are a North Dakota or Michigan resident due to reciprocity agreements.)

So, before you decide how you’ll spend your retirement, be sure you’re aware of the statutory residency rules in any state you plan to visit for an extended amount of time.

Your story matters

Changing residency is not just about following a checklist, establishing a domicile, or spending a certain number of days in a state. It’s also about the story behind the change. What circumstances in your life are different than last year? The proper story combined with the proper actions is what justifies a change in residency in the eyes of the state taxing authorities.

Set yourself up for a stress-free retirement

Fun fact: In a recent article, Kiplinger ranked Alabama as the number one state to retire in when factoring in income tax, property taxes, sales tax, and estate/inheritance taxes. Whether you’re planning to retire in the “Heart of Dixie” or elsewhere, be sure to do your homework. Think through the cost and rules that could potentially impact your situation, and plan accordingly. Something else you should know: In the year you move, you’ll need to file part-year resident income tax returns, if applicable, in both the old state and the new state.

Not sure where to start? Your John A. Knutson & Co., PLLP can help you evaluate your options and make sure you’re on the path to retirement success. Contact us today.

When moving to a different state, the impact on your retirement depends on the new state’s tax laws and cost of living. Some states do not tax retirement income, while others tax pensions, Social Security, or withdrawals differently. Healthcare availability, estate planning rules, and property taxes can also affect your financial picture. Reviewing these factors before making the move helps ensure your retirement plan stays on track and that you avoid unexpected tax or financial burdens.

Retired military members changing residency must follow the same rules as civilians, with some added considerations. Begin by updating your driver’s license, voter registration, and mailing address in the new state. If you are receiving military retirement pay, check how your new state taxes it—many states offer partial or full exemptions. Document where you spend most of your time to avoid dual residency claims. Consulting a CPA familiar with military benefits ensures you understand how taxes and retirement pay will be treated.

There are many things to consider before retiring, including financial stability, healthcare access, and state residency rules. Taxes play a major role, especially if you are planning on retiring with no permanent home or splitting time between states. Evaluate the cost of living, housing, insurance options, and community support services. It is also wise to review estate planning documents, long-term care needs, and future income streams. Planning ahead and consulting a financial professional can help you transition smoothly into retirement.

Claiming residency in two states is not allowed for tax purposes. If you attempt to maintain dual residency, both states may try to tax your income. This can be a costly mistake, especially for retired living in two states taxes. Instead, you must establish a primary residency in one state and maintain documentation that supports it, such as voter registration, driver’s license, and time spent there. A CPA can help determine the best approach to minimize taxes and avoid disputes

There are several important things to consider before retiring in a new state. Start by reviewing how the state taxes retirement income, Social Security, and pensions, as rules vary widely. Next, confirm residency requirements to avoid issues like retired living in two states taxes. Evaluate healthcare access, housing options, and long-term care availability. Finally, update estate planning documents to ensure they’re valid in your new location. Careful preparation in each of these areas helps avoid costly surprises and ensures a smooth transition.