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NEW HAMPSHIRE’S STATE motto is “live free or die.” But for my wife and me, the first part might be better expressed as “live tax-free.”
We just moved to New Hampshire from Maryland. The move’s main purpose is to be near our kids, enjoy lake and mountain activities, and experience cooler summers. But New Hampshire’s zero tax rate on earned income, pensions and capital gains is a major bonus.
Eight states have no tax on personal income, capital gains or pensions: Texas, Florida, Wyoming, Alaska, Washington, Tennessee, South Dakota and Nevada. New Hampshire currently has a 5% tax on interest and dividend income above $2,400 for single individuals and $4,800 for joint filers. It’s scheduled to phase this out over the next four years, so it’ll be gone by 2027.
Contrast this with our old home state of Maryland, which has a 5.75% state income tax, plus additional local levies on income. Result: On past Roth conversions, in addition to the federal tax hit, my wife and I have incurred 8.1% in state and local taxes.
Most of our life’s savings were accumulated in tax-deferred accounts. Since retiring five years ago, we’ve been aggressively converting these to Roth IRAs to reduce our future tax burden. We hope to continue Roth conversions until our required minimum distributions start in five years, at age 72. That’s also around the time when federal income-tax rates are scheduled to rise, assuming 2017’s tax cuts are allowed to sunset.
New Hampshire is also one of five states without a sales tax. Since we don’t buy much stuff, and our new home came furnished, zero sales tax is not a big deal for us. To be sure, New Hampshire has high property taxes. Still, the savings from zero income taxes can outweigh the property tax bite for those with either high incomes or who make large Roth conversions. That’s why billionaires, retirees and tech employees who work remotely are fleeing to lower-tax states.
We’ve learned that high-tax states perform residency audits on those that change their residency status while still retaining a home in their old state, which is what we plan to do. Indeed, physical residency is tough to game. Cell phone data, electronic toll road collections, internet activity and video camera recordings can all provide a digital footprint for tax authorities to confirm where we live.
One tax-avoidance strategy is to move fulltime into a recreational vehicle and establish your permanent residence, or domicile, at an RV park in a zero income-tax state. Since the no-tax state doesn’t care about your whereabouts, RV residents may not even reside in that state for most of the year. Boat owners have utilized the same strategy to shift residency.
When changing residency from a high-tax state without selling your house, it’s important to cut many of your ties with your old state. Merely changing your driver’s license and spending less than half the year there may not satisfy tax authorities. They may claim you’re still enjoying the benefits of state residency even if you spend much of your time elsewhere.
That’s why there are apps that allow you to track your residency, including TaxBird, TaxDay and Monaeo. Even this may not be enough for RV residents who continue with many personal activities—such as doctor’s appointments, mail deliveries and property storage units—in their former high-tax state.
There’s more to our tax story: 12 states have estate taxes, while six impose inheritance taxes with a variety of thresholds and exemptions for spouses and other close relatives. Just one state, Maryland, has both an estate and inheritance tax. For even moderately sized estates, Maryland is among the most taxing states when the second spouse dies. The upshot: In moving to New Hampshire, our family will “live free” of many taxes—and, we hope, also die free.
John Yeigh is an author, speaker, coach, youth sports advocate and businessman with more than 30 years of publishing experience in the sports, finance and scientific fields. His book “Win the Youth Sports Game” was published in 2021. John retired in 2017 from the oil industry, where he negotiated financial details for multi-billion-dollar international projects. Check out his earlier articles.
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I find the calculator below a very helpful tool, get’s you a number to compare place to place. You could then add in other taxes as they’re also pretty easy to figure out.
https://smartasset.com/retirement/retirement-taxes
Great point about considering what kinds of taxes you’re most likely to pay. I’m always surprised that CA, where I live, doesn’t end up on the “worst” lists because our income taxes are pretty high. But our property taxes are capped because of Proposition 13 back in the 70s, and we just passed an even better version of it that allows people over 55 to move anywhere in CA and keep their Prop 13 basis.
Doesn’t matter to me, though—I’m a CA lifer and our families are here, so we’re not going anywhere (despite my yearning for Hawaii, which has some nice tax breaks for retirees).
John – I wanted to let you know that the information you provided about changing domicile came in very handy today at the AARP TaxAide center I work for. We had a retired married couple. They owned a home in NJ. While visiting their son in FL a few years ago, the husband sustained a serious injury and was confined to a wheelchair. He spent months in a hospital, and then went to his son’s home. He never went back to NJ. He had two pensions and some part-time income sent to his son’s FL address. His wife went back and forth frequently between NJ and FL. The rest of their financial accounts were registered to NJ. His SS, taxes, drivers license, .. were ll still using the NJ address. Using the knowledge I gained in this article, I was able to convince the other preparers that they were domiciled in NJ. Several thought it was only based on how many days one stayed in each state. So thanks for the great story.
Good for you! By the time I retire I hope my kids live in a low tax state!
Ben – that’s funny. Our family’s migration wasn’t a tax plan but rather a five year outdoors-oriented evolution. Our daughter moved to NH for work, the family visited, we rented and the family vacationed different places there (coast, mountains & lakes), our son liked NH so much that he accepted a job there, daughter’s fiancé got a job there, and we now bought & moved there.
The article made me curious enough to do a search for “New Hampshire state revenue sources”.
Found a very nice pie chart at https://nhfpi.org/resource/revenue-in-review-an-overview-of-new-hampshires-tax-system-and-major-revenue-sources/
Summary:
Sin and entertainment taxes: 30.3% (meals, rentals, tobacco, liquor, lottery)
Property taxes: 20.3% (property, real estate transfer)
Business: 28.4% (profits, enterprise)
Bunch of small taxes or other income sources: 21.0%
I did not dig into where the funding for local governments or additional educational comes from.
Interesting point about states auditing in the multi-dwelling case. I suppose it makes practical sense but wow.
Does NH tax businesses at a higher rate than average for other states?
Washington recently passed a CG tax on gains over $250K IIRC.
NY seems particularly aggressive in chasing residents who move out for part of the year, but in fairness, most of the publicized cases are for zillionaires, not someone saving a few thousand dollars per year in taxes.
Still, we have several different friends who live in FL and maintain a summer house in the North, and all are meticulous to document that they reside in the Northern house for well less than half the year.