“We are planning a move out of the United States, possibly to the Philippines. Our retirement will come from pension plans in the U.S. If we receive our checks in the Philippines, we understand that we still will have to pay federal taxes. However, there is no domicile state that can collect taxes. So doesn’t that amount to a tax break? Or did I miss something?”
–Joe Doakes, United States
No, Joe, you’ve got it pretty much right there. Some states, California being one shining example, will try their darndest to collect state taxes even from those no longer living there, but if you don’t have money or property within the reach of California, there isn’t much they can do.
A lot of power that a state may have over former residents has to do with real estate, bank accounts and the administrivia of living … like a driver’s license.
If you are keeping real property in a state with income taxes (renting ut you house, let’s say), then you certainly need professional tax advice regarding that state… because, after all, you certainly have a “presence” there.
But if you are like the average Joe or Jane who is “selling up” and moving overseas, you don’t need to make any state part of your future plan. First of all, there is no law that requires an American citizen to also be a resident of any state. After all, there are literally thousands and thousands of American citizens around the world who, due to circumstances of birth are American citizens but have never even been in the USA. So you do not need a “state of residence”.
But since so many forms and business transactions and communications in general are always focused around having a US address, there’s a pretty easy solution. Become a resident of a state which has no income tax. Seven states impose no income tax. These states are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.
There are other states which don’t tax pensions and annuities, or are otherwise favorable to retirees. Kiplinger’s have quite few articles that can help you decide on a place to maintain your residence now, or in retirement. There’s more to make a state good or bad for retirement residence than their income tax alone.
Whatever you do (and remember, all my advice is unsolicited opinion, use a competent financial adviser for all your financial matters which require one), do not be like the folks in my “Car Broke Down Here” story, where they stay in a situation they really don’t like just because … well … they are there.
It’s your life, make it happen the way you want it to. I don’t know of anything that has made me sadder over the past 10 or 12 years of becoming (slightly) expert regarding moving to and living in the Philippines, than the people who “can’t stand” their current situations, but refuse to take action to change them.
Be the exception that proves the rule and make yourself happy, you are entitled to, tax laws or no tax laws.