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Moving after retirement? Consider state-tax impact on IRAs

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in Small Business Tax,Small Business Tax Deduction Strategies

If you plan to pack up and move after retirement, you'll probably weigh various factors when eyeing a landing spot, including climate, crime rate and recreational opportunities.

But here's another to put on the list: the state's tax structure.

Reason: After you hit age 70 1/2, you must start taking minimum distributions from your IRA. And those distributions are taxable. So by moving to a low-tax (or no-tax) state, you'll keep more after-tax money from your IRA withdrawals.

State tax bite can add up

IRA withdrawals are subject to both federal and state income taxes. The state tax bite may not seem big, but it adds up quickly.

For example, in a state with a 5 percent income tax rate, you'll owe $25,000 to the state for each $500,000 you withdraw from your IRA.

State taxes are deductible on your federal tax return, which lowers your effective state/local income tax rate. But that's true only if you co...(register to read more)

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