Retiring Abroad: Tax considerations for retiring in the U.S.

Tax Considerations for Retiring in the U.S.

Retirement brings with it many considerations and sometimes big changes. One of the biggest considerations is location. For Canadians who want to move from Canada when they retire, the most popular destination is our neighbour to the south. We have written previously in this blog segment about retiring to the US: 

How Long Can a Canadian Spend in the U.S. Each Year?

Top 10 Best Places to Retire

Recently we came across an article in the Globe & Mail which looks at retirement to different states from not only the perspectives of climate, cost of living and health care, but also delves deeper into the idiosyncrasies of US state taxes and how that can affect a retiree’s decision. The states they looked at specifically are Tennessee, Florida, South Carolina, Nevada, Arizona, Hawaii and California. 

The differences from state to state can be quite stark. For example, in Arizona, a retiree from Canada who makes a withdrawal from their RRSP, and pays 15% withholding tax to the Canadian government, can use that as a tax credit against state taxes. On the flipside, in California, not only are RRSP withdrawals taxable, but they are the only state that doesn’t recognize the RRSP as a tax sheltered investment vehicle – this means that gains, dividends and interest realized inside the RRSP would also need to be reported on the state tax return.  Another example to be aware of is that in Texas, there are no state taxes but property taxes are very high. 

Making the decision on where to live during retirement is complicated by many factors, some personal and some financial. Understanding the tax implications of the jurisdiction can be very important, both at the federal level as well as at the state or provincial level.