Q&A about Wyoming Geo-Arbitrage with Kim from TheFrugalEngineers

The faithful reader of this blog will remember that I’m a fan of the outdoors. Wyoming, the least populated state in the country, has recently won over my heart for its beauty (at least in the summer time).

 
(Grand Teton, Vedauwoo, Wind River Range, Yellowstone)

 

A couple of months ago I learned of a new blogger (Kim from www.TheFrugalEngineers.com) who moved from a high-tax Oregon to a very low tax Wyoming for the purposes of geo-arbitrage (both cost of living & taxes). Reading through Kim’s blog, I found her to story to be quite compelling. Luckily, she has graciously humored my request for a Q&A about Wyoming to be published here. In the following Q&A, Kim provides a compelling case for the favorable economics of living in WY.

 

I’ve formatted the Q&A as follows:

My question

  • Kim’s response
    • My follow-up question/comment (if applicable)
      • Kim’s follow-up to my follow-up (if applicable)

 

I feel somewhat abused by the state tax system of my current state. I have a 7% marginal rate on income, 2% of home value on property taxes, >= 7.25% on sales tax, and high car registration fees. As a former resident of Oregon, I suspect you can commiserate on many dimensions (sans the sales tax complaint). Suffice it to say that when I stumbled across your blog, I was enthralled to meet someone who had accomplished the geographic tax arbitrage that I find so mathematically appealing.

  • We had tremendous tax fatigue during our two years in Oregon. With two small businesses, we were the ones writing all the checks and seeing that much money leaving our accounts every month (instead of being hidden on a W-2 pay stub) was eye-opening. When Oregon residents would chime in with “well at least we don’t pay sales tax” my thinking was that it’s mathematically impossible for it to even out since the income tax brackets dwarfed sales tax rates in other states.
    • I think there is a lot of wisdom in what you said here. Since (us) W-2 employees don’t cut the actual tax checks to the Federal & State governments, we don’t feel the pain of taxes as much as if we were physically transferring the cash. This is precisely one of the reasons why I explicitly include taxes in my financial reporting – to force myself to explicitly think about them on a monthly basis.
      • I read a behavioral economics book recently (“Dollars and Sense” by Dan Ariely) which brought up the concept of “the pain of paying”. When consumers don’t see/feel the transaction of paying taxes, it becomes second nature and unquestioned. Similar to paying investment management fees. We actually used this knowledge to highlight to a family member the amount of fees she was paying to her investment manager (2% assets under management). I asked her if she would feel comfortable physically writing a check for $800/month to a person who just purchased low-cost index funds for her (aka a personal shopper). Framed like that, she woke up and transferred her holdings to a self-managed portfolio.
        • A fellow loather of AUM fees! I’m a huge fan of Dan Ariely.

Was a 0% state income tax state a must-have for you when considering moving states? Would you have considered relocating to a state with a reasonable-ish state income tax (say Colorado with a 4.63% top marginal rate)?

  • Yes, this was an absolute requirement for us. As entrepreneurs, we don’t want to feel any sort of cap on how much we can earn (via an income tax). The federal income tax is unavoidable if we want to stay in the US, but state income taxes are a choice based on where you live. Philosophically, we believe income tax is a lazy method of taxation, so leaving Oregon for a tax-free state was us taking a stand. The way I see it, taxes are felt as a penalty to the taxpayer (money taken out of your pocket), which should not be associated with doing something productive and beneficial (i.e. going to work and earning money). Taxing on consumption (i.e. penalizing you for using up the limited resources on our one shared planet) is more in line with our personal value system. We would not have considered moving to a state like Colorado for this reason.

One argument against obsessing about the 0% state income tax location is that, post retirement, incomes tend to be low (as opposed to pre-retirement). Thus, in retirement, property tax and sales tax should be much more important than income tax. How would you respond to this critique?

  • A common misunderstanding among Oregonians is that you don’t pay income taxes when you’re retired. Withdrawing money from your pre-tax retirement accounts (401Ks) does leave you with a tax bill, so it’s not a zero line item in a retirement budget. Also, we’re retiring at the ripe age of 35, meaning we’ve still got a few more decades where we might opt to earn money through work again. We currently have three small businesses in the family and plan on keeping the parts that we love about them running through “retirement”. In fact, most retired people I know personally still do some sort of paid work (usually for fun), so taxes are still very much on the table. Sales tax doesn’t concern us as much since we aren’t big consumers. Property taxes were a concern when we moved, and our property taxes in Wyoming are lower than anywhere we’ve ever lived (we owned homes in Florida and Oregon). Nevada has some of the lowest property taxes in the country, which was our second choice.

I really enjoy the blog of BigERN. A few months ago he posted a detailed analysis on his thought process on selecting a retirement destination, which I found to be fascinating. What cities made your list of potential destinations? How did you end up deciding between them?

  • We started with the tax-free states. Then we added a requirement for skiing within an hour (daughter’s favorite activity), close distance to an in-state university with engineering, and public schools with specialized gifted programs. This lead us to look into Farragut, TN (near Knoxville), Carson City, NV (near Lake Tahoe), and Laramie, WY (two hours north of Denver). We also visited Alaska on a cruise and had previously spent time in Washington, Texas, and Florida. South Dakota was the only tax-free state off the list (limited skiing and university access).

I’m curious to hear whether you curiously considered a move to the adjacent state North of you, Washington (where I lived for 4 years and loved it).

  • We ruled Washington out for several reasons. #1 is the estate tax, which brings us no value. #2 was the climate – we dealt with Seasonal Affective Disorder in Oregon and knew we didn’t want to move somewhere cloudier. We both grew up around a lot of sunshine, which was a big appeal of both Carson City and Laramie.

I’ve done my fair share of obsessing about state income tax regimes, and WY consistently scores among the lowest tax regime in the entire country. I’ve also done my fair share of travelling across WY. I find the I-80 corridor to be a bit desolate (no offense!), though the Western side of the state is quite dramatic (Star Valley, Jackson). I understand that Jackson is prohibitively expensive, but were there other parts of the state that intrigued you?

  • I hear you about I-80. Although they’re spread far apart, we love visiting the small towns in Wyoming where the elevation is higher than the population. We briefly visited Cheyenne and decided it was too big for us (we prefer small towns of 20 to 30 thousand people). We also spent time in Jackson and Dubois, which were too far from the university to be practical. Our long-term plan is for our daughter to attend UW and live at home (again, saving money there) which really only works in Laramie.

How do you live without a Costco (joking…not joking)?

  • Our Walmart is amazing here! They have online grocery ordering and everything we need. The only thing I miss is Aldi, which I’ve come to terms with since we moved from the South. We do make trips down to Denver or Fort Collins when we need something like IKEA furniture. This was actually another one of our tests when we visited potential retirement towns. I had to feel comfortable going into Walmart alone after dark. Carson City failed that test.

In your retired life, what is the annual tax savings (income, property, sales, car registration) of living in WY? Specifically, I’m comparing retired-OR tax cost vs retired-WY tax cost.

  • On a retirement income of $40,000, we’d be paying Oregon $3,676 in state income taxes, $5,004 in property taxes, no sales tax (except 2% on dining in our town’s restaurants, about $36/year), and $372 in car registrations. That’s a total of $9,088/year in Oregon.
  • That same $40,000 in Wyoming comes out to zero state income taxes, $2,196 in property taxes, 6% sales tax (4% state, 2% county) is about $1,500 based on our spending, and $566 in vehicle registrations. That’s a total of $4,262/year in Wyoming. The annual tax savings comes out to $4,826/year.
    • This is precisely the type of calculation I’ve been looking for! An annual tax savings of $5k/year translates (roughly) to a $125k lower required retirement savings (=$5k/0.04). If a hypothetical family is saving $20k/year for retirement, then retiring to OR rather than WY would cost this family an additional 6 years of working. This is crazy! Recurring expenditures, taxes often being one of the most important, are indeed something to pay attention to.
      • Earlier this year we ran the numbers on our financial independence status (i.e. which expenses were already covered by our portfolio using the 4% rule). It hit us like a ton of bricks when we saw that we were already FI except for state income taxes in Oregon. I had just finished re-reading Your Money Or Your Life and spent time reflecting on our life energy & values. We both agreed we didn’t want to devote any more life energy towards funding the government in Oregon (too much inside knowledge of how the sausage is made).

In your retired life, what is the annual non-tax cost-of-living savings by living in WY, as opposed to OR?

  • The main non-tax cost savings come from buying a lower priced home ($489,000 in Oregon to $375,000 in Wyoming) and health insurance. The regular things like groceries, restaurants and shopping feel about the same (we’ve been here three months now). Gas has gone up since Wyoming is so spread out (our ski resort was 20 minutes away in Oregon, here it’s 45). One unexpected source of cost savings was on kids activities and entertainment. Since we’re near UW, there are lots of students with community service requirements on campus. This results in our kid receiving free soccer camps, free tennis lessons, free hockey, free art camps, and my husband receiving free Spanish lessons. We learned that some of the sports here evolve into “travel sports” when kids are older, and we agreed as family to say no to those. Driving eight hours and getting a hotel for a fifth grader’s basketball game isn’t our idea of a good time.

Pre-retirement, did you strategically shove more money into tax-deferred vehicles (trad 401k, trad IRA, etc) knowing that you’d relocate to a no-tax state in the future?

  • Most of our working career was spent in Florida, with no state income taxes. We always prioritized tax-deferred retirement plans because we wanted to lower our tax bill TODAY. I viewed our retirement contributions as a bill that we had to pay, so it was never really negotiable to stop putting money into those accounts.
    • Got it; Given that most of your income was earned in Florida, you didn’t have this aspect of geo-arbitrage going for you. I would assume that most of the readers of this blog live in a state with income tax, so this mechanism is especially poignant for us. If I were to retire to a no-income-tax state, I’d get an immediate 7% return on any money shoved in pre-tax accounts (Trad IRA, Trad 401a, Trad 403b, Trad 457) since it would save me state income taxes today that would never have to be paid. For the curious reader, living in a no-income-tax-state during your working years creates an incentive to shove more money into Roth accounts than you otherwise would, since this creates the option to move to a high-tax state after retirement and not face any tax consequence on the Roth withdrawals. Of course, one pursuing this strategy would have to be mindful of the total tax burden (federal + state) in both scenarios before naively following any simple rule of thumb.
      • IRAs are interesting. We’ve had years where we didn’t qualify for the Trad IRA deduction and made too much to qualify for a Roth contribution too, so we did a non-deductible Trad IRA (which really confuses accountants). The amount of paperwork to keep track of which flavor of IRA we used each year is cumbersome. I’d rather just have extra room in my 401K or HSA to fill up!

I’m unsure of where we’ll end up in retirement, but I’m almost positive that the marginal rate will be less than 7%. Therefore, there is a very clear state-tax-arbitrage incentive to shove money in (aside from the obvious federal tax arbitrage a-la-Go-Curry-Cracker).

  • The FEIE tax hack he wrote about was what initiated my interest in moving abroad years ago. It never happened, but I still fantasize about it.
    • For as much as I fantasize about tax optimization, I can’t plausibly envision taking my family abroad to save taxes. I love the idea though.

      • We had a few boom years with my business where this could have made a lot of sense financially, but in our household I’m the parent who enjoys school-related stuff (my husband is more into the outdoors and physical activity than doing flash cards). I didn’t want to take on the responsibility of running a high-income business in addition to overseeing our daughter’s education while in a foreign country. This is the exact same reason we’re not a full-time RV family (too many spinning plates with a school-aged kid and small businesses involved).

Are you implementing Roth Conversions? If so, how much are you converting per year? How did you decide on what the appropriate amount to convert is (just the standard deduction, up to the 10% bracket, up to the 12% bracket, etc)?

  • That’s the plan, to do the five year Roth IRA pipeline after our Oregon house sells and we use the proceeds to pay off our Wyoming home. Until then, we’re still freelancing month to month for cash flow. We calculated that we can convert $44,300/year tax-free using this equation, factoring in the standard deduction for a married filing jointly family with one dependent: [44300 – 24400 std ded – 19400 <10% rate>]*.12 + 1940 = 2000 child tax credit. We’re projecting our annual spending in Wyoming to be around $44,000/year after the house is paid off, so theoretically we’d be paying zero taxes in retirement.
    • Your computation brings tears of joy to my eyes. Here it is reformatted for the reader:
    • 44,300 Roth Conversions
      -24,400 Std Deduction (MFJ)
      =19,900 Taxable Income
    • Federal taxes owed:
      10%*(19,400-0)
      +12%*(19,900-19,400)
      = $2,000 Taxes owed (Pre Child Tax Credit)
      -2,000 – Child Tax Credit ($2k per child x 1)
      = $0 Taxes owed (After Child Tax Credit)
    • Looking more closely at your tax situation, your average tax rate in retirement is 0% at the federal and the state level. Dear readers, this is incredibly important. Kim has pulled of the ultimate arbitrage! She’s slowly converting all of her pre-tax trad 401k money into after-tax Roth IRA money and not paying a penny of taxes. This is just what Jeremy at GoCurryCracker does, though GCC supplements this strategy by exploiting the 0% tax region on long-term capital gains and dividends for investments for up to $100k of total income without paying a penny of taxes. Deeply understanding what’s going on here will change your life forever. Every dollar of savings allocated to pre-tax retirement accounts (trad 401k, trad 403b, etc) effectively gets an immediate return of your current marginal tax rate!!!!!!! The underlying mechanism is the differential tax rates in retirement (marginal tax rate during working years vs average tax rate during retirement years). In this example, Kim’s marginal rate is 12%; if she converted $1 more to a Roth, she’d pay $0.12 of federal taxes. However, the relevant metric when thinking about the Roth vs. Trad decision is the marginal rate while working vs the average rate (0% in this example) in retirement. Before the Trump tax cuts, my (effective) marginal rate was 37.5%. Post Trump tax cuts, my effective marginal rates is 24%. If I were to follow Kim’s (and GCC’s) strategy in retirement, then any dollar contributed to a trad 401k would net me an immediate 37.5% return in the pre-Trump tax era and a 24% return in the post-tax Trump era. When compounded over an investing lifetime, the cumulative effects of exploiting this differential federal tax rates are absolutely astounding. Note that these tax savings would have been amplified had Kim been working in a high-tax state during her accumulation phase. If that were the case, not only would she have saved the differential federal rates on her contributions, but also the differential state income tax rates after moving to WY. 401ks are generally referred to as tax-deferred accounts, but Kim has shown that these can be turned into tax-free accounts (a-la-HSA) by simply withdrawing wisely on the back end.
    • My only observation on Kim’s situation is the following. Currently, she’s only exploiting $500 (=19,900-19,400) of the 12% bracket. If she were worried about potential changes to future tax laws (such as increases to tax rates in the future or the shrinking of the standard deduction to pre-Trump levels), she could hedge against those risks by locking in a 12% federal rate on any additional money. Since the 12% MFJ bracket ends at $78,950, Kim’s leaving on the table $59,050 (=$78,950 – $19,900) of potential Roth conversions at the 12% level each year. If the tax code doesn’t change in the future, then Kim will be glad to have not converted more. However, if the standard deduction plummets (i.e. reverts to pre-Trump levels) or if tax rates rise, perhaps Kim will regret not locking in that 12% rate while she had the chance. I’m not taking a stance one way or the other on the issue, but these are the implicit tradeoffs that Kim is making with her decision to only convert $44.3k/year. Downstream RMD distributions as well as current interactions with the ACA would definitely influence Kim’s strategy as well (RMD distributions create incentive to convert more today; ACA subsidies create incentive to convert less today). I frankly haven’t given enough thought to either of these implications to speak intelligently to them, but I know that GoCurryCracker has written about both (RMD and ACA).
      • This is the next level for us to explore – actually selling assets in a tax-efficient way (harvesting capital gains). Regarding future tax changes, we’ll see which way the compass is pointing at the end of 2020 and readjust our strategy to optimize whatever rules are on the books (i.e. we might be able to kick the can down the road another four years, look at expatriation, or somewhere in between). In Wyoming, we’ve got plenty more room to show income in retirement and still be under the ACA subsidy threshold. I’m not sure about RMDs, so I’ll have to build a spreadsheet to model some options there. If we still have a huge pre-tax balance by that age, it may be enough to cover the associated tax burden.
    • If the above math is confusing/uncompelling to the reader, please read the draft tax-optimization “book” I put together last year which covers these topics in excruciating detail (link).

What are you doing for health insurance? ACA? What has been your experience thus far? What is the size of the subsidy? Does size of your Roth conversion interact with the ACA subsidy?

  • We’re currently on a short-term health insurance plan ($202/month) while we scale back our freelancing income and wait for the Oregon house to sell. In Wyoming, a family of three with an AGI of under 80,000ish pays nothing for a HSA-eligible high deductible health insurance plan. above 80k, it’s full price (about $1,600/month for us). Although our AGI is likely to be under 80,000 this year after retirement contributions, business expenses, etc., filling out the application for the ACA plan is not the simplest thing for self employed folks. The equations in the application don’t ask for things like retirement contributions, so we want to be totally squared away at earning a GROSS income of under 80,000 before any tax tweaks to fly under the ACA subsidy radar. In real life, this looks like both of us turning away work in the summer. We figure paying $2400/year for a short-term plan while we iron out our income is a small price to pay.
  • This was another benefit of moving to Wyoming. Short term plans in Oregon only have three-month terms, so if you get an illness in February, you’re uninsured for most of the year until open enrollment. In Wyoming, short term plans go for 364 days, which helps ease our minds for worst-case scenarios.

How did your extended family and friends react when you told them you were moving to WY? Has anyone been out to visit you?

  • We’ve had parents come visit but no friends or siblings yet. Being two time zones away can be tough, but I moved out of my mom’s house when I was 15, so I don’t really get homesick. Any time someone complains about how we’re so far away, I remind them that my first choice was to move internationally and I settled on staying in the US 🙂

What airport do you use? I’m assuming Denver (2.5 hours away by car)?

  • Denver if we’re flying as a family of three, or the Laramie regional airport in town (connects to Denver) for solo business trips. The cost of driving and parking in Denver makes more sense for a family.

Give me your best sales pitch for WY as opposed to other tax-friendly states (NV, TX, TN, WA, SD, etc).

  • Having lived up and down both coasts throughout my life, Wyoming is a special kind of place. Since we’re the least populated state in the nation, the media tends to leave us alone. If you’re tired of the anxiety-ridden big city life and want to be free to do your own thing, Wyoming is great for that. We’ve got national parks, national forests, skiing and unmatched natural beauty for a fraction of the price of our neighboring states. The saying here goes “the wind keeps the air clean and the people away.”

As I understand it, you have yet to experience a WY winter. Having spent the past 8 years in the Midwest, I can testify of the horror of a Midwest winter (though perhaps the horror is more poignant because I choose to bike commute year round). I suspect a WY winter will be similarly horrible. What gave you the confidence to embrace the WY winter while presumably never having experienced one?

  • We have lots of cyclists here (college town). Moving from Florida to Oregon was a bit of a climate shock, and I didn’t enjoy the wet winters in the Pacific Northwest. Wyoming is sunnier than Oregon, and instead of rain, we just get snow. It can be 5 degrees here but with the sun it feels like 20. The thing that sold me personally on Laramie was the city recreation center. It has an indoor water park that’s open every day, with dance classes, basketball courts, an indoor track, etc. I would not have moved to a town in Wyoming without that type of amenity. Most mid-size towns in Wyoming have a similar setup.
  • Living here and hearing the residents talk about how much they love winter (skiing! snowmobiling!) makes me want to embrace the winter sports, so I’m taking ski lessons. I picked the brains of friends in Montana and Alberta for ideas on how to dress when it’s below zero. It also helps that I’m a bit of a “house cat” and like to stay inside in the winter to deep clean the house, read all my books, bake and nest. The house we bought has an indoor rock climbing wall in the basement, which we’ve converted to a full-on play room to keep cabin fever at bay.

How long do you expect to live in WY?

  • Until grand babies entice me to move somewhere else, so at least a few decades. We only have one kid (age 6), so the plan is to relocate to wherever she plants her roots and live the grandparent life. Lots of folks grow up in Laramie, go to UW, then get good jobs, buy houses and start families right here. I love that it’s the kind of town where a family can stay put for generations and still find gainful employment (the University provides a lot of jobs). I’ve lived in 35 places in 35 years, and I’m ready to stay put for a while.

How does your immediate family like living there? Any unanticipated benefits? Any unanticipated downsides?

  • Our daughter had a hard time leaving her friends in Oregon. As soon as the school year started up, she made friends quickly and has adjusted well. My husband has made friends (we landed on a street of engineers, go figure) and is considering going back for his PhD. Unanticipated benefits: I had no idea it would be this family-friendly. There is so much going on here for kids, we often have to pick and choose what we’re doing that weekend because of all the free activities. Every home football game has free activities for kids (bounce houses and ponies!). The movie theaters do a kid’s deal – $8 for one movie per week all summer! The class sizes are much smaller than in Oregon (14 students here vs 23 students there). I also love that we’re near a trail on a ridge with a view all the way to the Rocky Mountains. That’s my favorite place to walk and clear my mind, and it’s accessible by foot. Unanticipated downside: rabbits! They eat the grass and it’s a battle keeping them out of the yard. The altitude takes some adjusting – we’re at 7,220 feet above sea level and it’s easy to get winded if you’re not in good shape.

Is there any college arbitrage that your kid can pull off as a WY resident? Somewhere I thought I’d heard that WY residents are entitled to free tuition at University of WY, though my memory may indeed be failing me. Aside from that potential arbitrage, are you aware of any affirmative-action type measures that out-of-state schools would employ that would work in your favor (in an effort to obtain a better geographic representation, does this place WY students at an advantage for probability of admittance and/or increased scholarships)?

  • YES! I’m glad you asked. I started a College Planning in Early Retirement series that covers exactly what we’re doing. Wyoming has an amazing in-state scholarship called the Hathaway Scholarship. Depending on GPA and SAT/ACT scores, the amount of financial aid varies. Essentially a 3.5 GPA and a 1200 SAT equals a full ride to UW. This is because Hathaway also has a need-based component, and if you reach that top merit-based tier (Honors level), they match 100% of your unmet need with grants. We also have an amazing community college in town that’s fully integrated with UW, so students can take the first two years of coursework at a discount (even mechanical engineering). The community college is across the street from the high school, so dual enrollment and concurrent enrollment programs are popular.
  • It’s funny you mention out-of-state schools. Colleges like to boast that they have students from every state, so if your child is the only one to apply that year from Wyoming (they very well might be), they’re at an advantage. The college situation here is so favorable that we agreed to stop saving any more. With an accredited four-year university walking distance from home, there’s no rational need to plan for an out-of-state school. If our daughter decides to go out-of-state, I’d encourage her to look at the schools that offer Robin Hood pricing (which favors early retired families also), but we’re not on the hook to pay if she chooses to go to the University of Colorado.
  • The town here is very into school spirit. Elementary schools take field trips to the college athletic events, college students volunteer in the schools, etc. This summer I took my daughter on a “girls date” to tour the campus, show her the sorority houses and dorms, and eat in the dining hall. She fell in love with UW in one afternoon, so we’re keeping that energy going by staying involved with campus events.

Have you made it to the Wind Rivers yet? If not, any plans to do so?

  • Not yet, we mostly hike in the Snowy Range mountains close to home. I say it’s the same topography as Yellowstone but without the geysers and bison. Vedauwoo is a popular climbing destination between here and Cheyenne – folks drive up from Colorado to experience it.

I’ve dreamed about an eventual move to WY for years now but haven’t yet convinced myself to pull the trigger. The Star Valley area looked beautiful (I drove through it this summer, like much of WY, in our National Parks tour), but is super isolated. The I-80 corridor looks less isolated but flatter than I’d like. But the economics of moving to WY are hard to refute. As of today, I’d consider retiring to WA, ID, NV, WY, UT, or CO. I’m still trying to narrow it down, which is why I wanted to pick your brain so much.

  • A trip to Laramie could be enlightening for you. I’m sure UW could use another Finance professor! Laramie is called “the gem city of the plains” and I agree – it really is a gem. You read my mind, it’s like I’ve just been waiting for someone to ask these exact questions! Thank you 🙂

Are there any posts you’ve written that you think that readers of this blog should read?

 

A huge thanks to Kim for humoring my barrage of questions and enlightening me to the wonderful world of living in Wyoming!!!!!! To follow her journey, visit her site: www.TheFrugalEngineers.com.

 

Edit: After this guest post, Kim wrote a great geo-arbitrage tutorial here: https://millennialmoney.com/geoarbitrage/. It’s worth reading.

14 thoughts on “Q&A about Wyoming Geo-Arbitrage with Kim from TheFrugalEngineers”

  1. Don’t forget Alaska! No state income tax, no sales tax, reasonable property taxes, higher salaries (in general). And, just today, the PFD would have paid $11,202 to your family of seven. Limitless outdoor opportunities and most people have a frugal, DIY mindset. There are even Costco’s in the major hubs of Anchorage, Fairbanks, and Juneau. With the wind Laramie winters are arguably rougher than a lot of Alaska.

    Reply
    • Thanks for the heads up. I’ve never been, but I have a brother-in-law who lived in Anchorage and Fairbanks. They loved lots of aspects of Alaska yet did not love some aspects.

      The PFD is definitly enticing and could help offset some cost-of-living (including increased travel costs) differential. Google tells me that one qualifies for the PFD after 5 years of residency. Seems like a nice benefit.

      Reply
    • If you’re asking why Kim NH didn’t consider NH, perhaps she can answer that question.

      If you’re asking why NH is not on my short list, it’s primarily due to where my extended family is located: near CO & UT. Ironically, yesterday I was speaking to a colleague about his somewhat recent move from NH to the midwest. He lamented the unfavorable tax regime here. Thanks to your recommendation, I’ll have to make a point to visit NH; I’ve never been.

      Reply
      • Thanks for taking the time to reply! Also, annual car registrations can be expensive in NH, as it based on the cost of the vehicle and how new it is.

        Reply
  2. Community College in Laramie (L Triple C to locals). Ask Brandon about it.
    Word of caution on those winters… I doubt you’ll be able to manage keeping the heat off entirely like you currently do when you are sans kids (And Mrs. F’s internal thermostat would require a house not a bus or trailer). But I’m sure if you moved there you would remedy the Costco situation. And quickly. 😉
    PS: And enough with your 5% body fat flexing pictures. Your veins are popping out so far they are cracking my $105 Moto G screen. We are set to pay off three loans by February so if I could not need a new phone before then that would be great. Miss you guys.

    Reply
    • I should have interviewed Brandon on what it’s like growing up in WY. Agreed that my no-heat strategy would be less viable there.

      Congrats on paying off the loans! That’s fantastic news!

      Reply
  3. I will note that you can also do significant intertemporal state tax arbitrage without even needing to move out of a (notorioiusly) high tax state.

    For example, in New York State, once you are 59 1/2 there is no state tax on the first 20K in IRA distributions each year. On an MFJ return, that can be up to $40,000 per year in state-tax-free Roth conversions annually if both spice (the plural of spouse should be spice by analogy to mouse/mice!) are over 59 1/2.

    But wait, there´s more! (as the late night infomercials say.) NY does not tax *any* government pension income (where govt means federal, NYS or a political subdivision of NYS, such as city, town, school district, fire district, water district, etc.) This includes 403b distributions from the so-called ¨Optional Retirement Plan¨ in the SUNY & CUNY systems, which allows employees of such schools to contribute to DC plans at Fidelity or TIAA. So retirees from such plans have the option to do an unlimited amount of conversions from such plans without paying any state taxes.

    I have been pleasantly surprised by the very drop in my NY income tax bill post 59 1/2 and feel no need to move for tax arbitrage. To make staying even more attractive, NY decoupled from TCJA, which allows me more generous tax deductions on my state return than I get on my federal return. I also get some senior tax breaks on my property tax bill and a variety of other amenities (e.g., folks over 60 can audit free classes at the excellent nearby community college.)

    I live in upstate NY (surrounded all sides by mountains–Berkshires to the East, Catskills to the South, Helderbergs to the West, and Adirondacks to the North.) Stunning natural beauty, recreation, history, culture, lots of colleges and knowledge industry folks. Great transportation: decent regional airport (Albany), Montreal/Boston/NYC within 3 hours or so by Interstate, and fabulous Amtrak service (Manhattan is an easy day trip with gorgeous scenery as train runs along the Hudson.)

    If you need any further evidence that upstate NY can be a sensible place for frugal folks to retire, consider that the surviving co-author of the Millionaire Next Door, retired SUNY professor Bill Danko still lives in the same house where he raised his family.

    https://dailygazette.com/article/2018/01/07/local-authors-offer-up-financial-life-advice-with-new-book

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    • Thanks for adding “spice” to my vocabulary.

      Coincidentally, I read a WSJ article about Trump recently changing his residence from NY to FL to minimize his state tax burden: https://www.wsj.com/articles/trump-says-he-is-adopting-florida-as-primary-residence-11572574793

      That’s a really interesting intertemporal arbitrage from staying in NY due to NY-specific rules. I’ll have to read up on this strategy more broadly to see if it is more broadly applies to other states as well. This seems like a good resource in that regard: https://smartasset.com/retirement/retirement-taxes. It seems that these exceptions are geared towards the 59.5 and older crowd and less suited for the earlier-retirement crowd (like Kim).

      For those who have set deep roots in a given area, I agree that it could be traumatic to uproot one’s life for the purposes of tax arbitrage. However, the past 20 years of a nomadic existence (7 states + another continent) have taught me that repeatedly uprooting my life has added a richness of experience that I wouldn’t have experienced had I stayed put.

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