Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make sense smarter financial decisions. Reina retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Well, we've all heard Abba and Meryl Streep sing Money, Money, money must be funny unless you have to pay it. They didn't sing that part, but I changed the words for you because you know that hey, if I'm buying something, I am happy to spend the money. If I am getting something in exchange, I am happy to pass over my greenbacks. However, just to show up, just to reside, just to live, just to be, just to exist. I don't really want to pay somebody to show up unless I'm getting a lot in exchange. So want to talk to you today about taxes and who gets them and who pays them and who spends them and who receives them and what happens when they come out of your paycheck. So not every state of course has taxes. But if you need to know how to look at your leave and earning statement or your pay stub and find out what is going on with taxes and who are you paying, Let me show you one of the most taxed individuals I've ever met.
This particular state. You can see what state this is. This is not to bash any one state. Many states have multiple layers of taxes. Sometimes it'll be simply a state tax that is a state tax, not an estate tax, but a state tax. Some also cities will have a municipality tax.
Some cities will have a tax to use certain items, water, parking, things like that.
And some, some states have multiple layers. This particular state has three layers of taxes. So if you can see here, bottom left, this, this person happens to be paying a local state tax of $1.92 a pay period.
The state tax of Pennsylvania at $121 a pay period. And then if you look on the right hand side, second up from the bottom, there's that additional local state tax, $67 a pay period. So if we add all that up together, good grief. This particular person is paying $191.15 a pay period.
A pay period. How many pay periods do you have? 26.
So for the year, this lovely state has received 4,969. That is $4,969 in the year. And that's every year while this person is making this dollar amount. Because remember, these are percentages. These are portions of salary. Some of these are standard rates. Right? And again, this is not to bash any one state. We've got 50 of them. And of those 50 states, there are many that have a state tax. This is a visual example so you can kind of see what to look at. So you can kind of find out what you, what you pay when you look at your leave and earnings statement. Now fast forward. There are some states that do not tax any type of pension.
So that's the thing. While you're paying, while you're working, you're paying tax, obviously. Then when you go to retire, people say, well, what am I paying tax on? Let's go ahead and make a baseline. Of course you're going to pay federal tax. There is no way around fed tax from your pension. Okay? Your, your pension has never been taxed other than that small amount you've contributed. And then you're getting that back over the course of time. But some states do not tax pension.
So let's do the list. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, New Hampshire, Alabama, Illinois, Hawaii, Mississippi, that is Mississippi. But those that live there, a lot of, I lived for a long time very close to Mississippi in Pensacola and we would just say Mississippi and that was from all the locals. So I got in the habit of that. So pardon me for skipping that extra syllable. And Pennsylvania. Now New York is super cool.
New York has a pretty significant state tax and they have locality taxes and they have municipality taxes. They will tax your face, but not as a retiree. They will not tax your federal pension. When you live in the state of New York now while you were working. Oh yes, but in retirement, not so much. Kind of cool. Now their neighbor, New Jersey, of course, will have a federal tax and there are certain forms you can request tax withholding as well for the state.
So pretty interesting, Pretty interesting.
Now, tsp you say, well, what about when I take money from my tsp, who's taxing that?
Well, if the state has a state tax plan on paying that state tax for your TSP withdrawals, unless the your state is Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming, Illinois, Mississippi and Pennsylvania. So pretty interesting. Now there's other TSP distributions that will not be taxed if they're under that certain level, certain threshold. So Pretty interesting. So take inventory of where you live now and maybe recap where you want to live because some of these states could be an incentive. Now, is it a reason to move just to not be taxed on your pension? Absolutely not. Of course not. But if you've already been thinking, I've been looking at some of these other states for my health or I've got family, I talk to some people, they're like, well, I've got four kids and they're in four different states. I need to pick one. Well, this may be part of the pros and cons of some of the different states that you might consider.
And I'm down here in good old sunny Florida. And as you saw, Florida's on both of the lists, as was South Dakota, Alaska and a couple other quite a few of the other states that were on both of those lists. So not to keep spanning over into other subjects, but that's one of the reasons Florida is a Medicare Mecca. Everyone comes here to retire because it's sunny, it's inexpensive for the most part. And, and we don't pay tax on those pensions. We have no state tax at all. So pretty good gig. Is that an invite? Absolutely. Come on down, be my neighbor. Won't you be my neighbor? So here you have it. It's good to know how to read your pay stub and see what you're paying in tax, add it up. So there will be people that are paying over 6 or $700 a pay period in taxes alone between federal and. And local.
I'm a big fan of. Obviously you want to pay your tax, you want to do the right thing. We want to render on to Caesar that which is Caesars, but we don't want to overpay. And if you were going to move already or a lot of people live near a border city, some people have just taken that one step over the border to get the benefits of the other state.
So here you have it. Things to consider for retirement based on how much money is going to come out of your pension, where, why, how, and you get to pick it because you can make that decision in retirement. It's a new chapter. It's another step. So let me know. I'm not a realtor, but I know some people if you need to find a good place to live and we can help you out, but either way, let's make a plan. So we know about what kind of taxes are going to come out because the gross number is one thing, the net number is a totally different one. And you can reach out to us. We can tell you, help you plan for you. So you got a pretty good idea of what that take home number is going to be. We'll talk to you soon.
[00:08:02] Speaker A: Thanks for listening to Reyna Retirement With a strong commitment to ethical standards, Reyna works hard to find the right solution for each individual or family who reaches out for advice. To contact rena directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits consultants, call 1-800-887-28857. That's 1-800-872-8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and is not do not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the Federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, Agents Consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
