(Related: 12 Best States for Retirement: 2018)
SmartAsset has just released its list of the best places for the wealthy to live, with ‘best’ determined by the 2018 tax burden faced by the top 1% of the population in each state. The listing of 49 states (the researchers couldn’t get good data on Hawaii’s estate tax) was based on whether the states had their own estate taxes, income taxes and how high or low those taxes were if they did exist.
In devising its overall list, SmartAsset considered three main data sets:
- Estimated income taxes for the top 1% of earners, combining federal and state income taxes paid by the average household in the top 1% in that state. SmartAsset used a household income of $465,626, which is the income needed to crack the 1% according to IRS data.
- Estimated property tax. SmartAsset estimated the property taxes paid in every state, assuming a home value five times the income of the top 1%, or $2.3 million. To come up with a property tax figure, SmartAsset multiplied the home value by the median effective property tax rate. Data on median effective property tax rates comes from the Census Bureau’s American Community Survey.
- Estimated estate tax. SmartAsset estimated the combined federal and state estate taxes based on an estate worth $15 million.
Ross Kenneth Urken, senior editor at SmartAsset, said SmartAsset conducts studies like this one to allow people to “make the best financial decisions going forward,” including potentially where to live. “Planning for the future is not just about your golden years,” he said, “but how to preserve your money for your heirs.”
By those measures, Urken said, “Wyoming is going to be much better than, let’s say, New York or Vermont” since it has no estate tax and no income tax.
Are people crossing state lines to preserve their wealth, especially as they age? While that was beyond the scope of this latest study, Urken pointed out that SmartAsset does conduct an annual report to see which states and cities are the most popular retirement destinations. The 2017 edition of the study, released in May of this year, looked at Census Bureau data for the 50 states and 218 cities, comparing the number of people aged 60 and over who emigrated from a city or state and compared it to those who immigrated from those places.
The study found that the states with the biggest net inward migration were “the usual suspects,” said Urken, specifically Florida, with a net migration of people over 60 of 77,000, followed by Arizona and the Carolinas. “With the exception of Idaho among the top 10” states with the highest net migration, he noted they are all states in the South that feature warm weather.
Where It Costs the Most, and the Least, to Be Rich
Some of the key findings from the SmartAsset study:
- Seven of top 10 states where it costs the most be rich are located on the East or West Coast. They tend to combine higher-than-average state income taxes with estate taxes.
- Unsurprisingly, many of the best states for the wealthy have neither state income nor estate taxes. That’s part of the reason Wyoming ranks as the cheapest state to be rich, and why it’s home to the county with the highest average annual income among the wealthiest 1% of residents.
President Donald Trump’s tax reform law failed to eliminate the federal estate tax, but it doubled the exemption amount for estate, gift and generation-skipping transfer taxes from $5 million to $10 million for tax years 2018 through 2025.
The argument over that bill was good for taxpayers in general, Urken suggested, since it’s “led people to focus more on how taxes would affect them,” especially for those approaching or in retirement.
Below is the listing of the 49 states ranked by where it costs the most to be rich. More detailed data on each individual state is available on SmartAsset’s site.
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