NYC Pension Retiring in Delaware Question (sales, rental, house)

[NWS]

I know a standard pension in Delaware is taxable if Federally taxable. I am a NYC civil servant. Police Officers, Firemen, Sanitation, Corrections pensions are city and state pretaxed but not federally pretaxed. When we retire we must pay federal taxes but not NY city and state taxes if we stay in New York. From what info I can find it seems If I retire in Delaware, Delaware may want to tax this income again since it is taxable at the Federal level.
I would hate to have to pay income tax on my pension twice.
Does anyone know if this is a fact? Any retired NYC civil servants out there?
I can retire at 43 if that makes a difference.

Thank you

David

[RodFarlee]

David, I think you're right, most of it will be taxable.

http://www.state.de.us/revenue/infor.../PIT_FAQ.shtml sez:
"As a resident of Delaware, the amount of your pension and 401K income that is taxable for federal purposes is also taxable in Delaware. However, for tax year 2004, person's 60 years of age or older are entitled to a pension exclusion of up to $12,500 or the amount of the pension and eligible retirement income (whichever is less). Eligible retirement income includes dividends, interest, capital gains, net rental income from real property and qualified retirement plans (IRS Sec. 4974), such as IRA, 401 (K), and Keough plans, and government deferred compensation plans (IRS Sec. 457). The combined total of pension and eligible retirement income may not exceed $12,500 per person age 60 or over. If you are under age 60 and receiving a pension, the exclusion amount is limited to $2,000."

However, assuming you're retiring early and will have income from a second career, your total income taxes might be lower in DE than in NYC, and your total taxes will certainly be lower in DE.

(Just making some ballpark guesses based on your retirement age of 42, say you'll pay $1000/yr in DE state tax on your pension, but save over $1500 by paying DE not NY+NYC taxes on your new income, so save a net $500/yr in income taxes by moving to DE, plus $1500 in sale taxes and $1000 in lower property taxes, for a total savings of $3000/yr, well, that's no reason not to move, is it? What you want to do, how you want to live, that's what should make the decision.)

[NWS]

Thank you for your research.
I know that for example Michigan has an exclusion that if your home state doesn't tax Michigan's state pensions they will not tax your states pensions. I was hoping that there was some loophole like that. Even if I have to pay the tax you are correct it will probable be small in the $1000-$2000 range pre-deductions.
I really like Delaware. I have found the people there are friendly. Even my encounters with the police were great. They were very polite and helpful.
It's so different from New York city.

[winnie]

What you pay in taxes on your retirement, you will recover in the lower cost of living and lower property taxes there.

I am sure that you have heard that NY is the highest taxed state in the nation...I know too many people paying 10K+ in property taxes alone

[NWS]

NYC has probably the lowest property taxes in the tri-state area.
My house is worth about 500k and I pay about $2100.
I have friends out on Long Island who pay 10-15k for a house of similar value.
It is insane. I don't know how they do it.

[williamter]

I am also retired from NYC and yes Delaware will tax your pension unless it was a disability which would make it exempt in all 50 states. You can obtain a list of the states that would not tax you at the state level from the PBA of NYC. There are only a few such as Florida, and Nevada.

[winnie]

Many people I know in DE are paying 600 dollars a year in taxes on a 200K home.

The average Nyer pays 13% of their gross salary in state related taxes, making it the top taxed state in the country. I think DE was rated somewhere around 35 in overall taxes. It was published by Forbes awhile back.

You also would have to consider the house you can afford in DE for the 200K vs what kind of home you can afford in the NY metro for that amount. So in that respect you will also be making out well, and possibly moving down to DE with some cash in your pocket!

In my hometown Newburgh area you are hard pressed get a gutted out dump for 200K. Up there, your 500K home would be taxed at 15K if you have the star deduction. You are lucky that the taxes are so much lower there. Go figure! I thought they would be higher than us "upstaters"...

Good luck!

[Tralfaz]

Originally Posted by NWS

NYC has probably the lowest property taxes in the tri-state area.
My house is worth about 500k and I pay about $2100.
I have friends out on Long Island who pay 10-15k for a house of similar value.
It is insane. I don't know how they do it.

Yep, but NYC gets it back in local sales tax, local income tax, fees, traffic tickets, etc. If NYC property taxes were in line with the 'burbs, the entire middle class would move away within a year guaranteed, and all of Staten Island would be abandoned.

As far as retiree taxation, my family is in the exact same pickle as they're both retired NYC teachers whose pensions are not taxed in the state of NY but which would be if they moved out of state.

Their solution was to move away from the higher tax NYC suburbs further upstate where property taxes are relatively reasonable ($3500/yr vs. $15000/yr, reasonable is in the eye of the beholder). Thanks to NY's horrid tax structure and high costs there is no more work up there, and frankly in 15-20 years there won't be any jobs except those that cater to retirees who are leery of moving to hurricane-prone Florida.

The math is pretty tricky, and to my mind if DE were to exempt civil servant pension income from income tax they'd get a lot more retirees moving in, but then again traffic would get even worse :P

[jjj]

Not sure if you are interested but I also am a NYCERS member collecting a pension. If you move to Pennsylvania they do not tax your pension. Even if you choose to live in the Buck County area you are exempt of any County applied taxes. Pa is great for pensions ! Also the further west you go in Pa the property taxes get more reasonable.

[rossc]

Mainain your residence in NY through relatives or even a PO Box/mail forwarding service. You can still register vehicles here as a seasonal resident on your NY licence (even though you will really be full time) as long as you keep one vehicle registered in NY. Since you won't be a legal resident of DE, DE taxes, other than property taxes, which are nothing, won't apply.

Ross