State Relocation
Model a move to a different state in a specified year. State income tax rate and exemptions (Social Security, retirement income, federal pensions) switch to the new state's rules from the relocation year forward. Captures the SALT-deduction feedback loop that partially offsets gross state-tax savings.
How it works
State Relocation substitutes the destination state's tax assumptions for all years on or after the relocation year. Pre-relocation years use the base-case state rate and exemptions; post-relocation years use the new state. There is no partial-year proration — the full new rate applies for the entire relocation year. Unlike most strategies, which transform the year's income or deductions, Relocation's settings are applied during the tax calculation itself — after every other strategy has run — so its position in the strategy pipeline has no functional effect on the result.
1. Set Relocation Year
Choose the year the move takes effect. Must fall within the projection range. State tax assumptions for years before this year remain unchanged from the base case.
Example: Client retiring in 2030 plans to move from CA (9.3%) to TX (0%). Setting relocationYear = 2030 keeps CA rates through 2029 and TX rates from 2030 onward.2. Configure New State Rate and Exemptions
When a destination state is selected from the state profile dropdown, Stratum pre-populates the rate, Social Security exemption, and retirement income exemption from the state profile. All values remain editable. The Federal Pensions Only toggle is always editable and is NOT pre-populated — it requires advisor judgment because state rules vary on which government pensions qualify.
Example: Selecting Virginia pre-populates 5.75% rate and exempts SS. Advisor enables Federal Pensions Only manually for a federal-employee client, since VA exempts federal pensions but not all retirement income.3. Apply New State Rules from Relocation Year Forward
Starting in the relocation year, all subsequent years compute state tax using the new rate and exemptions. Pre-relocation years are unaffected. The transition is abrupt — no proration of the relocation year.
stateTax(year) = year < relocationYear ? baseStateRule(year) : newStateRule(year)
4. Capture SALT-Deduction Feedback
Lower state tax → smaller state-tax payment → smaller SALT deduction → slightly higher federal taxable income → slightly higher federal tax. This partially offsets gross state-tax savings. Stratum's Lifetime Tax Change metric uses totalTax (federal + state) to capture this feedback. Reporting only the state-tax delta would overstate savings.
Lifetime Tax Change = Σ (baseTotalTax(year) − strategicTotalTax(year))
Example: CA → TX move saves $9,300/year in state tax. SALT cap means the federal offset is partial — reduced state-tax payment shrinks itemized deductions by the SALT cap delta, not the full state tax. Net lifetime savings ≈ 80–90% of the gross state savings, depending on bracket and SALT cap year.
Real-world context
The SALT Feedback Loop
Moving from a high-tax state to a low-tax state saves state income tax — the obvious effect. But it also reduces the SALT deduction, which raises federal taxable income, which raises federal tax. The net lifetime savings is the gross state-tax savings minus this federal offset. The size of the offset depends on (1) the SALT cap in effect ($10k in 2024; $40k in 2025 and $40.4k in 2026 for MFJ, rising 1% a year through 2029 before reverting to $10k in 2030), (2) the client's marginal federal bracket, and (3) whether the client itemizes at all in the new state. Stratum's Lifetime Tax Change metric reports the net (totalTax) delta to avoid overstating the strategy's value.
IRS reference: IRC §164(b)(6) — SALT cap
Federal Pensions Only — Why the Toggle Exists
Some destination states exempt government pensions (federal civil service, military, state-of-prior-employment) but tax private pensions. Examples include Virginia, North Carolina (Bailey decision), Kentucky, Michigan. Other states either exempt all retirement income or exempt none. Stratum's broader 'exempt retirement income' toggle covers full exemption; 'Federal Pensions Only' is a narrower override for states with the partial exemption rule. The two toggles are mutually exclusive — when 'exempt retirement income' is on, 'Federal Pensions Only' is skipped to prevent double-subtraction.
Cost-of-Living Considerations Are Not Modeled
Stratum models only the tax impact of relocation. Cost-of-living differences (housing, healthcare, taxes on goods/services, sales tax, property tax) are entirely outside the projection. Advisors using this strategy should pair it with a separate cost-of-living analysis when discussing the move with clients — a tax win can be neutralized or reversed by higher housing or healthcare costs.
When Pipeline Position Doesn't Matter
Most strategies modify the year's income, deductions, or assets — and the order they run determines what the next strategy sees. State Relocation is different: its settings are applied during the tax calculation itself, after every other strategy has run. The result is identical regardless of where the advisor places it in the strategy panel. Other strategies remain order-sensitive (Roth Conversion auto-mode, Structured Withdrawals auto-mode, and others), so the advisor should not assume position-independence is a general property.
What drives the result
Sets the first year the new state's rules apply. Earlier relocation captures more years of savings. Must be within the projection range.
Move 5 years earlier on a $9k/year savings = ~$45k extra lifetime savings (nominal), less the SALT feedback offset.
Pre-populates the new rate and SS / retirement income exemptions. All fields remain editable for advisor adjustments.
Selecting Florida pre-populates 0% rate, all retirement exempt. Selecting California pre-populates 9.3% rate, no exemptions.
Excludes the federally-taxable portion of Social Security from the new state's tax base. Most states with income tax exempt SS; ~13 states tax it (e.g., CO, CT, KS, MN, MT, NE, NM, RI, UT, VT, WV).
Excludes all IRA distributions and pensions (federal and private) from the new state's tax base. Use for full-exemption states like IL, MS, PA. Mutually exclusive with Federal Pensions Only.
Excludes only pension items flagged as federal/military/state-government; private pensions remain taxable. Use for partial-exemption states (VA, NC, KY, MI). Skipped when broader retirement exemption is active.
Assumptions
- Client establishes domicile in the new state in the relocation year (state-of-residence rules vary; advisor responsible for confirming)
- Single flat state rate — Stratum does not model progressive state brackets, local/city income tax, or net-investment-income state surcharges
- Pre-populated state profile values reflect general rules; advisor-specific situations (e.g., partial-year residency, state-source income from former state) are not modeled
- Federal Pensions Only toggle requires advisor input — not auto-populated because states vary on which government pensions qualify (federal civil service, military, state government, foreign government)
- No partial-year proration in the relocation year
Limitations
- Does not model partial-year residency or split-year tax filing
- Does not model state-source income that remains taxable to the former state (e.g., real estate rentals, K-1 from a business operating in the former state)
- Does not model city/local income tax (NYC, Yonkers, Philadelphia, Detroit, etc.)
- Does not model state-level capital gains differential (e.g., states that tax LTCG as ordinary income are approximated by the flat rate)
- Does not model state-specific add-backs (e.g., HSA in CA/NJ, muni bond interest from other states)
- Does not model state estate or inheritance tax differences between current and destination state
- Does not handle a return move (a single relocation year, not a sequence)
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.