There is a version of retirement that looks exactly like this: a tee time at 8 a.m., a cold drink by the pool in the afternoon, and not a single gray cloud in the sky for six months straight. I understand the dream. I really do. And for a lot of the people I work with, that dream is closer than they think.
But here is the part nobody talks about at the retirement party. Moving to a warm-weather state is not just a lifestyle decision. It is a tax decision. And if you do not plan it properly before you go, the state you just left might follow you right onto that golf course.
I had a conversation recently with someone who had spent decades building a career in Illinois. Long, successful run in healthcare. Big income. Even bigger property tax bill. When the time came to wind things down, they started looking south. Florida made sense. No state income tax. Great weather. Golf. The kind of life that rewards a lot of hard years of work.
What they found, though, surprised them. They had assumed the move was simple. Buy a house in Florida, spend winters there, and you are done. It turns out the state you leave has a very different opinion about when you are “done.”
Before I get into the details, I want to be upfront about something. Every situation in this area is different. The rules depend on which states are involved, what your income looks like, what property you own, and a dozen other factors specific to you.
So, here is the obligatory DISCLAIMER: This article is meant to give you a solid foundation and help you ask the right questions. However, it is not a substitute for sitting down with your tax and legal advisors. They are the people in your life who knows both the state you are leaving and the state you are moving to. The most important thing I can tell you right now is this: have that conversation before you move, not after. Once the boxes are unpacked, your options narrow considerably.
With that said, let us get into it.
Illinois Is Actually More Generous Than You Think
Here is something most people do not know about Illinois until they are trying to leave it. Illinois does not tax retirement income at the state level. None of it. Social Security, pension payments, IRA and 401(k) distributions are all exempt from Illinois state income tax. The flat rate of 4.95% applies to wages, capital gains, and investment income, but your retirement distributions? Illinois lets those go.
So why leave? Because Illinois does have high property taxes and a cost of living that does not soften much in retirement. Moreover, a lot of business owners and professionals I talk to still have active income flowing in from investments, real estate, or consulting work. That income is not exempt. Therefore, the 4.95% still bites, and for many people, that adds up quickly over the course of a long retirement.
The real incentive to move is straightforward. Florida has zero state income tax. On anything. Capital gains, dividends, rental income, business distributions. Florida taxes none of it. Over a retirement that might span 20 or 25 years, that difference becomes very substantial.
The States That Make Leaving Hard
Not all states wave goodbye graciously. Some of them, especially the ones with high income tax rates, have entire departments dedicated to making sure you did not actually leave.
New York is the most aggressive. California is arguably worse. New Jersey, Connecticut, and Minnesota round out what I informally call the “reluctant states.” These states use what is called a statutory residency test. It works like this: if you maintain a permanent place of abode in that state and spend 183 days or more there in a given year, that state can tax your entire worldwide income. Even if your domicile is now Florida. Even if you already filed a Declaration of Domicile in your new county. The day count does not care about your intentions.
Because Illinois is not in that aggressive category, many people assume they are in the clear. However, you still need to be thoughtful, especially if you are keeping your Illinois home and bouncing back for summers, family visits, or the occasional Cubs game. Every state has its own rules, and the ones watching most carefully are the ones with the most to lose.
What “Moving” Actually Means to a Tax Authority
This is the part of the conversation that most people never have with their accountant. Changing your mailing address is not moving. Buying a house in Florida is not moving. Even spending six months in Florida is not, by itself, proof that you have moved.
What tax authorities look for is something called domicile. Your domicile is your one true, permanent home. It is the place you intend to return to whenever you are away. You can only have one. And when you are trying to establish a new domicile in a state like Florida, the old state is going to look at everything to argue that your domicile never actually changed.
The person I spoke with found this out in the research phase, thankfully before they made any moves. Their country club membership in Illinois became a significant topic in that conversation. They looked into converting it from a full membership to a seasonal or non-resident status.
The club could not accommodate that particular change, but they documented every attempt and kept that paperwork. That documentation matters. An auditor from a departure state will look at memberships, and a full active membership in Illinois while you claim Florida domicile is exactly the kind of thing that invites questions.
Here is a practical picture of what actually moves the needle when you are trying to establish a new domicile in Florida, or in any retirement-friendly state.
The Steps That Actually Hold Up in an Audit
Start by filing a Declaration of Domicile with the county clerk in your new Florida county. This is a formal legal document that states your intent to make Florida your permanent home. It is one of the strongest single acts of domicile establishment available to you, and it costs almost nothing to file.
From there, change your driver’s license and vehicle registration to Florida within 30 days of establishing residency. This step is not optional if you want your residency claim to hold up. Next, update every address you have. Bank accounts, brokerage accounts, credit cards, insurance policies, the IRS through Form 8822, Social Security, and Medicare should all reflect your Florida address. Every institution that still carries your old address is a data point that a departure state auditor will find and use against you.
Beyond the paperwork, find a Florida-based primary care physician, dentist, and ideally a Florida-based attorney and tax advisor. This sounds like overkill. It is not. Auditors specifically look at where your doctors are. The concept is sometimes called your “center of life,” and where you receive your medical care carries significant weight in that analysis.
Finally, track your days. Every single one. Use a calendar app, a spreadsheet, or whatever works for you. Keep boarding passes, hotel receipts, toll records, and anything else with a date and location stamp. The burden of proof in a residency audit falls on you, not the state. If you want a deeper look at how aggressive these audits have become, I covered the state and federal audit environment in detail in IRS Audits Are on the Rise. The same principles apply here.
The 183-Day Rule Is Not What You Think It Is
Almost everyone I talk to has heard of the 183-day rule. Most of them understand it backwards.
The rule is not a Florida requirement. Florida has no income tax, so it does not need a day-count test. Instead, the 183-day rule is a tool used by the state you left. Specifically, if you spend 183 days or more in your former state during a calendar year, and you maintained a dwelling there, many states will argue you are still a statutory resident and owe them full income tax on everything you earned that year.
Think about what that means for a snowbird. You buy a house in Florida, declare Florida domicile, and you are absolutely thrilled about your “new” life. Then you go back to Illinois for summer because your grandchildren are there, your friends are there, and frankly you miss the deep dish. You stay a little longer than planned. You cross 183 days.
Illinois may not come after you the way New York would, but if you are arriving from a more aggressive state, say you ran a business in California before retiring to Florida, the Franchise Tax Board will absolutely revisit that year and make a claim.
The number to keep in mind is 182 days or fewer in the state you left. Not 183. Not 184. One day over, and the entire argument shifts.
This is also a good moment to revisit how your business income is being structured if you still have any flowing in. If you are drawing distributions from an S-Corp or partnership, sourcing rules matter considerably. I covered entity structure and how income flows in this related piece, and those concepts become even more important when you are crossing state lines.
Retirement Income and How Your New State Will Treat It
Assume you get the move right. You establish Florida domicile cleanly, track your days with the kind of obsessive precision usually reserved for calorie counting and fantasy football, and update everything down to the last bank account and magazine subscription. Now, how does Florida actually treat the money coming in during retirement?
Florida taxes none of it. No income tax at all. Social Security, pension income, IRA distributions, 401(k) withdrawals, rental income, dividends. All of it stays in your pocket at the state level. For someone drawing $150,000 or more per year from retirement accounts and investments, the annual savings compared to a state like California or New York can easily exceed $10,000 to $20,000 per year. Over 20 years, that is a number that funds a lot of golf. And probably a few renovation projects along the way.
Other popular retirement destinations carry their own rules worth knowing. Colorado has state income tax and does tax Social Security above certain income thresholds. Tennessee has no income tax on wages but has been adjusting its treatment of investment income. Nevada and Texas offer the same zero-income-tax benefit as Florida but with different cost-of-living tradeoffs. If you are drawn to a state for lifestyle reasons, say Colorado for hiking, the Carolinas for a milder climate, or the Dakotas for wide open space, it is worth understanding exactly how that state treats your specific income streams before you commit.
The question is never just “does this state have low taxes?” The better question is this: does this state have low taxes on the specific income you will actually be receiving?
What Happens If You Keep Your Home Up North
A lot of people do not want to sell the family home. The memories are there. The family is there. Summer visits matter. Keeping property in your former state is not automatically disqualifying, but it does raise the stakes significantly.
If you keep a home in Illinois and establish domicile in Florida, that Illinois property needs to be clearly secondary. It should not be the larger home. It should not be where you keep your most meaningful personal property. Auditors use what is sometimes called the “near and dear” test. Essentially, they want to know where your sentimental belongings are. Where are your photographs? Your heirlooms? The artwork you actually care about? If everything meaningful is still in the Illinois house, a reasonable auditor is going to question whether Florida is really your home.
On the membership front, convert any club, gym, or social organization membership in your former state to non-resident or associate status if at all possible. Document every attempt, even if the organization cannot accommodate the change. A full active membership in an Illinois club tells a story about where you actually live, and auditors read that story carefully.
Also, update your estate planning documents. Your will, your trust, and your power of attorney should all reflect your Florida domicile and comply with Florida law. An estate plan that still names Illinois-based representatives and was drafted under Illinois statutes is a red flag in any residency review. For a broader look at how the tax picture shifts as you move from earning to drawing down, I covered that transition in How Taxes Work in Retirement.
The Broader Picture: States Worth Watching
For anyone reading this who is not specifically moving between Illinois and Florida, here is a quick contrast that shows how different this landscape can be from one state pairing to the next.
The easiest states to move to in retirement, from a pure tax perspective, include Florida, Texas, Nevada, Tennessee, South Dakota, and Wyoming. All carry no state income tax. Washington has no income tax on wages but now taxes capital gains at the state level, so that one deserves a closer look depending on your portfolio.
The hardest states to leave cleanly are California, New York, New Jersey, Connecticut, and to a lesser extent Maryland and Minnesota. These states maintain formal residency audit programs. They share data across agencies. They use cell phone records, credit card transaction histories, toll data, and social media to reconstruct where you actually were during a given year. If you are leaving one of these states with significant income, do not attempt the transition without professional guidance in your corner.
Illinois sits in a middle category. It does not aggressively chase departing residents the way New York does. That said, the rules still apply, and if you are keeping property there and earning investment income, the line between resident and nonresident still matters in a very real way.
Before You Pack the Car, Talk to Someone
The strategies in this article are directionally correct, but the execution is deeply state-specific. Illinois has its own residency statutes. Florida has its own domicile framework. Every state pairing carries its own nuances. The difference between doing this right and doing this wrong is not a matter of effort. It is a matter of knowing which rules apply to your exact situation before you act, not after.
The person I spoke with came to me before they moved. That timing made all the difference. They were able to sequence every step correctly, document everything from day one, and walk into retirement without a single open question hanging over their residency status. That is the goal.
The state you leave does not stop thinking about you just because you stopped thinking about it.
Retirement is supposed to be freedom. Real freedom, though, requires planning. And the planning for a move like this should start at least a year before the boxes get packed. If you are in the early stages of thinking about a retirement relocation, the questions about how your income will be treated, how to structure the transition, and what documentation to start building right now are worth answering sooner rather than later.
Most of the people I talk to after going through this process say the same thing: they only wished they had started sooner. That kind of clarity, knowing exactly where you stand before you make the biggest financial move of your retirement, is exactly what good planning is for.
Welcome to the New Age of Accounting. Let’s begin.
P.S. If you found this article helpful, you’ll love my new book S-Corp Mastery: How Smart Business Owners Maximize Tax Savings & Build a Lasting Legacy. It’s now live and available in a sleek, easy-to-read PDF version. Grab your copy here
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
