10 Financial Tips for Retirement in Tennessee
Knoxville Financial Q&A Episode 8 | 10 Retirement Tips for Tennessee
June 29, 2026
Retiring in Tennessee can create a different set of financial-planning considerations, particularly for people moving to Knoxville from states with individual income taxes.
In Episode 8 of the Knoxville Financial Q&A Show, Paul Ragone and Brian discuss 10 financial considerations for retirement and pre-retirement in Tennessee, with a particular focus on Knoxville and East Tennessee.
The conversation covers Tennessee's tax environment and how it can affect decisions involving Roth conversions, taxable investment accounts, asset location, retirement income and federal tax planning. Paul and Brian also discuss the trade-off between Tennessee's lack of an individual income tax and its sales taxes, as well as how spending habits may change after moving from another state.
Knoxville's rising real estate values introduce another planning consideration. As a home or rental properties appreciate, real estate can become a much larger percentage of someone's overall net worth, potentially creating concentration risk even when the individual owns other investments.
The episode also explores estate and inheritance considerations at the state level, income or property held outside Tennessee, donor-advised funds and charitable planning, and several considerations for business owners.
For someone moving to Knoxville for retirement, the financial strategies that made sense in a previous state may not necessarily be the same strategies that make sense after becoming a Tennessee resident. Understanding those differences can be an important part of building a retirement plan around both your finances and the life you want to live.
Watch Episode 8 of the Knoxville Financial Q&A Show above for 10 financial considerations for retiring in Knoxville and Tennessee.
Sources:
IRS Publication 590-A (Roth IRA Contributions)
IRS Publication 560 (Retirement Plans for Small Business)
IRS Family Employment Tax Rules
Transcript
All right, welcome to the Knoxville Financial Q&A show. This is episode 8.
I'm your host Paul and I'm Brian. And today we're going to talk about 10 financial tips for retirement and pre-retirement in Tennessee, more specifically Knoxville. We've had a lot of people come in from kind of out of state that we've been meeting with. people either moving here for family or other reasons, and so planning for retirement has changes. It changes from state to state and most of them aren't used to Tennessee's freedom.
Really I mean the the tax advantages in Tennessee are real, but they do require sort of a different planning strategy than if you came from a high income tax state. Sure. All right. So, let's just get into it. So the first tip is emphasize asset location over state tax avoidance.
You know most people don't take into consideration the tax implications. So you have when you you know you bring in income during a normal year, you start factoring in federal income tax, you start factoring in, you know, all your retirement savings deductions, all that stuff. Most people don't take into consideration where their investments lie. because if you have like municipal bond funds that earn income out of state and you're getting hit with state income taxes and that state's taxes. Yeah. That's not great.
Yeah. I mean, I could imagine being an adviser in a high income tax state and just spending half the time planning just for those taxes alone.
Yeah. Just for the state.
Yeah. So, and you haven't even got to the federal part yet, right? Tennessee doesn't have that issue. Yeah, we don't have and we don't have state taxes on capital gains. We don't have state taxes on distributions from any account really. Now we do have fed sales tax but different story. We'll cover that later.
So there's no taxes on wages which is I mean I used to live in Georgia and I realized I think it was 5%. I don't know what it is now, but I mean that I wasn't making much money back then, but that extra 5% coming out for taxes at a state level wasn't fun. No, it adds up, right? And there's also no estate or inheritance tax that matters. And for us from a planning perspective, you know, we focus more on the federal taxes and how we can reduce that as much as possible if possible. and doing things like Roth conversions or tax loss harvesting. Yeah. And charitable remainder trusts or charity charitable contributions donor advised funds all play into that too.
So one of the issues that we are seeing though is when clients come from other states like California, New Jersey, places like that that have high state income taxes, their whole mindset for planning is completely different than what we're used to here in Tennessee. So us as advisers have to react and adapt and help them understand that things are different here.
Yeah. What they've been doing is not what they need to keep doing. Correct.
Yeah. And I know we just talked about it, but you know, Tennessee number two is Tennessee is extremely Roth friendly, which you know, sounds cliche to say that because the Roths are are great, but I guess there's a lot of people that don't take advantage of it because they have to factor in that state tax element. And so because we have no state tax on retirement distributions, Roths are almost completely tax exempt in Tennessee. And so that matters, you know, it matters for doing Roth conversions. Well, now because we don't have state income tax and they don't have to add a state income tax on top of their federal income tax, they could do Roth conversions before retirement uh and take advantage of both while they're working and then turn around and while they're retired as well and then you know before they start doing social security taking social security like I've got current clients that we are trying to figure out that lead time of 5 10 years sometimes before they start taking social security that we're doing Roth conversions that entire time. And it's I call it maximizing your bracket. You know, if you're bringing in 90 and your tax bracket falls at 100, there's a $10,000 leftover remainder where you should just maximize that bracket and do a Roth conversion. That way, you're taking advantage of your of your bracket. You're not leaving money on the table. You do that 2, three, four years in retirement. you do that in that 5 to 10 year gap before you start taking social security that adds up.
Yeah, we've talked about this in previous videos where the point from when you retire to maybe when you take RMDs, we call it the gap years. And the gap years are basically when you might be in your lowest tax bracket that you've been in in quite some time. And that's the perfect time to do Roth conversions. biting the bullet now might pay off substantially in the long run.
Yeah. Especially if we have good performance.
Yeah. So, number three, you know, there's qualified and there's non-qualified money. And qualified just means it hasn't been taxed yet for the most part. And then non-qualified means it's money that came out of your pocket, but can grow in in a brokerage account, but it's taxable. Mhm. the earnings on your investments in the taxable accounts here in Tennessee aren't taxed at the state level. They could be used more aggressively here than in other states that have a high state income tax.
Yeah. You know, you mentioned Georgia and 5%. I mean, if you slapped an extra 5% tax on your earnings on like dividend earnings for the year. Yeah. You know, if I'm making really good money and I start looking at that, I'm like, man, I'm giving up 10% to the government, 20% to the government plus, and then I'm adding another 5% in state. I could avoid that alto together. Whereas now, you come here and you're going, "Yep, I get that 5% back. That's an additional 5% savings. I'll take it." Yeah. So, long-term capital gains aren't taxed here. Qualified dividends aren't taxed here. So even though it's a taxable account, it still can be honestly tax efficient. And and also the way we do things is even in the taxable accounts, we we talked about it in step one where the asset location matters, we put things that would be taxable in sort of the the qualified accounts for the most part and try to eliminate as much taxes as possible in the non-qualified accounts. The fourth one is helping clients understand sales tax trade-off.
As we talked about before, like we're very tax friendly on the income tax side and tax friendly on all accounts, investment accounts side, but we have a pretty high sales tax. And one of the things that I talk about with all my clients leading up to retirement and in retirement is just most people spend more than they think they're going to spend in retirement. I think the biggest mistake that people make is every day becomes the weekend and I don't want to sit in my rocking chair and stare at the wall. So that all leads to kind of an increased spending habit and usually not substantially but you're going out to eat and you're doing all these other you know things taking your kids to shows or as we in in East Tennessee we have Dollywood and some of these other things that you can do with your your kids but or grandkids. And so I think that's the one thing is it can't really be overstated that you've got to kind of shift perspectives from income tax to sales spending have a sales tax 100%.
People come here from different states like we talked about because Tennessee is an extremely tax friendly state. But that doesn't mean you're not paying taxes, right? And so just because you're not paying income tax, Tennessee relies heavily on sales tax. And as Brian mentioned, we're probably one of the highest in the country, which is cool because that allows you to pay taxes on things you want to pay taxes on.
Yeah.
So, if you do have the extra cash and you want to buy a boat, an RV, or something like that, just know that you're going to be paying a wicked amount of sales tax on that purchase, whereas you might not have in a different state. But just so you know, like you know, you think you're saving money on income tax, which you are, but if you can control your spending, you can definitely take advantage of Tennessee's favorable tax rates. For sure. For sure.
All right, that brings us to number five, which is Knoxville real estate creates wealth concentration risk. I'll pick on myself on that one. I mean, you figure, you know, if we paid $200,000 for a house in 2015, 2017, any of the good years, and then we had this massive runup of property value, and let's say my house is worth 500,000. Well, if I have a million dollar net worth and 200,000, you know, made up 20% of my and now all of a sudden it's worth a half million. Well, now 50% of my net worth just became real estate. And you figure especially as equity. And so, yeah, like multiply that times two or three or four properties if you got rental properties and other things. I think that's how 2008 people got in trouble for sure. And the problem with it really is that people think because they have these properties on top of their investments that they're diversified. Uh if we have a market crash, that diversification goes out the window. Your portfolio is going downhill pretty quick. Yeah. Right. Like 2008, I mean 2008 we had what 50% in some areas of property value drops, sometimes more than that. Yep. So if you think, oh well, real estate only makes up 20 or 30%. Well, now all of a sudden it makes up 50 or 60%. And then property value dips. Hey, it made it back down to 20, right? And we said it in a previous video, like I I I said it actually, you know, I thought Knoxville basically isn't overpriced. It just caught up to where it needed to be. Sure. But it's high. There's no doubt about it. and at some point it can't sustain this level anymore.
Number six, that brings us to number six. Number six is use Tennessee's lack of estate taxes a planning advantage. It is I mean I figure it's crazy to think about um because I've had this conversation with with a lot of my clients, you know, if they've had a loved one pass or something pass and they're calling wondering what their taxable occurrence would be and it's like it it's nothing. I mean, not unless you're inheriting a running ton of money, uh, for most people. Yep. It's it's pretty much nothing.
Again, guys, this is a state level Tennessee. This is not we're not talking federal here. Um, but a lot of states have uh taxes on they have an estate tax or an inheritance tax separate from the federal tax. And so, Tennessee doesn't have that. All right. Number seven is retirees moving to Knoxville are often underspending.
Yeah, this goes back to what we talked about kind of in a way on the sales tax thing. Most people are used to, you know, trying to avoid state income taxes. Um, and so they get that sticker shock element when they come here and it's sales tax. So then they just like don't spend at all. And it's it it trying to understand that trade-off matters. Yeah, I mean they come from a place where they basically have to budget for a certain amount of disposable income that they need for whatever they require for spending as far as groceries and all that kind of stuff. Um they come here, they don't have all those additional state income taxes, but they don't realize that they pay an additional sales taxes than, you know, probably maybe 3 to 4% higher than what they're they're used to. So, um, they don't spend as much, but it's that mindset of we have to budget because everything is so expensive and then they come here, wait a second, we don't have the state income tax and um, but then all of a sudden you have the sales tax. So, yeah, it's just something that I mean, it's not really a planning issue. We don't really plan anything around that as far as financial planning goes, but you know, it's it's something that we've noticed as far as clients coming in from out of state where their mindset it just takes them a while to to change their spending habits.
Yeah. Um leading into number eight, which is multi-state tax traps. Um, you know, I think if you live in Knoxville or live in Tennessee and you have a vacation home, whether it be in North Carolina, South Carolina, you know, beach home or something, uh, that you rent out and bring in income, that income is earned in a different state. And so I think that's people that do move here and start getting used to no state income tax don't take into consideration if they earn income outside of the state. This is something I think about all the time is maybe working three months out of the year in Hilton Head or something like that. Well, South Carolina has a 7% state income tax. And so, how is that a benefit to me? I mean, yeah, I get to be on the beach, but for the most part, is it worth 7%. [laughter] Not really.
Number nine is use donor advised funds more often. And the interesting thing about this is probably in states where there's a higher income tax state at the state level you know donor advice funds become even more important.
Yep.
They get seldom talked about in our line of work in this area because we don't have the state tax. Correct. You know a good time to maybe use them is if you did a really large Roth conversion. Yeah. Right. Or sold a business or sold like out of state rental property or sold something where you have a large windfall. Yep. Um or let's say that you've you know I've got a good instance where I had a client that um inherited some money when she was very young. That money has been doing well. It was invested properly by sheer accident. Uh and so you know that position has accumulated a very very very very large uh deferred tax value. And so, you know, if she's done well everywhere else, she could take advantage of converting that to a donor donor advised fund and just kind of washing that entire gains. And so, that would be potentially valuable, you know. Yeah, I don't I don't think that was that's her strategy, but I think she'll just take the taxes. But, it could be used in a similar fashion. Like, I have a client who has he's older. He's had a stock position that he's held on to for a long long time. he has a lot of shares, it's appreciated like crazy. And so if you ever wanted to liquidate those, that would be a good time to maybe use a donor advised fund.
And our last one, uh, we do have a bonus for business owners, but our last one, uh, is focus on the federal brackets, not the Tennessee brackets. We've already kind of glossed over this and this is a little bit redundant. matters in its own right, but but when you have the tax benefits that we have in Tennessee, it makes it super easy to plan on the retirement side because we just we focus on federal. That's our only hangup. That's the only thing that we have to kind of juggle. Um some other little nuances, but it makes it much more simple to to do what's right for the for the client. If you're in a state that has a high income tax and you ask, "What's my tax bracket?" Well, it's going to be different than what it is here in Tennessee.
Yeah.
Right. So, here you you got to say basically, "What's my federal tax bracket?" Yep. So, that was 10 tips for basically living in Tennessee, but in Knoxville in particular for some of those, especially when it came to to housing costs.
Our bonus is for our business owners.
Uh, so I get a lot of business owners that ask, you know, uh, how do I take advantage of some, they're looking for a loophole, right? They're looking for something. How can I make make some advantage? Um, and this matters. There are some caveats to this. Get with either your person or come see us. But, the biggest thing is you can hire your kids as long as they do actual work or provable work in the business. Um, and so, you know, you could, for example, have your kid do some ad administrative work, do some other stuff. Um, as long as you pay them, so let's say you pay them $8,000, you can turn around and take 7500, which is the max for Roth contributions. That $8,000 is a write off to to you, the business owner. So, you get to write that off your income. Um, standard deductions apply. So, your minor, your child, doesn't have to pay any income tax on that money. and then they can turn around and contribute 7500 to the max for the Roth IRA. And so, you know, if you only pay them 3,000, they can do all 3,000. If you pay them 5,000, they can do all 5,000 as long as they fall below that threshold. Um, but the idea there is you're basically creating a tax-free transition of money from you to them and allowing them to start funding their retirement. Um, I think that's just massive.
Yeah. Does it matter what type of corporation it is?
it does matter a little bit. So, there's some this goes back to some nuances. Um, you know, the easiest is going to be the sole proprietorship or the husband wife partnership. Um, escorp gets a little bit hairy. You lose some of the benefit because on the on the uh self-employed on your sle proprietor or um uh partnerships, they don't have to pay FICA or any of that stuff. So, when you get to the S-corp, some of it's unavoidable because you have payroll taxes and some other things. So, there will be some costs shuffled in there if you're if you fall into the S corp. Um, and then the next little bonus tip on the end of it is if you have a C-Corp, uh, you can turn around and take advantage of IRS 12, I think it's 122, 122. So, the IRS guidance 122, if you don't know what that is, look it up, come see us. But the the IRS guidance for 1202 allows you to basically um gift shares of your business that you're selling as long as it's been a C-corp for 5 years or longer. It gives you the ability to not pay taxes on millions. Uh you can donate them to your kids. It's crazy. Uh so it just allows a massive wealth transfer if you're selling a business as long as it's been a C-corp for 5 years or longer. So there are IRS nuances. just make sure that you have all your eyes dotted and your tees crossed if you decide to go down some of those paths. But we're gonna link all the um IRS resources down below.
So, I mean, this is factual like this is real from the IRS. So, we'll have all the links and you guys can check into it further if that's something that um you would like to pursue or come talk to us if you want further information on it. But, uh yeah, that's pretty cool.
Yeah.
All right. Well, I guess that's it for the episode 8 of the Knoxville Financial Q&A show. And uh with that said, signing off.
Signing off.