After months of speculation, the NFL and team owners have given approval and the Oakland Raiders are officially moving to Las Vegas. Given how passionate and loyal the Raider fan base is, we can expect that many supporters will be unhappy about the move.
Who should not be unhappy? NFL players that care about keeping more of their after-tax earnings in their pocket.
How NFL Players Are Taxed
It’s no surprise that NFL players are some of the highest earners in the country, with most paying the top federal and state income tax rates. Depending on the state of residence and how much the player makes, the combined tax rate can very easily approach 50%. In addition, a special “jock tax” is imposed on professional athletes that requires them to pay income tax in the states where they play their away games. (For related reading, see: The Most Outrageous Taxes.)
Why Oakland Raiders Players Should be Happy
California has long had the some of the highest state income tax rates in the country. In 2017, top earners are set to pay a 13.3% marginal rate on earnings above $1,052,886. While not every player makes this annual amount, even the NFL salary minimum of $435,000 would put a player in a 9.3% bracket.
By making the move to Nevada they’ll be subject to a new state income tax regime and rates of—you guessed it—zero.
Nevada is one of seven U.S. states with no state income tax; the others being Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. While players will still have to pay the jock tax for away games, they should see a noticeable difference in their after-tax pay as a result of this move.
Creating a Financial Plan
Paying lower income taxes, lower property taxes, seeing a probable decrease in cost of living and living in a more accessible real estate market should all be factors with the potential to substantially benefit NFL players’ financial plans. Still, there are too many stories of athletes in financial ruin after having made millions during their careers. While lower taxes may help remove one of the major roadblocks to building wealth, many other steps need to be taken to ensure a solid financial future. (For related reading, see: Financial Planning for Professional Athletes: An Inside Look.)
The framework to building a strong financial plan is the same whether you’re an NFL player, coach, fan or anyone else.
- Outline objectives. Setting goals is the core of a financial plan. Only then can you determine where to place your time, energy and money.
- Spend less than you earn and save the difference. There’s no way around it, living within your means is a necessity. If you have substantial earnings, then you might have to create an illusion of depravation to limit expenses and save more.
- Invest intelligently. Most poor investments have exciting stories. Remember that if something sounds too good to be true, it probably is. The better approach is likely a boring, diversified, cost-sensitive strategy.
- Address risks. Determine what a risk is to you and consider whether you’ll transfer that risk to an insurance company or bear the potential negative outcome yourself. Rather than asking an insurance agent about coverage, be sure to find a fiduciary advisor; you don’t want to be asking the barber if you need a haircut.
- Optimize Taxes. What you earn from employment and investment returns is less important than what you keep—and taxes are a big part of the equation. Working with your advisors to help limit your tax burden is a hugely important part of a financial plan. Some strategies may include: finding ways to limit or defer income tax, offsetting capital gains taxes with loss harvesting, and performing Roth IRA conversions. (For related reading, see: Your Income Tax: 3 Little-Known Ways to Reduce It.)
- Work with the right people. Assembling a team of expert investment, tax and legal professionals is crucial. Be sure to understand whether your advisors are fiduciaries, if their compensation structure may conflict with your best interests and if they’re bound by a professional code of ethics.
Every investor is different and there’s no one-size-fits-all approach to building a strong financial plan. But if you can follow the Raiders’ lead and eliminate state income taxes without negatively impacting your earnings, the odds of financial success may tilt in your favor.
(For more from this author, see: Why Your Portfolio Hasn't Rallied With the Market.)