I think you have fallen into the same trap most people do when looking at their 401K/IRA balance and thinking that was all your money. It never was going to be all your money. Eventually you were going to have to pay taxes on it. You didn’t have to pay taxes when you put it in the account, but eventually we have to pay those taxes.
Get used to looking at it as if I have $1 million in the account, but no really that is ~$750K. You never had $1 million.
Nah, I always knew that I would have to pay taxes on my non Roth funds, there has never been a question on that. And I always assumed that taxes on it would increase over the years. What I didn’t know was that we were going to buy a forest in retirement, and would need to pull 400K quickly from the 401Ks. Had we planned for this, we wouldn’t have paid off a large chunk of our mortgage (at a mere 2.25%) and would have set aside the money. But the opportunity came up, we had to move quickly, and I don’t regret it. Though now we have to keep paying for it all.
Could you get a Home Equity Loan on your house to get cash now? So you can spread things out some.
We have a HELOC that we got after we retired (what a pain, must have taken five months to get), and that would be an easy solution. However, the interest is at 8.75%, and we’re just not willing to pay that unless we have no other choice. I think I can juggle it by taking just a little out of our Roth, and then wait till next year to pull from the 401K for tax purposes. If we take it out this year, it’s in the 37% bracket, but next year, we can hopefully stay within the 24% bracket.
The logistics of balancing all this drive me crazy. In our case, some years we’ve kept our income around $100k, all LTCG, and paid zero federal tax.
This year, though, we bought an EV, and needed to generate more taxable income in order to utilize the $7,500 EV tax credit.
So we’re biting the bullet, doing some Roth conversions and/or taking some distributions from an inherited IRA.
We planned on maxing out the 24% bracket, but now realize that once you’re about halfway into the 24% bracket you lose the EV tax credit (not available for couples with MAGI over $300,000.
Argghhh!
Yeah, it sure is complicated, isn’t it? We were lucky to get the $7500 federal tax credit for our RAV4 Prime a couple of years ago, when it had nothing to do with income, nor had to be built in the US. You’re fortunate if you bought a vehicle that still has the tax credit, they made it much harder to get.
We don’t have the option of reducing our income below a certain level due to pension and DST payments (not that I’m complaining), but it would be nice to have more flexibility.
Ouch! We obtained a 2.5% interest rate on 10 year mortgage just before the rates went up, and I wish I would have taken more out.
We have improvements to do on this house…I need to get motivated. But in the interim, too many things going on with our DDs/families. Then it will be options once DH is ready to move away from this area, which may be years away (and about the time our home mortgage gets paid off). I have a mix of patience and also procrastination. But enjoying retirement! And we see the grandkids in Nov (they moved away, far OOS July 1).
Pretty sure I can get set up with health care providers elsewhere, but have everything here running great, and have great medical care. We can do our Financial Advisor remote, and get their semi-annual ‘state of the markets’ info too.
We are not close to replacing our vehicles yet, unless forced to with a wreck - but the next purchase most likely will be Hybrid. We are not in a high gas price area. Today hit a good price at Sam’s, $2.875 per gallon (87 octane).
Have just moved $25K from 401k to Roth IRA, and had $5K sent in to IRS. Preparing for the RMD years (we are not there yet). Usually I have any overpayment to IRS and the state returned, but last year I had it carried over for this year’s taxes. I need to analyze a few years taxes and make sure I am hitting things close w/o underpayment.
That’s a big deal. Glad it is working out. I can see how that would be a factor in deciding whether to stay.
Our state (Massachusetts) and our town have both enacted laws to tax people at the high end more than before. This would hit us if we sold our house (it would increase taxes by an extra 4%, I believe). It might hit us in the first year or two when we have to take RMDs.
Our town is shifting residential income tax to tax folks with more valuable homes more as well as those who own a house that is not a primary residence.
Plus, Massachusetts has an estate tax that is not inconsiderable.
I wonder if the state realizes that it will be losing high-end taxpayers as a consequence of this. I was at a function in June, I think, and several well-to-do folks who already own homes in other states were in the process of shifting their primary residences.
ShawWife and I talked with our tax guy before the Pandemic and she was not really willing to change her life that dramatically. I would probably be willing, in part because I can work anywhere near a decent airport with good internet and in part because I value warm weather in winter. But, since ShawWife is home 100% of the time and I am not, she gets the call.
Our property tax is considerably more for homes that are not a primary residence. That’s a state thing, and our township taxes are based off the state equalized value (township taxes are also more if it’s not a primary residence).
For primary residence, is the tax graduated? That is, would a $1,000,000 house pay more taxes proportionally than a $200,000 house?
Part of the change enacted this year was to have more valuable homes pay a disproportionate (and larger) share of the property taxes. So the property tax rate is graduated. Actually, I think there will be a rate for houses above the average and a lower rate for houses below the average.
Wow. That’s rough.
The tax situation in PA isn’t that bad (yet) but we also have many wealthy friends here and in MA, NY and VT who have already purchased homes in low or no tax states and have switched their residency. We have a Florida property but haven’t changed our residency….once DH formally retires we will probably do so. No downside really.
We’ve lived in several low tax states where there was such resistance to any taxation that they wouldn’t increase by even a penny a tax that would allow music or art programs for school children or pay teachers a living wage. Some states with no income tax have very high sales taxes on all goods and, frequently, high property taxes too. Massachusetts, in contrast, has no sales tax on food or clothing, good healthcare for all and services that simply were lacking in the low tax states. It doesn’t tax Social Security and the inheritance tax has just been increased to kick in for amounts over 2 million per person I think and if we expire with more than that (can’t imagine how that could happen) I’m happy to share. There’s a danger in focusing too much on tax avoidance. It’s been my experience that quality of life day to day is most important in retirement.
I agree. If I were in the situation where these higher taxes were kicking in I would make the decision on where to live based on where I am going to be the happiest. I would not go live some place where I might not be happy just to save some taxes. And this is just me but I would never live in FL. That place is moving towards being a huge dumpster-fire.
Don’t worry, sea level rise and hurricanes will put the fires out 
High taxes are one thing, and if there’s a sense that everyone is contributing then maybe that’s ok.
But “soak the rich” taxes are offensive, and states don’t even try to hide it. They just call it that… and it can have consequences.
The richest person in NJ moved out in anticipation of a “millionaire’s tax”, and moved his business. This single person was estimated to cost NJ over $500 million on taxes.
People are leaving NY and CA- at some point you feel like you are just being treated as sack of money.
I am not in the millionaire category but I think these taxes are short sighted.
What about home equity? I’m also guessing that you have an old-school pension? (maxing out a 401k for 30+ years can easily amass $1m per person.)
Unfortunately many of the states that tax property heavily have done so for many years, while not having more of a balance with other ‘spending’ kind of taxes, sales tax etc.
‘Soaking the rich’ is not a good decision by any state - upping already high taxes and not controlling spending. Agree, short sited.
A certain state has ‘kept alive’ by a major city, but this major city has issues, and the state pension system IMHO is on life support.
We live in a low property tax state with higher taxes on sales tax, etc. Due to state population and business growth, the grocery tax has lessened (many states do not tax groceries, but with low property taxes, taxes do need to be generated for the state). However, we are in a city area where we have most everything a larger city has. For example, DD’s BF is from Jacksonville FL, and our city, except for some of the major league type of teams, and an IKEA, we live really well with similar restaurants, stores, conveniences. We have more property tax for schools in our city versus another city next to us and the county school system, thus our suburban ‘city’ has the best schools in the area (all elementary schools and the two HSs are in the top 25 and top 10 respectably in the state). We only had one DD in public school for 3 years, but she had terrific education (the band program was the reason for those 3 years - gave her the peers - she was in their highest ‘wind ensemble’/clarinet and extra curricular Jazz Band/alto sax all 3 years, won the Band Director Award; was All State on clarinet as a 6th grader). Later the Youth Orchestra fulfilled the music (along with piano) through HS.
Plan to stay here until DD/SIL in San Antonio, in a few years, purchase a home and really ‘settle’ there - they have all 4 young grandkids. Until then, we will see them on visits (right now one or two times in Nov - depending on how their plans work out for a wedding and for Thanksgiving). Haven’t totally decided if we go to two smaller residences, stay in current and buy a condo in San Antonio, other options.
Also DD’s BF is living with us as he is working in this city in sports management. However hopefully an equivalent/better position will work out for Orlando in next year or so, where DD lives. He works a lot of hours in season, and will be with DD and his family off season.
What is the certain state you are talking about?