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Old 05-26-2012, 10:43 AM   #61
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Hi...Just an update. Talked with our Vanguard Planner on Thursday and have another appt set up to finish up. Long and short of it...BEST THING WE COULD HAVE EVER DONE!
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Old 11-04-2012, 11:11 AM   #62
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Well it has been quite some time now from when you all helped us with your thoughts and incites on financial future. I now find myself coming back again to dig a little deeper on two items. 1) An Annuity we have and 2) New York State and our taxes. And thus am seeking the community thoughts on these two areas.

Current Update...

Age: 46 Wife: 38

Currently with Vanguard $2.4M - 63% Stock/37% Bonds. (71% US Stock)
Still with Amerprise = $189K in a REIT's and $285K Annuity
Current Total = $2,874,000.
In 2013 - Expect another $360K invested but that would be that.

Ok...On to the help/thoughts needed...

The Annuity still with Amerprise...By the Numbers...(As of 11/2/12)

$275,000 total investment (put in over 3 separate times. $100K- 2006, $75K - 2008, $100K - 2012)

1.9% Average Fund Charge (The avg over 7 funds it currently has in it and includes the mortality expense of .954%)

Current Value = $285,543.00

Current Gain = $10,543.00

Surrender Value = $268,195.98 ($17,348 Surrender)

Loss vs $ Put in if surrendered = $6,805.00


Question: Seeing that the account has a $10,543 gain currently, would I still be hit with a tax penalty, of I think someone mentioned 10%, on that amount seeing I am taking it out before 59 1/2? Or seeing I would have lost $6,805 because of the surrender charge do I actually have a loss I can claim and have no penalty. (I understand I am giving up $17K in the surrender regardless.) I hope that question came out right. I am just not sure if I am hit even more.

It comes out to a 6% surrender hit. If I had an annuity at Vanguard, it would only be .6%. (I have been advised that an annuity really may not be of help to us tax wise which is where they are usually used based on projected yearly expense of $80K a year withdraw.) Undertand, I have NO IDEA on how any of that all works.

I guess we are still looking to see about if it makes sense to get out of this now vs holding it until 59.5 years of age. We still think we were put into it just some others could make $ as I am not sure how this is helping us.


New York State and Taxes:

So the other things we are still struggling with is being here in NYS and the taxes we pay. We are still strongly considering moving out of NY and head to Texas. The hard part is we love our home...yet...we have shut down the top part of the house as it is not used. We have made the home as we would want it, but it sure is costly without even going into operating costs of the home and yard.

By the simple numbers...

Home = $305,000 town assessed value

Mortgage = $200,000 still own (at 3.5% 14 years)

Town and School taxes = $12,000 (Yes, you read that right.)

State Personal Income Tax Rate = 6.65%

All our income is personal income. Be it from our side projects or when we start to withdraw from our Vanguard funds. So the $12K a year in taxes alone if quite a bite and then we toss in 6.65% in personal income tax. So, it is just a hard thought for sure. We are in Upstate NY.

We do not see things getting any better in NYS that is for sure. We here in upstate pay for NYC and do not even get the use of the items we are expected to help pay for. But I degrees. Our fear is that we are just tossing a lot money out the door to NYS and it does not need to be this way. Yet our family is here though we do currently travel often.

We even considered staying and downsizing but that really only saved us about $3.5 to $4K a year on home taxes.

All in all, we look forward to the community thoughts even though we already know their are no easy answers. (Other than getting into Vanguard when we did.)

Thank you.

(Not sure if I should have started a new thread....maybe will have to as others who have not followed along may not see this new plea for guidance.)
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Old 11-04-2012, 11:51 AM   #63
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I can't address the income questions, but here are some thoughts on the "should we move" question:

In considering whether to move to a state that does not tax pension income, I have spent a great deal of time and effort to research the following:

1) Possible alternative places to live. All the other calculations are absolutely dependent on the exact place one chooses to live. You can't just say "State X," you must get down to the county and municipality level, and that means you've got to go check these areas out for yourself.

The rest is Internet research and spreadsheeting:

2) Amount of state/county tax we can expect to pay on our pensions if we stay put (this is the amount we would save by moving to a non-tax state).
3) Relative property tax for a home of similar value in the target state(s).
4) Rough estimate of the cost to sell our current home and buy one in the target state(s). (Broker's fees, staging, carrying costs during for-sale period, closing costs).
5) Rough estimate of the cost to move our stuff, possibly twice (if our house doesn't sell at the exact same time a home we want to buy shows up for sale - a distinct possibility).

There are other factors, such as the cost of owning and operating and repairing and maintaining your current home; but you'd face those anywhere you live. Also, some parts of the U.S. definitely have lower general cost of living than others, but I'm on the fence as to whether COL (aside from cost of housing) is a significant factor compared with the ones I've listed.

Hope this is food for thought.

Amethyst

Quote:
Originally Posted by Nathan72 View Post
Current Update...

New York State and Taxes:

So the other things we are still struggling with is being here in NYS and the taxes we pay. We are still strongly considering moving out of NY and head to Texas. The hard part is we love our home...yet...we have shut down the top part of the house as it is not used. We have made the home as we would want it, but it sure is costly without even going into operating costs of the home and yard.

By the simple numbers...

Home = $305,000 town assessed value

Mortgage = $200,000 still own (at 3.5% 14 years)

Town and School taxes = $12,000 (Yes, you read that right.)

State Personal Income Tax Rate = 6.65%

All our income is personal income. Be it from our side projects or when we start to withdraw from our Vanguard funds. So the $12K a year in taxes alone if quite a bite and then we toss in 6.65% in personal income tax. So, it is just a hard thought for sure. We are in Upstate NY.

We do not see things getting any better in NYS that is for sure. We here in upstate pay for NYC and do not even get the use of the items we are expected to help pay for. But I degrees. Our fear is that we are just tossing a lot money out the door to NYS and it does not need to be this way. Yet our family is here though we do currently travel often.

We even considered staying and downsizing but that really only saved us about $3.5 to $4K a year on home taxes.

)
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Old 11-04-2012, 11:56 AM   #64
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I actually thought that Texas property taxes were high! We have a 300k house and pay about $5300 in property taxes. Bear in mind that while we have no state income tax here we do have sales tax. Where I live it is currently 8.25%.

I do think it is reasonable to consider cost of living in where you live during retirement. That said, I know there are factors of being close to family that are important for many and there are also cultural factors. There is a huge cultural difference between NY and Texas so bear that in mind as well.
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Old 11-04-2012, 12:04 PM   #65
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Oh...Forgot the local sales tax... 8.25% here also.

NY is 7th highest in cost of living with Hawaii being #1. Texas is 47th. (All things considered)

But compared to NY...Texas is low in property tax. LOL

'There is a huge cultural difference between NY and Texas so bear that in mind as well."

Yes, their is. We have spent time there and will again this winter. We kind of like it actually. Maybe it is us, but people seem much nicer and their is a lot of pride. But yes, something needed to be considered when looking to make a move.
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Old 11-04-2012, 12:30 PM   #66
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Quote:
Originally Posted by Nathan72 View Post
Oh...Forgot the local sales tax... 8.25% here also.

NY is 7th highest in cost of living with Hawaii being #1. Texas is 47th. (All things considered)

But compared to NY...Texas is low in property tax. LOL

'There is a huge cultural difference between NY and Texas so bear that in mind as well."

Yes, their is. We have spent time there and will again this winter. We kind of like it actually. Maybe it is us, but people seem much nicer and their is a lot of pride. But yes, something needed to be considered when looking to make a move.
So, if you kind of like Texas and also prefer the lower cost of living you might find there, what are your concerns?
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Old 11-04-2012, 01:15 PM   #67
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On the annuity:

I see a couple possibilities. One is you may be able to do a 1035 exchange from Ameriprise to Vanguard (actually the insurer sponsoring the Vanguard marketed annuity) which would avoid any tax/penalty implications but reduce your fees at the expense of the surrender charge you would have to "pay". Second, most annuity contracts allow a certain percentage of surrender charge free withdrawals each year (commonly 10%). If your Ameriprise contract allows that you could begin to do the maximum penalty free withdrawals each year as either a 1035 to a Vanguard annuity or simply a cash surrender that you would pay any relevant tax and penalty and then reinvest the net proceeds. Or perhaps a combination of the two - a 1035 exchange to vanguard and then surrender charge free withdrawals and reinvestment in other accounts over time. I think if it were me I'd probably lean to doing a 1035 exchange to vanguard and then letting it sit and annuitizing it later.

On the move:

First, since your move seems to be largely state tax motivated, check to be sure that your state taxes will be what you think they will be once you RE. IIRC, most of your nestegg is in taxable accounts, so if you retire, your taxable income may be a lot less than what you think. You can test this by taking a recent tax return and adjusting it for what will change in retirement and see what it looks like.

Second, check out Find Your Spot. You input things about what you want in a place to live and it provides a list of suggestions for you.

But don't underestimate the importance of having family nearby.
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Old 11-04-2012, 01:30 PM   #68
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So, if you kind of like Texas and also prefer the lower cost of living you might find there, what are your concerns?
I think it mostly is emotions. Lived here in this area all our lives. Logically, the numbers tell us to get out now and have a beter chance at a less stressed financial future. It is just hard I guess. And it should not be, we do travel for 6 to 7 months of the year and have been from 2008. But we always did come back "home".
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Old 11-04-2012, 01:41 PM   #69
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I think it mostly is emotions. Lived here in this area all our lives. Logically, the numbers tell us to get out now and have a beter chance at a less stressed financial future. It is just hard I guess. And it should not be, we do travel for 6 to 7 months of the year and have been from 2008. But we always did come back "home".
That's understandable, and a difficult choice to make. Have you thought about renting in Texas for a year to see if living there is all you expect it to be? That will cost a few more $$ in the short term but should help you sort through this and get a better understanding of what you want and need for your permanent residence.
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Old 11-04-2012, 01:53 PM   #70
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On the annuity:

I see a couple possibilities. One is you may be able to do a 1035 exchange from Ameriprise to Vanguard (actually the insurer sponsoring the Vanguard marketed annuity) which would avoid any tax/penalty implications but reduce your fees at the expense of the surrender charge you would have to "pay". Second, most annuity contracts allow a certain percentage of surrender charge free withdrawals each year (commonly 10%). If your Ameriprise contract allows that you could begin to do the maximum penalty free withdrawals each year as either a 1035 to a Vanguard annuity or simply a cash surrender that you would pay any relevant tax and penalty and then reinvest the net proceeds. Or perhaps a combination of the two - a 1035 exchange to vanguard and then surrender charge free withdrawals and reinvestment in other accounts over time. I think if it were me I'd probably lean to doing a 1035 exchange to vanguard and then letting it sit and annuitizing it later.

On the move:

First, since your move seems to be largely state tax motivated, check to be sure that your state taxes will be what you think they will be once you RE. IIRC, most of your nestegg is in taxable accounts, so if you retire, your taxable income may be a lot less than what you think. You can test this by taking a recent tax return and adjusting it for what will change in retirement and see what it looks like.

Second, check out Find Your Spot. You input things about what you want in a place to live and it provides a list of suggestions for you.

But don't underestimate the importance of having family nearby.

Hi...thanks...but totally lost us on the annuity. Augh...why do they make these things for hard to understand.

In regards to "IIRC, most of your nestegg is in taxable accounts, so if you retire, your taxable income may be a lot less than what you think."

Is not all the $ you take out of retirement also not taxed as personal income? Oh wait, are you only taxed on gains made? But are we thus not taxed on all the dividends made every year? They really do make harder then it should be.

Now getting more and more confused. I guess we are more lost than what we knew even after all the reading. We tried to pay someone to help us...but if you had followed along from the start, you know how that ended up for us.
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Old 11-04-2012, 01:57 PM   #71
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That's understandable, and a difficult choice to make. Have you thought about renting in Texas for a year to see if living there is all you expect it to be? That will cost a few more $$ in the short term but should help you sort through this and get a better understanding of what you want and need for your permanent residence.
We have a motor coach that we live in also...so while we have not spent a year in Texas, we also have not spent a year here sense 2008. Even not being year costs us about $1400 a month with taxes and upkeep. (upkeep = home operations needs when no one is here. Does not include mortgage.)
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Old 11-04-2012, 03:14 PM   #72
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Quote:
Originally Posted by Nathan72 View Post
Hi...thanks...but totally lost us on the annuity. Augh...why do they make these things for hard to understand.

In regards to "IIRC, most of your nestegg is in taxable accounts, so if you retire, your taxable income may be a lot less than what you think."

Is not all the $ you take out of retirement also not taxed as personal income? Oh wait, are you only taxed on gains made? But are we thus not taxed on all the dividends made every year? They really do make harder then it should be.

Now getting more and more confused. I guess we are more lost than what we knew even after all the reading. We tried to pay someone to help us...but if you had followed along from the start, you know how that ended up for us.
A 1035 exchange is where you move your annuity money from one insurer (Ameriprise in your case) to an annuity with another insurer. Since the money is still in an annuity but just with a different company there are no tax implications or early withdrawal penalty implications.

On the other question - you need to be more specific on what it is that you are referring to as a "retirement" account - because the tax treatment differs between different types of retirement accounts. However, in most cases an early withdrawal penalty is assessed on amounts withdrawn from retirement accounts before age 59 1/2 so it would be very costly for you to use money from retirement accounts before you are 59 1/2.

If you have a CPA who does your taxes they should be able to explain the tax implications of using different accounts that you have in retirement. Or your Vanguard planner should be able to explain this as well.
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