Moves due to tax bill passage

[gerntz]

I’m wondering if any of you are facing the same IRA/401K questions that I am facing. This question is for people like me who are not yet retired, but are trying to plan for ER. As I understand it, only the corporate tax cuts in the bill are permanent. The individual tax cuts are not, and for many, the tax rates will be higher in 2027 than they otherwise would have been.

uy understanding is that without future income tax law changes, rates will return to 2017 rates, not higher. But without further changes, effective rates will be somewhat/a bit higher for those that itemize due to reduced deductions. But in 2008, did I have any idea what 2018 rates would be?

 

[cathy63]

Well, since I itemized and showed about $16000 in itemized expense in 2017 it seemed like a no brainer to pre-pay the roughly $5500 in property taxes we'll be assessed in 2018. Except. Callled Polk county Oregon and Riverside county California tax offices and neither is accepting payments that have not yet been assessed. We normally pay in full as soon as the property tax statements come out - how do others manage to bunch those payments? The Oregon office said they were precluded by Oregon law from accepting payments not assessed.

For Riverside County, CA, do you not already have a 2017-2018 tax bill with a second part that is due in Feb 2018 (delinquent if not paid by Apr 10, 2018)? That's the part that you can pay before the end of 2017. It's already been assessed.

 

[RobbieB]

I'm not doing anything differently due to the new tax laws.

 

[calmloki]

For Riverside County, CA, do you not already have a 2017-2018 tax bill with a second part that is due in Feb 2018 (delinquent if not paid by Apr 10, 2018)? That's the part that you can pay before the end of 2017. It's already been assessed.

Assessed and paid - the second half was small enough that 4 months of bank interest earnings on it didn't matter compared with not having to think about it.

 

[Sandy & Shirley]

Changing all my spreadsheets to reflect new rates. The current marginal tax hump, without dividends, is 46.25%, 185% of 25%. The new rate is now 40.7%, 185% of 22%. The max including dividend triple taxation is down from 55.5% to 49.95%.


The new rates also increase the amount we can withdraw from our IRAs each year before hitting those Hump tax rates.

 

[43210]

I'm going to carefully estimate my AGI and do a Roth conversion up to close to the FAFSA auto zero EFC AGI limit because I have a junior in high school who will be completing the FAFSA next October 1st using my 2017 tax information.(*)

(*) As discussed elsewhere, I was planning to Roth convert to that limit anyway, it is just the precision AGI estimation and staying below the cliff parts that are new. If the tax bill had not passed, I would have overconverted by a lot and then recharacterized once I got all my tax information.

Wouldn't the conversion make more sense after your son is done with College? Any converted dollars become "available" as income. CSS profile schools will love you if you make that conversion.

Possibly. I plan to make the conversion anyway, all things being considered.

Not to get into the whole thing here, feel free to PM more questions or ask for more details, but:

1. My kids are generally considering FAFSA schools and not CSS profile schools.
2. Even with the conversion my income will be quite low.
3. There is official guidance that financial aid officers are expected to adjust for Roth conversions because, although they generally increase AGI, they generally are not available to be spent on college costs, at least for FAFSA purposes. I don't know much about CSS profile and how it works in this regard.
4. I kinda need the money to live on five or six years from now since I am retired and the conversion this year is part of my Roth pipeline.

Hope that helps explain.

Well I, for one, am EXTREMELY interested in what you have to say about this, so I hope your dialog doesn't disappear into PMs. Perhaps you could post it my thread
"Kids in college after retirement (lower income version)"
http://www.early-retirement.org/for...er-retirement-lower-income-version-89513.html

 

[SecondCor521]

Well I, for one, am EXTREMELY interested in what you have to say about this, so I hope your dialog doesn't disappear into PMs. Perhaps you could post it my thread
"Kids in college after retirement (lower income version)"
http://www.early-retirement.org/for...er-retirement-lower-income-version-89513.html

Replied on your thread.

 

[Walt34]

I always pay my real estate taxes early. The county discounts the bill 4% if paid by early December.

That's generous! We only get a 2.5% discount if paid by October 1st. (Or is it September? I forget at the moment.)

 

[REWahoo]

That's generous! We only get a 2.5% discount if paid by October 1st. (Or is it September? I forget at the moment.)

Anyone who gets a carrot should consider themselves fortunate. We only get a stick in our county - a 7% penalty if not paid by the end of Jan.

 

[gerntz]

Might some of the moves be from high tax states?

 

[harley]

I know Illinois has been losing population, having recently dropped from 5th highest population to sixth. I personally moved (changed primary residence) from relatively high tax MD to lower tax FL. And there may be a fair amount of that kind of high earner "move" over the next few years. But I doubt the majority of people, especially those who already don't itemize, will move.

 

[bobandsherry]

I know Illinois has been losing population, having recently dropped from 5th highest population to sixth. I personally moved (changed primary residence) from relatively high tax MD to lower tax FL. And there may be a fair amount of that kind of high earner "move" over the next few years. But I doubt the majority of people, especially those who already don't itemize, will move.

Yep, I left the Land of Lincoln a couple years ago. A epic mess in the state finances, taxes going to get worse, or services going to get slashed, before it gets better. I don't know how many "high earners" will move though, they are living there for some reason which isn't the weather or low taxes. Other "big cities" in a tax bind as well, so it's just pick your poison. And those "high earners" will find a way to deduct their SALT taxes one way or another.

 

[W2R]

Might some of the moves be from high tax states?

Some may be, although it seems like there are a lot of factors to weigh in the "where to live after retirement" question.

If family and friends are in the higher tax state, sometimes people decide to stay.

Also climate is important to some people, and some prefer locations with a good airport and lots of things to do even if the taxes are higher.

Some prefer a lower overall COL to low taxes, not caring where their money is going as long as living there is less expensive.

The question is endlessly fascinating and to me, it does not seem at all simple.

 

[rodi]

I live in a high cost state... but don't have enough deductions to group... standard deduction for me. Price of having a paid off house I guess.

No major changes for me. Might consider increasing Roths once I understand the FAFSA impact (I have a Jr and Freshman in high school).

 

[Winemaker]

uy understanding is that without future income tax law changes, rates will return to 2017 rates, not higher. But without further changes, effective rates will be somewhat/a bit higher for those that itemize due to reduced deductions. But in 2008, did I have any idea what 2018 rates would be?

If you can remember, the "Bush tax" cuts passed in 2001, had to be voted on again in 2010, to pass the Byrd rule. Same thing applies to this legislation. Unless ratified again in 2027, the law passed last week will expire then, and the present rates will resurface.

What I find inflammatory, is the local news media here reporting that the "new tax law will raise your taxes in 2027".

 

[pb4uski]

Beginning in 2018 we will no longer itemize. Not much I can change other than moving and I'm not going to do that. I'll still contribute what we normally do even though we will get no tax benefit.

I could pay off the mortgage but with a 3.375% rate I'm earning much more than that from my investments.

So at the end of the day... no change other than I'll refine our taxes more since Roth recharacterizations will not be allowed for the 2018 tax year.

 

[FireBug]

Taxes are hard to understand....for the rest of us

 

[harley]

Beginning in 2018 we will no longer itemize. Not much I can change other than moving and I'm not going to do that. I'll still contribute what we normally do even though we will get no tax benefit.

I could pay off the mortgage but with a 3.375% rate I'm earning much more than that from my investments.

So at the end of the day... no change other than I'll refine our taxes more since Roth recharacterizations will not be allowed for the 2018 tax year.

This is pretty much it for us too. I'll still run through the itemization since we'll be close to the limit, but unless it's an unusual year (like most of them have been), we'll just take the standard deduction. Keeping the mortgage too. And hopefully coming out a bit ahead on the Roth conversions due to 12% instead of 15%. I'll know more in April of 2019.

 

[jazz4cash]

Anyone who gets a carrot should consider themselves fortunate. We only get a stick in our county - a 7% penalty if not paid by the end of Jan.

We get to pay half by Sept 30 and the rest by year end. The stick is $50/mo late fee.

 

[Which Roger]

Yep, I left the Land of Lincoln a couple years ago. A epic mess in the state finances, taxes going to get worse, or services going to get slashed, before it gets better. I don't know how many "high earners" will move though, they are living there for some reason which isn't the weather or low taxes. Other "big cities" in a tax bind as well, so it's just pick your poison. And those "high earners" will find a way to deduct their SALT taxes one way or another.

The one good (but maybe not good enough) reason to stay in IL is that retirement income isn't taxed by the state.

 

[OldShooter]

The one good (but maybe not good enough) reason to stay in IL is that retirement income isn't taxed by the state.

Yet.

After the bankruptcy, things will be different.

 

[bobandsherry]

The one good (but maybe not good enough) reason to stay in IL is that retirement income isn't taxed by the state.

Ironically, the reason for IL to be in such dire straits is they have a significantly underfunded retirement fund for their teacher and state employee pensions.

According to this article, the retirement income exemption is costing Illinois $2.7 billion, that's a big target.

 

[retired1]

My tax bracket going down but state taxes + property taxes limit of 10K evens out the gains.

Sent extra $$ to pre-pay 2018 Property Taxes, Increased 401k/Roth401k contributions.

 

[spncity]

We’ve made large donations to our DAF over the past two years (2016, 2017) due to unwinding a long held stock position. It frontloads our DAF with about 10 years worth of donations.

I would like to hear from the forum:

So if we already have a Donor Advised Fund, can I transfer some $ from my Solo 401-k to the DAF before the end of the year and get a 2017 charitable deduction? They are both at the same firm, so they should be able to do it quickly...

Funny, TurboTax calls it a Donor Advice Fund.

 

[audreyh1]

I would like to hear from the forum:

So if we already have a Donor Advised Fund, can I transfer some $ from my Solo 401-k to the DAF before the end of the year and get a 2017 charitable deduction? They are both at the same firm, so they should be able to do it quickly...

Funny, TurboTax calls it a Donor Advice Fund.

I don’t think you can donate from a 401K directly to a DAF. You can withdraw the taxable income from the 401K and then donate the proceeds to a DAF, and get a charitable deduction.

To get the most tax benefit for charitable donations to a DAF, donate appreciated securities. But time is running out....