state by state…
2 Likes
I pay property taxes to support schools even though I don’t have children in school. I like having a well educated area (although I’m dubious about that at times, it is my hope)
I saved money didn’t pay taxes on it then. I’m not sure why I should be exempt from not paying taxes. Besides I like having good roads and bridges.
13 Likes
These are deferred tax distributions. Had the money never gone into the accounts when first earned, it would have been fully taxable at that time. The accounts were established to allow deferral of the taxes until theoretically your tax rate would be lower when retired. They are not the same as SSA or pension payments.
6 Likes
Agree that they are not the same as SS, but disagree that they are not the same as pensions. In both cases (401k/pension) employees accept lower taxable salary today so that they receive pension payments later.
3 Likes
I was not aware that there were companies that allowed employees the choice between higher salary in lieu of a pension program. Or that the difference in salaries would go into a tax deferred account.
2 Likes
you are correct in that its not an individual employee choice per se. But to an employer, the only thing that matters is total cost to hire and keep someone. An employer is indifferent to how the dollars are split up: wages, benefits (incl. medical), and pension/401k. Total comp is total comp. And of course, union negotiating readily trades off salary for pension/401k match and vice versa.
1 Like
They’ll be unelected.
As for taxing 401k, they are deferred tax so yes, you pay as you pull out. That’s not a surprise. That’s the rule/intent from the get go.
4 Likes
Each state has different laws. Many do tax 401k and IRA distributions; some do not tax certain pensions.
I have not heard about trying to force a state income tax - and I do not think this is possible via federal legislation. States have various rights that are endowed Constitutionally.
I live in a state with state income tax, but our property taxes are considered very low in comparison to some states. Each state has various ways of taxation.
I think bd meant the local legislators in the State of Washington are rushing to add an income tax on millionaires in their state (despite their state’s constitution that prohibits income taxes.)
3 Likes
In Georgia we have a flat state tax on income including 401k distributions, however, if you are 65+ they give you $65k non-taxed and then the 5.4% state tax applies after that. The exclusion is per person for joint filers. So, might not be as bad as you think if they have exclusions in place.
1 Like
If you were lucky enough to have a job that offered a pension it was incentive to stay at that employer for your entire career.
My husband even though he was vested after 10 years, he stayed there for his entire career. He had the option to take a lump sum which was I think around 7 figures. Or the annuity.
He could have gone to another company but stayed in part because of the pension. And retiree health insurance before Medicare age.
My children don’t have pensions or retiree health insurance and so they aren’t inclined to stay with a company for their career. It’s better for them to job hop which they can increase their salary as they switch jobs.
8 Likes
My state only recently began allowing retirement distributions to be untaxed (to an extent - not fully). At first, it was only going to apply to pension income … but those of us without pensions who are using the 401k/IRA money we saved in lieu of pensions complained long & loud to our state representatives. Fortunately, it worked, and 401k/IRA distributions receive the same tax exemption as pension distributions.
3 Likes
Lots of pensioners in Michigan!
And if you had taken the lump sum before they made this decision…
In my state, teacher pensions are only taxed at 50%. That’s the only tax break I know of on state income taxes, but there has been a lot of discussion about more tax breaks for retirees which will be means tested.
Some towns do give a break of some sort on property taxes. In my town, it’s very small, and also means tested. Veterans get a break on property taxes.
The article above says to check if you plan to relocate. But here is the rub…the tax structure can (and likely will) change. When I first moved here from a state with no state income tax, THIS state had no state income tax. Now we do. And while you are checking on income taxes, check your sales and property taxes…revenue has to come from somewhere.
We have friends who retired to Florida. They said they really aren’t saving much. Utilities are higher than here, as are some goods and services. Housing is about the same for an equivalent home.
2 Likes
Very good point on changes and other types of taxes.
Our state’s income tax is under 5% and no taxes on any retirement income.
However we have very high property taxes and sales tax and quite frankly they slap a tax on everything around here. Estates at 4 million are taxed. So yes, you need to look at the full picture because the $ does need to come from somewhere.
2 Likes
I think most people don’t mind paying a reasonable tax rate for roads, bridges and schools. The issue is when the state wants to fund every possible thing for every possible person, and when they get themselves in a big hole, though having record collections and big bucks from Covid payouts, their answers are to try to tax in every possible way, not cut back on things other than roads, bridges and schools. Theft and waste? Oh well, who cares. People mind when the government is a poor steward of their money, and they keep wanting more.
The problem with Washington state is that since we haven’t had a state income tax, they justify having one of the highest sales taxes in the US, high property taxes, high estate tax and a multitude of other taxes because we don’t have that income tax. Now they are making a poorly disguised attempt to slip in the income tax, not replacing any of those other taxes, but adding, trying very hard to prevent the voters from weighing in on this. There becomes a breaking point when you ask for too much from people, and I think this is it. As you see, I have a rant. I don’t want me or any of my family to be priced out of living here.
6 Likes
Absolutely agree. I don’t mind paying my fair share and never complained, but I have a problem with waste. Not necessarily fraud, just money not spent wisely because it didn’t come directly out of the spenders’ pockets. A million extra here, a million there… And the marriage penalty in the new tax is so unfair (not that we ever made a million a year, it just feels discriminatory when it applies per household).
3 Likes
Ugh, that marriage penalty is crazy unfair. I would assume that when they find a way to slip the income tax down to the rest of us peons, they’ll plan on leaving that in there. Then people will start getting tax divorces. 
It’s like a bunch of young people are legislating, who think they have unlimited funds to spend, and Mom and Dad will keep giving them the credit card. But the parents are broke and in debt, and the money is gone. This is such a great place to live. I don’t want them to chase out all the businesses and people who can’t afford to live here.
1 Like
Seems like the Federal government is determined to cut taxes. Money has to come from somewhere or we will have to drastically cut services. I would not be surprised if taxes ( property/income/sales/inheritance…) are raised in many states.
3 Likes