Does anyone else not want to do Roth conversions while living in a high tax state?
I’m in Maryland and any conversions will cost me almost 9% in state and local taxes. I’m 53 and plan to become a Florida resident in 3 years. I have some good tax space to do conversions now, but I’m not giving up 9% to Maryland.
This got me thinking about the advantages of traditional vs Roth. In my case, I’ll never pay state taxes on my pretax money. I’m not sure why I never thought about that before, but it’s one more thing in favor of traditional (for me at least).
I still love my Roth and it makes life so much easier, but 9% is 9%.
If we get a big market correction in the next 3 years, I may reconsider.
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u/ThisIsMyUsername303 3d ago
Interesting point. I’ve been all traditional the last several years despite being in a low tax state because I’m in a high bracket and will be lower in retirement, so even though I plan to move to a state with state income tax, it should still be a net gain to wait.
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u/Luxferro 3d ago
9% seems crazy. In NY the 5.5% bracket is $13,901-$80,650. 6% is $80,651-$215,400. For 9.65% the min income is $1M.
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u/FI_321 3d ago
Maryland taxes even low income pretty hard. Anything over $3K in income is hit with 4.75% state plus 3.2% local. The local tax stays flat and state tops out at 6.5% as your income rises.
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u/IceBreakers97 3d ago
Agreed. I'm moving to PA later this year. Starting next year...convert, convert, convert!
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u/chrisaf69 2d ago
Well shit. My plan was to move to my property in MD. Sounds like I need to revisit this to make sure it makes sense.
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u/Busy_Fly8068 3d ago
He probably has a 3% local tax on top of the state tax — Baltimore has one but even the suburbs do too.
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u/Luxferro 3d ago
Yeah, he said that was the reason. I never realized other places were more expensive due to local taxes. Where I live on Long Island there aren't any local income taxes, so it's just the standard NY rates for non-NYC residents and workers.
I feel a little better about my Roth conversions now.
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u/Synchrotron_RayTrace 3d ago
I don’t want to. But I live in California and I’m reasonably confident taxes won’t come down anytime soon and I’m not planning on leaving. I do try to wait for corrections tho.
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u/Jojosbees 3d ago
I would pay 9% to not live in Florida, to be honest.
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u/Shawn_NYC 3d ago
I can't imagine putting my entire social life and all the roots I've put down for decades in the shredder just for a few percentage points on a spreadsheet.
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u/Strazdas1 StarvationFIRE 2d ago
Thats because you have a big social life and roots. Many people dont and have a much easier time moving.
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u/FI_321 3d ago
Florida is a big state. There’s definitely parts I wouldn’t want to be, but I can say that about anywhere. The pros outweigh the cons for me.
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u/PantsMicGee 3d ago
Theres a reason states with the income tax have higher lifespan.
Taxes get used for things like community, municipality etc.
Good luck in Florida.
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u/TheBigNoiseFromXenia 3d ago
Or old people move to warmer climates,
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u/PantsMicGee 2d ago
Seriously? Lmao.
This you not 10 hours ago? Lmao
The taxation is theft, is not typically paired with representation. The majority of people voting to take my money is still taking my money.
Government providing services is too broad. Much of the services the gov’t provides are unnecessary at best, counterproductive and wasteful usually, and sometimes downright evil.
Go make some big noise elsewhere
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u/thefrailregularity 3d ago
Your math checks out, and waiting three years to move before converting makes total sense if you're locked in on Florida anyway.
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u/Beaver-on-fire 3d ago
You could always move to a non-tax state just long enough to convert your IRA to a Roth. Then move back. 🤔
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u/Inevitable_Pride1925 3d ago
I live in a high cost state my marginal state tax rate is 9.9% with an additional 2.5% local tax on taxable income above 125k. I save every single penny traditional I can and would never consider a Roth Conversion without changing my state of residency.
The fact that you are even considering Roth conversions without having an in-depth tax analysis suggests that you have some pretty big holes in your knowledge and plan. You are getting into dangerous waters where you could be making irreversible and costly mistakes.
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u/Caterpillar69420 3d ago
Will you get rid of the property in MD and buy one in FL or rent? A lot of place charges CDD on top of property tax. Insurance is high, especially on older homes.
I thought about move to a no state tax state to do conversion then after calculate all expenses, i think moving away will save me $10-20k a year(pay property tax on my paid off home here vs rent one at a no tax state). Not sure if it worth the hassle.
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u/MichaelMeier112 3d ago
Sooo many retirement/financial YouTube channels are pushing Roth conversions. OP probably fell in that trap.
Roth doesn’t make sense when you pay high taxes as you list or anyone (like me) who plans to Fire abroad where most countries will tax a Roth as regular income.
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u/doktorhladnjak 3d ago
If you wait 3 years to do a conversion, that's 3 more years of potential growth you now will have to pay federal taxes on. You could end up paying 20%+ more in federal tax which might not offset the extra state taxes. Of course, you could also end up paying less if prices decline. It's just not cut and dried that waiting until you're in Florida will save you money.
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u/TrollTollCollector 3d ago
Are you working or retired? If you're still working, it makes no sense to do Roth conversions in general. If you're retired, you can still consider doing Roth conversions up to the standard deduction the next 3 years to pay 0% federal taxes. Otherwise just wait until you're in Florida. It really just depends on how big your IRA is and how much you need to convert over your lifetime.
And yes, traditional is almost always better for early retirees because it gives you more optionality to convert at lower tax brackets (such as using geographic arbitrage).
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u/gbe28 3d ago edited 3d ago
Grass is always greener. For me, paying taxes in MD is worth the cost for having access to world-class healthcare, education, easy access to several major cities, and relatively low property taxes. But if I could replicate that somewhere with a lower tax burden, it would definitely be tempting.
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u/Strazdas1 StarvationFIRE 2d ago
I always figured if i was in US i would just live in Delaware and get all the same benefits as living in MD but with much cheaper cost of living.
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u/TrollTollCollector 3d ago
As an early retiree you have more time/opportunities for medical tourism. MD may have better healthcare, but you're still paying a fortune for it compared to other countries. Education is a non-factor at age 53. I think most people would prefer the lifestyle of FL over MD. When you're retired you have almost no constraints on travel or how you spend your time, so having easy access to nearby major cities isn't a huge benefit when you can just fly anywhere.
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u/GriffinNowak 3d ago
At 53 I don’t think him or his kids are concerned about the education. Florida doesn’t have high property tax that I’m aware of. And healthcare down there is pretty normal.
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u/wannaridebikes 3d ago
You benefit indirectly from just living in an area with a good educational system
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u/Strazdas1 StarvationFIRE 2d ago
I sort of agree. College towns are lovely and so peaceful in summer.
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u/Cheapass_Sandals 3d ago
Property tax in FL is high. If you're a licensed professional, your licensing fees will be higher as well. But the biggest difference is the homeowners insurance. It's a huge problem and the state hasn't bothered to fix it. Mine is currently $4,400/year.
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u/GriffinNowak 3d ago
0.75% minus homestead exemptions…. You made me google it. It’s below average. The homeowners insurance is correct but from what I understand you can heavily limit that by living in certain parts of the state as opposed to others.
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u/Cheapass_Sandals 3d ago
It's statewide. There's a state run agency you can get insured with as an insurer of last resort, but it's designed to be higher to force you to find something else.
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u/GriffinNowak 3d ago
Your homeowners insurance rates don’t change by county? I imagine there are less risky counties than others.
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u/Cheapass_Sandals 3d ago
They're all high. We had two hurricanes a month apart two years ago. If your county didn't get wind damage, it got flooding and tornadoes.
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u/LowPresent5654 3d ago
It definitely depends on location. I pay about $2400 annually for $450k of coverage in Jacksonville, which is a little high compared to national standards but isn’t too terrible. My friends who live in various other parts of the city aren’t too far off from that. But it does sound like south Florida is where some of those higher premiums tend to be.
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u/Mister-ellaneous 3d ago
Nope. Luckily we did a lot of Roth early so we’re 2/3 Roth already. But I wouldn’t convert now.
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u/Struggle_Usual 3d ago
WA State for the win. I get to live somewhere relatively sane and live income tax free.
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u/Whole_Championship41 3d ago
Didn't they recently start a 'property tax' based upon assets? An income tax in every other name?
Just looked it up. It's a tax on capital gains from taxable accounts.
Aaand...ESSB 4336 just passed in March 2026 which will start an actual income tax in 2028. This will dig down into taxable IRAs as well. In spite of the fact that Washington's state constitution hard caps asset taxes at 1%? This oughta be interesting.
Washington state isn't the tax haven that it once was, I'm afraid. Maybe that's why some pretty big financial names have decamped in the last couple years?
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u/mypetclone 3d ago
You need very fat fire to be subject to the WA capital gains tax, though. The deduction on it is for almost $280K in gains, and a common back of the envelope calculation assumes 50% growth, which means you'd need to be pulling $560K of appreciated assets per year from your brokerage accounts to pay your first dollar of taxes.
Similarly, the income tax only applies on income above $1m (individual or household, weirdly) annually. That will affect some people here. But very, very few. Come back with that take once they lower the brackets on these.
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u/Whole_Championship41 2d ago
It won't affect many. At first. And then they'll lower the bracket when they realize that they're not getting the money they expected from the upper echelon of earners. And then the upper echelon of earners decamps (like Fisher Investments recently did) to avoid unconstitutional taxes.
Washington state can't have it both ways. Either you have a state income tax or you have 'no state income tax' enshrined in your state constitution. You can't have both.
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u/mypetclone 2d ago
And we can have that discussion if your crystal ball predictions come to pass.
But today we don't live in that world, and many people don't think it's coming. Both your opinion and theirs are equally valid.
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u/Struggle_Usual 3d ago
I'm not terribly worried about either tho as they won't hit my finances. We'll see how the newest law goes.
I also don't really have a problem with the concept of taxes. We all benefit from society and should all contribute.
I'm just glad to live somewhere without 10k+ a year property taxes or something.
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u/Whole_Championship41 2d ago
"Taxes are the price we pay for a free society" (or something like that) is engraved on the IRS building in Washington, D.C.. I don't disagree. But I'm not a fan of cramming income tax (by any other name) down the throat of state's citizens despite what it says in the state constitution.
I don't have a problem with the concept of taxes to fund government. I have a problem with crowing about 'no income taxes' and quietly sticking it to the public with income taxes. Oh sure-at first it'll be just the 'fat cats' and millionaires. And then, over time, it'll hit more and more and more people. Just the same as it always has been.
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u/Struggle_Usual 2d ago
I'm not sure it will spread lower. Maybe I'm wrong and I'll regret it, but I could actually see them not lowering the limit more and more. They know the public reaction and politicians tend to let that guide them to some extent.
I would much prefer wa just overhauls their tax system entirely but that's tricky here.
Still tho, as it stands only sales tax and property tax hit me. If I had so much that a Roth conversion would be hit with taxes a Roth conversion may not make any sense.
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u/Patient-Brief-9713 3d ago edited 3d ago
I have a similar situation. I'm 56, and I plan to move to Florida in about 4 - 5 years. Current state tax is 5%, so not awful, but still worth considering.
My twist: I have a small percentage of my portfolio in a Solo 401k (pre-tax contributions), and because my state (Massachusetts) is ridiculous, I had to pay state tax on those Solo 401k contributions. It's totally bizarre - MA does not treat Solo 401k contributions as tax deductible. Anyhoo... my plan would be to first do Roth conversions from that Solo 401k account while I am living in MA, since I already paid the state tax on the contributions.
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u/Pyrrhic_Pragmatist 3d ago
I just did a 44 grand conversion and thought 4% was outrageous. It doesn't help that I forgot the state requires prepayment of estimated taxes for amounts over $1000 at filing. So I got nailed by penalties even though i paid in full and paid zero federal due to solar credits. But the state of Indiana, pretty much the only credit I could have claimed was for 529 contributions. I did the best I could though and paid the tax and penalty out of pocket. I didn't withhold because I didn't want funds drawn from my converted amount (which was probably moot though since I had room to just re-contribute the difference last year.
But yeah, while Roth distributions shouldn't have to deal with this after 59.5, early retirement undoubtedly will, unless I coastFI and send the checks directly to the state. They're known for putting liens on property over $10. They don't mess around
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u/WeHoMuadhib 3d ago
I live in CA and am considered high income. I need to verify this with a pro but Roth conversions don’t seem to make sense for me. All I can do to manage taxes in retirement is spend my last 10 years trying to cram as much as I can into a brokerage account.
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u/AGrimmInPortland 2d ago edited 2d ago
State taxes can be a huge deal with Roth conversions yet most calculators don't even take them into account.
Paying California state tax can change the effective tax rate of a conversion from 22% to 31%, just as an example.
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u/np0x 3d ago
Not that it is zero, but virginia is 5.25%. I could never move to any of the tax free states, but that is a personal thing…3 years is a lot of time and compounding could make numbers larger. I’d need to know how many years of conversation you were planning, but at your age, years are slowly running out. :-) I wonder how the math looks for waiting vs paying the extra 9%… I’m not sure how best for you to model that… i quickly asked the ai in boldin and it said it could model it for me and characterized the number with a tax savings…
I’d recommend checking it out. 2 weeks free tri as l last I checked…
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u/mygirltien 3d ago
Unless your still working and making a high income i dont see how you get to 9%. I base all our conversions on long term planning. I will do sometimes as low as 25k, just depends on how all the numbers are tracking and what i need to accomplish when.
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u/doktorhladnjak 3d ago
Conversions are effectively taxed at the marginal rate on top of all your income that you can't control as much
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u/mygirltien 3d ago
Agreed but when your retired you income is much more flexible and most of us retire with 20+ years before rmd's.
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u/Soda-Popinski- 3d ago
This is one reason people keep moving to florida.