As you know, I have now maxed my 401K in six months of living in NYC to decrease my large state and city tax bill before we move. But I’ve been wondering how much money in state and city taxes I have saved by maxing this before I leave and how much of federal taxes have I saved by simply maxing this account.
To investigate I compared my paychecks in 2014 and 2015 at the same time period to see how much more taxes I paid in 2014 and the results were shocking. My monthly paycheck taxes in May of 2014 and 2015 looked like the below:
End of May 2015
796.98 in FIT
386.56 Medicare
370.65 NY State Income Tax
246.96 NY City Income Tax
Total State/City Taxes: $617.61
End of May 2014
3223.90 in FIT
374.565 Medicare
1601.60 SS
1217.72 NY State Income Tax
756.40 NY City Income Tax
Total State/City Taxes: $1974.12
Please note that this was at the end of May and I completed this project at the end of June. Unfortunately the amazing people at Fidelity deleted all of my paystubs the day I left my job so I cannot compare June to June as I intended to, but if I saved $1,356.51 on state and city taxes until the end of May, extrapolating the per month savings I would have saved $1,627.81 of high NYS/NYC taxes just by maxing my 401K. That’s more than the cost of my move across the country. Thank you retirement account! My only concern in the future is the IRS understanding that I am a part-year resident of NY. I have read horror stories of people moving from NYC to a no income tax state and NYC demanding that they pay NYC income tax for the whole year despite not living or working in that city. Worse case scenario is that I pay them about $1,500 and wash my hands of NYC forever, which wouldn’t be the absolute end of the world.
As for Federal taxes, up until the end of May I had saved $2,426.92 on FIT and by the end of June I should have saved a little less than $2,912.30 by maxing my 401K. That’s a total of $4,540.11 ‘saved’ on taxes – a whopping 26% of my new budget. Woah. Of course I will pay more FIT in Seattle since I won’t have a 401K to hide behind, but at this point who knew a little planning and no sacrifice could lead to such rewards!