How a Washington “Millionaire Tax” Could Affect You
If you’re retired or getting close to retirement in Washington, this is one of those tax stories worth watching closely, even if you don’t think of yourself as “ultra wealthy.”
This week, Washington lawmakers passed a 9.9% tax that will take effect in 2028 and will apply to income above $1 million. But here’s where many retirees get surprised: this is not just a story about someone earning a huge salary every year. It could also matter in years when someone has a large Roth conversion, a big capital gain, a business sale, or another one-time income event.
What Is Washington’s Proposed Millionaire Tax?
And just as important, the bill starts with federal adjusted gross income, or AGI. In plain English, AGI is generally your total taxable income from sources like wages, pensions, IRA withdrawals, business income, interest, dividends, and capital gains, minus certain allowable adjustments. From there, the proposal applies Washington-specific adjustments, then a $1 million standard deduction, after which the 9.9% tax would apply.
For Spokane-area retirees and pre-retirees, that makes this more than a political headline. It is really a tax-planning conversation. If you want help thinking through these kinds of tax questions, working with a Spokane financial advisor can help you build a retirement plan that is flexible before the rules change. As a Spokane financial advisor who focuses on retirement income, Roth conversions, and tax strategy can help you think through whether a future high-income year might create planning opportunities before 2028.
Example: A household with $1.2 million in taxable income would pay the 9.9% rate only on the $200,000 above the threshold, not on the full $1.2 million. That would come out to about $19,800.
How Is Adjusted Gross Income Calculated?
This is one of the most important parts of the discussion, because many retirees are more familiar with “taxable income” than AGI. For a general federal explanation of how AGI works, the IRS overview of adjusted gross income is a helpful reference.
Adjusted gross income (AGI) is generally your total income from taxable sources, minus certain allowable adjustments. The Senate bill report specifically describes AGI as total income from taxable sources reduced by items such as certain retirement contributions, and health savings account contributions. After AGI is calculated for federal purposes, the Washington bill makes its own adjustments to arrive at what it calls Washington base income, and then applies deductions to determine Washington taxable income.
Here’s why that matters for retirees: even if you are no longer working, your AGI can still rise significantly because of:
- IRA withdrawals
- Roth conversions
- interest and dividends
- capital gains
- business or rental income
- the sale of appreciated assets
That is why retirees with larger IRAs, taxable accounts, or business interests may want to look ahead several years instead of just focusing on this year’s return. A Spokane financial advisor can help model how those income sources may stack together over time.
Is Washington’s Millionaire Tax Final?
No, not at this point.
Even though lawmakers have advanced the measure, the final outcome is still uncertain. The bill is expected to face legal challenges, and Washington has a long history of constitutional disputes over income tax proposals. The Legislature’s own bill summary shows the proposal is still part of the ongoing legislative process, and recent reporting has noted the likelihood of further court and political fights. If you want to follow the proposal directly, you can review the bill materials through the Washington State Legislature.
So yes, it’s worth paying attention to. But no, this is not something retirees should panic over. A good retirement plan makes room for uncertainty. That’s one reason many families work with a Spokane financial advisor like myself. You want a plan that still makes sense under more than one outcome.
Who Could Be Affected by Washington’s Millionaire Tax?
The proposal is designed to affect households with income above $1 million. But in real life, the impact could reach beyond people who earn that amount year after year. You may want to pay especially close attention if you are:
- retired with large pre-tax retirement accounts
- planning significant Roth conversions
- holding appreciated investments with large unrealized gains
- selling a business or investment property
- receiving stock compensation or deferred compensation
- approaching retirement with a high-income year ahead
- Even if this tax never applies to you directly, it could still influence your planning.
Here’s why: many retirees have more control over income timing than they realize. Decisions about withdrawals, investment sales, charitable gifts, and Roth conversions can all affect how much taxable income shows up in a given year.
Are There Exclusions?
Yes, and this is an important detail.
The bill’s intent language says lawmakers intend to exempt certain sources of income, including the sale of qualified family-owned small businesses and the sale of all residential and other real property. In practical terms, that means home sales are intended to be excluded.
For small businesses, the bill itself does not spell out the full dollar test in the intent section. But Washington’s existing qualified family-owned small business deduction under the state’s capital gains tax law applies to businesses with worldwide gross revenue of $10 million or less in the prior 12 months, adjusted over time. That is why many summaries refer to qualified small businesses as typically being under the $10 million gross revenue mark.
So this is a good reminder not to assume every large transaction automatically falls into the tax base. For retirees and business owners, the details matter.
What Would the Revenue Be Used For?
The proceeds are intended to support a broader package that includes:
- Working Families Tax Credit expansion
- relief for some smaller businesses
- public priorities
- increase the filing threshold for some businesses
- K-12 education
- health care
- higher education
- other essential governmental services
- local public defense
- ties the package to other affordability measures with child care and early learning
The proceeds are intended to support these areas even though the bill routes much of the money through the general fund.
Could This Affect Roth Conversion Planning?
Possibly, yes.
Many retirees look at Roth conversions in the years between retirement and required minimum distributions. Those can be especially valuable years for tax planning. If you want to go deeper on this topic, read our article on Roth conversion planning for retirees to see how timing, tax brackets, and future distributions all work together. If Washington were to add a state-level tax on very high income in the future, that could influence how some households think about the size and timing of conversions.
Now, that does not mean everyone should rush out and convert large amounts right away. But it does mean this is a good time to review:
- your current federal tax bracket
- how much room you have before moving into a higher bracket
- how future state tax changes could influence strategy
- the long-term value of building Roth assets
- possible Medicare premium effects
Let’s walk through the bigger idea. If you already expect future required distributions to be large, and you have a window now where your income is more manageable, that may be a good time to explore partial Roth conversions. Not because of fear, but because planning is often easiest before the pressure shows up.
For households with large IRAs or 401(k)s, working with a Spokane financial advisor on a multi-year Roth conversion strategy can be much more effective than making a quick decision at the end of each year.
Could This Affect Capital Gains Planning?
Yes, especially if you own appreciated assets.
We also wrote about capital gains planning in retirement, including how to think through appreciated investments, diversification, and the tax impact of selling in different years.
That might include a taxable brokerage account, company stock, real estate, or another investment that has grown substantially over time. If tax rules change in the future, the timing of major sales could matter more. That doesn’t mean taxes should drive every investment decision. You still want to reduce risk when it makes sense, diversify when needed, and make sure your portfolio supports your retirement goals.
But here’s where many retirees benefit from slowing down and asking a few better questions:
- Should gains be realized gradually?
- Can losses be harvested to offset gains?
- Would charitable giving help reduce the tax impact?
- Is there a better year to sell a major asset?
These are planning questions, not panic questions.
Could This Affect IRA Withdrawals in Retirement?
It could.
A lot of retirees don’t live on just one source of income. Instead, income may come from several places at once, such as:
- Social Security
- pensions
- IRA withdrawals
- 401(k) distributions
- taxable investments
- real estate income
When those income sources start stacking on top of each other, taxable income can climb faster than expected.
That’s one reason retirement income planning matters so much. It’s not just about taking money out when you need it. It’s about deciding which account to draw from, when to draw from it, and how that choice affects taxes over time.
A thoughtful withdrawal strategy can help you stay flexible, avoid unnecessary tax spikes, and make better long-term decisions.
Could Charitable Giving Become More Valuable?
For some retirees, yes.
If charitable giving is already part of your values or your long-term plan, it may become even more helpful in a higher-tax environment.
Depending on your situation, strategies to consider may include:
- donating appreciated securities
- bunching charitable gifts
- using qualified charitable distributions from an IRA
The right fit depends on your overall income picture, your charitable goals, and how the rest of your retirement plan is structured. The key point is this: charitable planning isn’t just generous. In the right situation, it can also be tax-efficient. If that’s a strategy you’re considering, our article on qualified charitable distributions and tax-efficient giving explains how retirees can use giving more intentionally.
Why Tax Diversification Matters More Than Ever
One of the best ways to prepare for uncertain tax policy is to build flexibility into your plan. In most cases, that means having money in different types of accounts, such as:
- pre-tax accounts like traditional IRAs and 401(k)s
- Roth accounts
- taxable brokerage accounts
If all of your retirement savings are in one bucket, your choices may be more limited. But when your money is spread across different tax buckets, you often have more control over how much taxable income shows up each year. That flexibility can make a big difference when rules change.
A Spokane financial advisor who understands tax-focused retirement planning can help you see how these pieces work together, especially when you’re trying to balance withdrawals, Roth conversions, gains, and legacy goals.
What Should Spokane Retirees Do Right Now?
There’s no need to make dramatic moves because of one proposal. But there are a few smart steps worth considering now.
1. Review Future High-Income Years
Look ahead and think about whether you have any years coming up that could create an income spike. Examples include:
- a business sale
- a large Roth conversion
- concentrated stock sales
- major capital gains
- large required withdrawals later in retirement
When you can spot those years ahead of time, you have more room to plan around them.
2. Revisit Your Roth Conversion Strategy
If Roth conversions are already on your radar, this is a great time to model a few scenarios instead of making decisions one year at a time. Sometimes the best strategy is not one big conversion. It may be a series of smaller, intentional moves over several years.
3. Evaluate Embedded Capital Gains
If you want to reduce portfolio risk but you’re sitting on highly appreciated assets, try not to think in extremes. It doesn’t have to be “sell everything now” or “never sell.” In many cases, the better answer is a measured, tax-aware diversification strategy.
4. Stress Test Your Retirement Income Plan
Ask yourself a simple question: if taxes become less favorable in the future, does my current plan still hold up? That’s an important conversation for any retiree, especially if a large part of your savings is in pre-tax accounts. We also cover this in our article on how retirees can prepare for future tax changes, especially when most savings are still in traditional retirement accounts.
5. Stay Calm and Plan Thoughtfully
This proposal is important, but it isn’t final. That’s why the goal is not to react emotionally. The goal is to stay informed, look at your options, and make decisions within the context of your full financial plan.
Should You Be Worried About Washington’s Millionaire Tax?
Probably not worried, but informed, yes.
For most retirees, the best response is not to overhaul everything overnight. It’s to make sure your retirement plan is flexible enough to handle change if tax laws shift in the future. That means reviewing:
- withdrawal strategy
- Roth conversion opportunities
- capital gains exposure
- charitable planning
- account diversification
- long-term retirement income
If you’re not sure how those pieces fit together, this is exactly where a Spokane financial advisor can help. The goal is to create a plan that works well now and still works later if the rules change.
Final Thoughts
Washington’s proposed millionaire tax may or may not take effect in its current form. But either way, it highlights something important for retirees and pre-retirees:
- Tax planning is most valuable before you’re forced to make a decision under pressure.
- If you live in Eastern Washington and want help thinking through Roth conversions, IRA withdrawals, capital gains, and retirement income planning, now may be a good time to review your strategy. You can also browse our retirement planning blog for more articles on Roth conversions, retirement income, and tax strategy for Spokane-area retirees.
- Working with a Spokane financial advisor can help you build a plan that feels clear, steady, and prepared for change.
Talk with our Spokane Financial Advisor team
About the Author
Noah Schwab, CFP® is a financial advisor in Spokane, Washington, helping retirees with $ 1M+ maximize their 401(k) with Roth conversions and tax strategies.
- No commissions or insurance
- Investment management, tax, and financial planning
Noah Schwab, CFP®, is a Spokane financial advisor specializing in helping retirees with tax-efficient retirement income strategies, Roth conversions, and estate planning. This article is for educational purposes only and should not be considered tax or legal advice.
