I always grab a copy in Nov to run my numbers to see the "window" we have for Roth conversions. I think this one just cost me $2,000 (thankfully not $3,000) since they don't have an update scheduled until after the new year.
The main issue is we have a child and qualify for the Child credit. The boys in Washington changed the credit this year to be refundable instead of non-refundable. (I recently got into the weeds since Manchin has argued against the BBB partially due to this increased credit from $2,000-$3,000 (or even $3,600 for youngest kids). Furthermore, I was about to increase the conversion so the $3,000 credit could be applied before realizing that for 2022 it was a refundable credit).
In years past, I'd change our tentative Roth conversion to maximize the $2,000 credit. It was either use it or lose it. Convert too little and the credit wouldn't offset the taxes due up to the $2,000 figure. Convert too much and the credit hits the ceiling of $2,000 and you owe what's due over it.
This year I ran the numbers and did the same and the results were the same as in years past. I estimated low and high conversions and used the software to hit that ceiling of $2,000 to determine how much to convert. Then I made our Roth conversion a couple of days ago after hearing some brokerages were swamped with conversions beyond normal flow (everyone was worried the back door Roth was about to disappear) and wanted to get ours in on time. Done, or so I thought.
Then after reading about the child credit and that it was going to be refundable in 2021, I realized the mistakes in the software.
1. It still only had $2,000 instead of the $3,000 credit.
2. It calculated it as a nonrefundable credit (or else it would have given me a refund when under converting).
3. Not related, but the $600/couple charitable line item was still saying $300 as in years past.
Since Roth conversions can't be undone, we're stuck paying tax of $2,000 on this year's conversion. At 12%, this is tax on about $16,666 of conversions.
Normally, we would have been concerned about the ACA cliff. This year I wanted to go above and my zeal to optimize, combined with this faulty software, we're going to get bit.
I'm sure they'll catch it on other updates, but for now, I'm a bit PO'd. Please check your software such as Turbo and whatnot.
The main issue is we have a child and qualify for the Child credit. The boys in Washington changed the credit this year to be refundable instead of non-refundable. (I recently got into the weeds since Manchin has argued against the BBB partially due to this increased credit from $2,000-$3,000 (or even $3,600 for youngest kids). Furthermore, I was about to increase the conversion so the $3,000 credit could be applied before realizing that for 2022 it was a refundable credit).
In years past, I'd change our tentative Roth conversion to maximize the $2,000 credit. It was either use it or lose it. Convert too little and the credit wouldn't offset the taxes due up to the $2,000 figure. Convert too much and the credit hits the ceiling of $2,000 and you owe what's due over it.
This year I ran the numbers and did the same and the results were the same as in years past. I estimated low and high conversions and used the software to hit that ceiling of $2,000 to determine how much to convert. Then I made our Roth conversion a couple of days ago after hearing some brokerages were swamped with conversions beyond normal flow (everyone was worried the back door Roth was about to disappear) and wanted to get ours in on time. Done, or so I thought.
Then after reading about the child credit and that it was going to be refundable in 2021, I realized the mistakes in the software.
1. It still only had $2,000 instead of the $3,000 credit.
2. It calculated it as a nonrefundable credit (or else it would have given me a refund when under converting).
3. Not related, but the $600/couple charitable line item was still saying $300 as in years past.
Since Roth conversions can't be undone, we're stuck paying tax of $2,000 on this year's conversion. At 12%, this is tax on about $16,666 of conversions.
Normally, we would have been concerned about the ACA cliff. This year I wanted to go above and my zeal to optimize, combined with this faulty software, we're going to get bit.
I'm sure they'll catch it on other updates, but for now, I'm a bit PO'd. Please check your software such as Turbo and whatnot.
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