Balancing ROTH conversions & Healthcare subsidies

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Last minute is Dec. 31, but with the possibility to recharacterize until after Apr 15th the following year there is no need to Roth convert that late. You should most likely convert early (and as needed thereafter) and into multiple accounts. The goal is to convert the target shares at the lowest price of the year. Then when you do your taxes and determine exactly how much you can safely convert, select your most beneficial conversion accounts (worth much more than you converted at would be nice) that fit within that total conversion amount and recharacterize the rest. Just be sure to read the rules. You can recharacterize a portion of one Roth account, but with multiple accounts you will know exactly what you are getting and have your choice of which accounts to recharacterize. There have been one or two threads discussing Roth conversion strategies.

Last minute for funding is technically Dec 31st. But If you are not able to do it all online you may want to give yourself at least 5 working days depending on the bank/brokerage. The account needs to opened and funded by Dec 31st. If you are planning to do it on the 11th hour, better do a dry run to make sure your brokerage allows this.

Recharacterizarion is allowed until the extension date -- which is +- Oct 15th.
That is a pretty long leash. You should wait as much as possible to recharacterize. If the investments have lost value it may make sense to do so. If they have appreciated a lot, It may be worth it to leave it in ROTH. This is one of the few hind-sight optimizations that are allowed in the tax code.

In years that I don't know the exact amount I would want to recharacterize, I would open/convert multiple ROTHS in amounts of $5K, $10K, 20K, $40K etc. and re-characterize the ones I want. That way, the calculations become simpler. Otherwise they will consider the gains/losses on the entire account and try to peel it back.

 

[ziggy29]

I did a lot of work with this concept early in the year, figuring I might want to have more Roth assets to tap in order to keep our MAGI low in future years. The "problem" (not that it was a bad problem to have) is that the combination of severance and unemployment have put us well into the 25% bracket for 2013 and I don't see us above 15% for the foreseeable future even though I had a decent-paying j*b only three months out of the year.

Just the same, in our situation it's very important to stay below 300% of MAGI (there is a huge cliff for us there). It would almost be worth paying 25% on a Roth conversion now to make sure we can do that for many years. Not quite, IMO, but almost.