Sandy & Shirley
Recycles dryer sheets
We took advantage of BRexit last June to do a lot of Roth Conversions at the 25% Federal tax bracket. We did a few more early this year in hopes that the market would rise with a businessman in office. The new tax proposal has made us rethink this strategy.
Under the current tax structure the brackets change from 15% to 25% and with the 85% taxability of our future Social Security benefits this results in marginal brackets of 27.75% and 46.25% during retirement.
Doing Roth conversions was and still is a great way to avoid the 46.25% marginal tax bracket. Converting more than is necessary is currently not a “bad” idea because paying 25% or even 28% today to avoid paying 27.75% later is basically a wash.
“If” the new tax proposals become law, the 15% bracket could be eliminated and the standard brackets will then change from 10% to 25%, 18.5% to 46.25% marginal brackets. Doing extra conversions at 25% today is no longer a wash against paying only 18.5% later.
As stated in the first paragraph, we are rethinking Shirley's early retirement planning strategy.
If the current proposal fails, could something like that happen in the future?
If it does pass, even if it does not start until 2018, the change would still be there when we do retire.
Under the current tax structure the brackets change from 15% to 25% and with the 85% taxability of our future Social Security benefits this results in marginal brackets of 27.75% and 46.25% during retirement.
Doing Roth conversions was and still is a great way to avoid the 46.25% marginal tax bracket. Converting more than is necessary is currently not a “bad” idea because paying 25% or even 28% today to avoid paying 27.75% later is basically a wash.
“If” the new tax proposals become law, the 15% bracket could be eliminated and the standard brackets will then change from 10% to 25%, 18.5% to 46.25% marginal brackets. Doing extra conversions at 25% today is no longer a wash against paying only 18.5% later.
As stated in the first paragraph, we are rethinking Shirley's early retirement planning strategy.
If the current proposal fails, could something like that happen in the future?
If it does pass, even if it does not start until 2018, the change would still be there when we do retire.