Final Year End Roth Conversion

[RunningBum]

As I do in my years, in January I made a Roth conversion estimated to safely fall short of an income target. This year the target wasn't the ACA cliff (since there isn't one in 2021 and 2022), but rather the start of QDivs being taxed, so I was more aggressive in January. In late December, after I know all income, I do a final Roth conversion however close to my limit I want. Again with no ACA cliff I figured I'd go right up to the edge, since any extra is just taxed at 27% rather than well over 100% when the cliff is in effect.

My last VG dividend was reported yesterday, along with interest on CapOne CDs, so I finished up my Roth spreadsheet. My final Roth conversion can be....$9!

I thought it was amusing to come that close. I think I had targeted to be $1000 short in January but had a little more in dividends this year. Part of it was the TIPS fund I bought in March.

Not bothering with a $9 conversion.

 

[TheWizard]

I did my year-end Roth conversion two weeks ago.
I have an ongoing $1500 monthly conversion in place, so that adds up to $18k.
Medicare IRMAA tiers are the limitation for me, so I did an an additional $16k Roth conversion which should get my MAGI up close to the projected next higher IRMAA threshold.
Cheerio...

 

[CRLLS]

That's cutting it real close, 12 months in advance. You must have done better than expected on the VG and CapOne accounts.

I just did our Roth Conversion for 2021 this morning. This is really late for us. Almost too late. It took quite some time for me to zero in on the amount with DW's inherited annuities this year. Still had to leave some buffer as I won't know what the closing amount will be later today. Since we are using the IRA funds to pay taxes, that won't be sent to the feds until tomorrow, Dec 29th! Our "cliff" is IRMAA.

FWIW, I had about 30 second wait with Fido phone call. The 3 separate transactions took place over just a few minutes. Transfer in kind to Roth, sell some MFs and setup payment to Feds.

 

[grasshopper]

I already did a conversion in January. But I did the happy dance when my spreadsheets, consisting of 1040, social security taxable amount, and capital gains/ qualified dividends, delivered exactly what TurboTax is showing on my return.

 

[VanWinkle]

I did mine yesterday after seeing all distributions from stock funds to make sure I hit my total income target for the year. Of course I didn't get to move as many shares in this hot market.....

VW

 

[SecondCor521]

I did my last (of 3) conversions on 12/14. I like to do them on down days - makes me feel like I'm doing something even though the effects are miniscule.

With two college sophomores, my cliff is FAFSA-related. I'm mildly annoyed because Congress passed a law implementing FAFSA changes last year but the Department of Education has indicated that they are going to phase in implementation of the new law on some sort of unknown basis.

So in order to be safe, I took the lesser of the two cliffs under the old FAFSA rules and the new FAFSA rules.

I also have about $1,200 in income that probably won't arrive until 2022 but could arrive in 2021, so I needed to allow for that.

Since going over is fairly punitive in my case and staying under isn't that much of an opportunity cost, I elected to stay under. A quick math check says I'm leaving at most $158 on the table. #BTD.

 

[Gumby]

Did mine yesterday. I deliberately stay about $1000 below my target income, just in case.

 

[kgtest]

As I do in my years, in January I made a Roth conversion estimated to safely fall short of an income target. This year the target wasn't the ACA cliff (since there isn't one in 2021 and 2022), but rather the start of QDivs being taxed, so I was more aggressive in January. In late December, after I know all income, I do a final Roth conversion however close to my limit I want. Again with no ACA cliff I figured I'd go right up to the edge, since any extra is just taxed at 27% rather than well over 100% when the cliff is in effect.

My last VG dividend was reported yesterday, along with interest on CapOne CDs, so I finished up my Roth spreadsheet. My final Roth conversion can be....$9!

I thought it was amusing to come that close. I think I had targeted to be $1000 short in January but had a little more in dividends this year. Part of it was the TIPS fund I bought in March.

Not bothering with a $9 conversion.

Solid planning, considering all the moving parts and guesswork involved to get that close. Better than owing 27% on $9 over the mark...time to treat yourself to a coffee with all the extra tax savings.

 

[Perryinva]

Same here. Target was to stay under $150k AGI to validate $2800 stimulus tax credit. Aimed about $1000 under. Of course, after I did 3 different tax calculators and made the conversion, I then decided to triple check my tax return for miscellaneous income I might have forgotten. Did not remember getting about a $1000 refund from state and because I itemized , it is possible that will be taxable income. But since the $10k SALT limit kicked in while the actual SALT was $17k, I really will not know until I can file. It will be close. I may have to fund a couple of $100 in to a tIRA to stay below the $150k AGI.

 

[meekie]

Last Year's conversion used up all the 28% bracket, but I was more conservative this year and went for the 250k for the NIIT surcharge.
I'm 2 years into my Roth conversion ladder, planning for 5 years, then withdraw from Roth for 5 years till hubby hits 59.5.

 

[Montecfo]

None for me this year as I did tax gain harvesting.

But it's very easy to do at E-Trade. All online.

 

[SecondCor521]

Last Year's conversion used up all the 28% bracket, but I was more conservative this year and went for the 250k for the NIIT surcharge.
I'm 2 years into my Roth conversion ladder, planning for 5 years, then withdraw from Roth for 5 years till hubby hits 59.5.

If there is enough money in your husband's traditional IRA to pay for your expenses (or even a significant part of them), and depending on your overall tax situation, you might save a fair amount in taxes by doing a SEPP on your husband's traditional IRA instead of withdrawing from the Roth.

 

[PatrickA5]

Did ours to the top of the 12% bracket last week. Left a $300 cushion. 2022 may be our last year for conversions.

 

[Midpack]

I do conversions quarterly. The first three are rote (1/4th of my planned annual conversion total), but my fourth and last one is adjusted to maximize conversions without exceeding the top of the 22% bracket or triggering the 200% level on IRMAA. I am impressed the OP got to within $9 - I don't try to cut it quite that close.

OTOH I am thinking about trying to hit my estimated Federal and state income taxes so amount of tax and withholding are ZERO. I am sure I won't hit it on the nose, but I assume I can get within well under $100. We'll see.

 

[RunningBum]

If that Fidelity $100 bonus counts as income, I'm actually $91 over, which will cost me 12% income tax, 15% on same amount of Divs pushed into being taxed, and 8.5% loss of subsidy. Maybe I'll make a $100 contribution to some charity, since I still have some of that $300 left. I use a DAF for almost everything.

 

[mountainsoft]

I have been doing my Roth conversions in January for the last several years. Our income is fairly steady, so it's easy to estimate how much room we have available in our 12% tax bracket. I always leave a bit of a buffer just in case our income is higher, but the tax burden if we went over a bit would be minimal anyway.

Next week I plan to do my final Roth conversion and close out my traditional IRA. Except for a little bit in a taxable brokerage, all of our investments will be in tax free Roth's when we retire in 2023. We will still have taxes on social security and my wife's pension, but every little bit helps. Keeping our taxable income low will help us qualify for ACA subsidies and discounts on our property taxes.

 

[CardsFan]

Well, I just dodged a bullet on this.

Converted a while ago, wanting to stay under the first IRMAA bracket. Left what I THOUGHT was plenty of room (over $20k), based on last years CG distributions.

Final distributions hit today, and they total double last year

Ran some quick calcs, and it looks like we will be under the current $182k threshold by a few thou. WAY to close for comfort.

If I understand IRMAA correctly, I probably have a little more room, as the IRMAA threshold will be inflation adjusted, so the 2023 number will be a little higher.

On a side note: did others see a huge jump in CG distributions this year?

 

[foxfirev5]

Did mine yesterday. I deliberately stay about $1000 below my target income, just in case.

Yeah, I don't see any need to cut it closer than that.

 

[RunningBum]

Yeah, I don't see any need to cut it closer than that.

Depends on what the cost of going over a target is.

In the days of the ACA cliff, going over at all would have cost me $6K-$8K. A horrible penalty on going over by my $91, so I kept about a $1000 buffer. But this year going over by $91 will cost me $32. No big deal. No reason not to try to get full advantage of a conversion since there's so little ramification of going a little over.

Some are looking at IRMAA cliffs and I would keep a safe buffer from those too.

 

[finnski1]

Depends on what the cost of going over a target is.

In the days of the ACA cliff, going over at all would have cost me $6K-$8K. A horrible penalty on going over by my $91, so I kept about a $1000 buffer. But this year going over by $91 will cost me $32. No big deal. No reason not to try to get full advantage of a conversion since there's so little ramification of going a little over.

Some are looking at IRMAA cliffs and I would keep a safe buffer from those too.

Yes that is a huge plus this year! Your reasoning makes perfect sense to me.

 

[Gumby]

There is a state tax deduction that I will lose entirely if I exceed a certain federal AGI by even a dollar. If I go over the cliff, it will cost me about $800, so I'm willing to forego the minor tax savings on the $1000 buffer I've left.

 

[Perryinva]

Exactly. Since I didn’t get a stimulus check, at a $151k AGI I would lose the entire $2800 credit. I shot for $149k. It’s funny, but paying the extra taxes for the conversion really didn’t bother me like I thought they would. I guess looking at the tax advantage (lower to pay now, plus non taxed earnings in the Roth) repeatedly was enough to set me up psychologically.

 

[Done]

Exactly. Since I didn’t get a stimulus check, at a $151k AGI I would lose the entire $2800 credit.

By the way, there isn’t such a steep cliff on the stimulus. For MFJ it is phased out starting at $150k, only reaching zero when AGI reaches $160k.