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Old 05-22-2020, 12:58 PM   #21
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What tax bracket are you currently in if you do no Roth conversions? What tax bracket do you expect to be in once you are collecting SS and any pensions?

12% is my current tax bracket


My estimated yearly social security at age 70 is $38,000. Not collecting any pensions. Actually, I will start getting a very small pension at age 65 of $3500 per year. So at age 70 if tax rates stay the same I will be at 22% tax bracket, although my marginal rate would be less.
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Old 05-22-2020, 01:13 PM   #22
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So it sounds like a slam dunk to do Roth conversions to the top of the 0% preferenced tax bracket ($40,000 for a single in 2020.... $125 below the top of the 12% tax bracket for a single). Not sure how much headroom you have there.

If any of your current income is qualified (qualified dividends or LTCG) then Roth conversions above the top of the 0% preferenced would be taxed at 27% to the extent of that preferenced income (12% on the Roth conversion + 15% on qualified income pushed into the 15% qualified income tax bracket)... then 22% once all the qualified income is pushed into the 15% qualified income tax bracket.
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Old 05-22-2020, 01:20 PM   #23
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So it sounds like a slam dunk to do Roth conversions to the top of the 0% preferenced tax bracket ($40,000 for a single in 2020.... $125 below the top of the 12% tax bracket for a single). Not sure how much headroom you have there.

If any of your current income is qualified (qualified dividends or LTCG) then Roth conversions above the top of the 0% preferenced would be taxed at 37% to the extent of that preferenced income (12% on the Roth conversion + 15% on qualified income pushed into the 15% qualified income tax bracket)... then 22% once all the qualified income is pushed into the 15% qualified income tax bracket.

OK...you're losing me a little with all these numbers lol but thats fine...
I just don't like the idea of currently paying very little taxes ( capital gains on stock sales in my taxable account) to an additional what I think would be a few thousand dollars if I start funneling say 40K every year from my current IRA to a Roth IRA.
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Old 05-22-2020, 01:49 PM   #24
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I think you need to look at the rate rather than the nominal amounts. Sure a few thousand vs $0 seems like a lot but another way to look at it is a few thousand of tax on $40k of withdrawals is only 8% or so... I'd rather pay 8% now than 22% later and pocket the 14%.

If you use Turbo Tax you can use the What-If worksheet (or some other tax calculator)... put in your 2020 situation with no Roth conversions. Add in $10k of Roth conversions and note the increase in tax (both $ and %)... increase the Roth conversions to $20k and note the increase in tax (both $ and %)... repeat in $10k increments. You'll get a good feel for the tax that you are paying on the Roth conversions to be able to make a decision. Since you'll be paying 22% later anything less than 22% is a benefit.
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Old 05-22-2020, 02:28 PM   #25
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pb4uski has a typo. 12% + 15% = 27% not 37%
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Old 05-22-2020, 05:40 PM   #26
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Fixed it. Thanks for the heads up.
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pb4uski has a typo. 12% + 15% = 27% not 37%
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Old Yesterday, 06:07 AM   #27
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You can model your situation at https://i-orp.com/Inflate/extended.html

It will take a few hours to read and understand all of the inputs and the outputs, but once you get your footing, you can operate the levers (change assumptions) and see what it does to your available spend. It considers SS, Roth converting, PPACA, and of course taxes. Those are not perfectly modeled, but very close in most cases.

What I've found out is that you can improve the spend a little bit, but by optimizing these kinds of moves isn't going to move you from Greyhound to Lear jet, hehehe!

One caveat I always say is to keep the model focused on taxes, and not on which tax buckets get better expected return rates, make the equity allocation the same across all tax buckets.
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