Roth Conversion Math & Rationale
 02-25-2021, 10:29 AM #1 Dryer sheet aficionado   Join Date: Feb 2007 Posts: 43 Roth Conversion Math & Rationale As I've stated in other threads, I'm single and "retired" back in December of 2019. Because I didn't work in 2020, I was able to harvest significant capital gains at 0% and a tad at 15%...then immediately bought the shares back to raise my cost basis. I plan on doing that again in 2021 but not to such a degree. That said, I am also planning to start Roth Conversions this year but only up to the 12% bracket, and would like to continue doing so until I'm 62. The reason I chose 62 is because another pension will kick in and I plan on taking SS then as well, which will definitely bump me into the 22% bracket. Here's what I've come up with so far regarding the conversion math: Ordinary Income (military pension and MM interest) - \$30,183 Standard Deduction - (\$12,550) Charitable Deduction - (\$300) Total Taxable Income - \$17,333 (I'll also receive \$20,148 in a non-taxable VA pension) STCG - (\$2,183) - A convered call that didn't go my way LTCG/Qualified Dividends - \$6,989 Total CG/QD - \$4,807 (taxed at 0%) So, for my Roth conversion, I calculated the following: Ordinary Income Tax @ 10% (up to \$9,950) - \$995 Ordinary Income Tax @ 12% (up to \$40,525) - \$886 Amount left over for Roth conversion up to 12% bracket (\$23,192) - \$2,783 Total Tax Due - \$4,664 The fed withholding from my military pension will be approximately \$2,933, so I'll owe the IRS roughly \$1,731 in conversion taxes. Sound about right? Also, does my reasoning for only converting up to the 12% bracket and only until age 62 make sense? FWIW, if I convert roughly the same amount each year until age 62, I will have converted ~70% of my tIRA balance. I guess another another scenario could be taking the full value of the tIRA (~\$360K), divide by 11 (I'm 51 now), and then pay the 12%/22% mix on that amount...although tax brackets may very well change in the future. Decisions, decisions...
 Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free! Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE! You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more! Join Early-Retirment.org For Free - Click Here
 02-25-2021, 11:55 AM #2 Give me a museum and I'll fill it. (Picasso)Give me a forum ...   Join Date: Jun 2007 Posts: 10,778 I would look at factors like, if you fully converted your tIRA before taking SS, does that reduce the amount of SS that is being taxed? Does it keep you out of IRMAA? If your SS+pensions+other income push you into 22%, what will you be paying when you add RMDs? Those things might make converting at 22% look more attractive when you run all of your numbers.
 02-25-2021, 01:12 PM #4 Thinks s/he gets paid by the post   Join Date: Feb 2009 Location: Cville Posts: 1,233 My plan is to convert most of the tIRA to Roth by 70, and whatever is left I'll do QCD for the RMD. I noticed a small charitable contribution. If you convert like you plan, that would leave some for charitable causes that you never have to pay tax on. No deduction but no tax either. __________________ FIRE 31 Aug, 2018 - Always leave every place better than you found it, always give more than expected
 02-25-2021, 04:40 PM #5 Thinks s/he gets paid by the post   Join Date: Jul 2005 Posts: 4,297 Leave room for your 0% LTCG's within the nominal 12% tax bracket. The 0% LTCG bracket has its own income limit of \$40,400 for 2021, so it's a little bit less than the 12% bracket. That \$40,400 is the sum of taxable income plus CG's (and distributions, qualified or not). That last little bit of Roth conversion could cost you a 12% (regular income tax) + 15% (LTCG's pushed into 15% tax bracket) = 27% tax rate. Not something you want to do in this case.

 Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)