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.