I know many may be considering Roth conversions as part of a tax strategy to address potential changes next year. I thought I would throw out a caveat due to tax law structures. I did a conversion in April, which I now may have to regret despite the dip in market value.
I re-estimated our 2020 Fed taxes and found an error in my thinking at the time. As a majority of our income is from LT Capital Gains (spread through 2024) I had created a plan (installment sale) to maintain these gains within the 15% bracket for the next 4 years. However, when I made the Roth conversion, it pushed our AGI up to where nearly all of the Roth conversion pushed an equivalent amount LTCG into the 20% rate ( all of the conversion amount was essentially taxed as ordinary income 24% AND 5% more effectively due to tax on capital gains shift). We are paying 29% where I thought it was 24% on the conversion marginal rate. This may still be OK for us with changes in tax rates pending the election.
I can't do much at this point, but there may be others with high Cap Gains income that might miss this impact when doing a conversion. Yes, I feel a little stupid, but lesson learned......
BTW, with TurboTax I should have seen this, but it does not make this obvious. I found this very simple calculator that makes it so clear. https://www.nerdwallet.com/article/t...ains-tax-rates