Tiny income, tax planning & ROTH conversion

[FinanceDude]

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Originally Posted by harley Slightly off the topic, I'm trying to run this year's numbers through last years TurboTax to see how much I can convert to a Roth. Is there any way to guesstimate numbers like ordinary vs. qualified dividends are? All I could figure to do is put in the same percentage I had last year. Also, I haven't been in a low income bracket since I was a youngster, and back then I didn't itemize. What happens if your deductions are equal to or greater than your income? Does it phase out? Or do you just hit zero and stop? I think I'm going to come out pretty close to that, but I haven't been able to find anything about it. I decided to do the max Roth conversion I can this year and next while my income is low and I'm in the 15% bracket or lower. I'm taking advantage of the 0% LTCG by gifting the stock to my (15% bracket) daughter and letting her sell them. She'll then put the money in her Roth over the next few years. It's darn nice of the gov't to let us have these little opportunities. I seldom say anything nice about politicians, so "Thanks"!

Harley, a little cautionary help for you. Check to make sure your STATE is following the federal guidelines. If they don't (like Wisconsin, ) you could face some hefty state taxes on top of the federal tax.

Would hate to have someone move up a bracker or two AND have to pay 5-7% tax or higher because they acted too quickly........

[kaneohe]

Are any states following federal guideline on the 0% CG/QDIV bracket? CA doesn't.....
we don't even get CG normally.

[Bikerchick]

Thank you, kaneohe. I may have to settle for being taxed as the price I pay for being comfortable in retirement - at 15%

[harley]

Quote:

Originally Posted by FinanceDude Harley, a little cautionary help for you. Check to make sure your STATE is following the federal guidelines. If they don't (like Wisconsin, ) you could face some hefty state taxes on top of the federal tax. Would hate to have someone move up a bracker or two AND have to pay 5-7% tax or higher because they acted too quickly........

Good call. DD is in the top tax bracket in VA (even though she is pretty poor ). Everything is taxed at 5.75%, including LTCGs. She'll have to use part of the gift to pay the tax, but it's still the best deal we're going to get.

Bikerchick, I agree with Kaneohe. 2010 is really only a big deal for those who were previously unable to convert. I don't even think the opportunity to spread the taxes over 2011-2012 is going to be much of a deal, since I expect tax rates to increase by then. JMO, though.

Still, I'm fully on the Roth bandwagon, and think that converting even small amounts every year will pay off in the long run. Of course, if "they" switch to something like a VAT instead of income tax I won't be in as good shape. No way to tell.