investment/income/tax questions

[hopefullyoneday]

I asked these questions to my tax guy but he seemed a little wishy washy and confused on his answers. Which is why I will be seeking a new tax guy for this years taxes. But anyway maybe a few of you can help me out here or point me in a direction to get the help.

I am off work currently for a work-related disability. By the time I go back my earned income for the remainder of the year will be around 60k. Work related disability payments are tax exempt and don't count as earned income from what I understand. So my thinking is that my work takes out 14% for my pension so that knocks me down to 51.6k then I am also contributing the max to my 457 which is 31k (which is supposed to be from a earned income source) so that will bring my earned income down to around 20.6k. Then I contribute to a HSA account at $4,300 so know down to 16.3k, then standard deduction for individual for 2025 is 15k. So am I thinking correctly that me new taxable income is going to be $1,300. I also have carryover losses from previous years from my rental and stock losses. So can or should I do the following.

Do roth conversions to raise my income up to cover my carryover losses so then I won't have to pay taxes on the conversions.?

Do a $8k Roth conversion then do a tradition IRA contribution for this year in the same amount to offset the taxes on the conversion?

I am only a few years away from retirement so I want to do roth conversions of my tax deferred accounts since my income will be little to nothing and save paying the tax on the conversions.
Is my thinking flawed or am I thinking clearly. Any help is appreciated. Thank you.

 

[TheWizard]

You can't use carryover losses to offset Roth conversion taxes, aside from the $3000 ordinary income offset.

The second idea is identical to just doing the max $8000 Roth contribution for the year. Don't complicate things.

Most of us wait till retirement to do Roth conversions, which are taxed as additional Ordinary Income. But if you have a low income working year, it *might* make sense to convert a modest amount...

 

[TheWizard]

If your taxable income for this year is really going to be just $1300, the Roth convert maybe to the top of the 12% Federal bracket, depending on your normal income level and your retirement projections.

Even if your starting point taxable income is quite more than $1300, still give thought to top of 12% bracket for Roth conversions...

 

[TickTock]

OP,

Consider TheWizard's concise answer vs. your tax guy's response. I think you are on the right track to look for someone else.

 

[Koolau]

Yes, what TheWizard said. And yes, do everything you can (in the bounds of the 12% bracket) to Roth convert. You'll likely be happy you did - especially when RMD time rolls around.

Of course, I don't know your exact situation, so you gotta decide all this for yourself. I'm just telling you from one who, though I did do a fair amount of Roth conversions, wishes he had done MORE. YMMV as always!

 

[engineernerd]

I also agree with TheWizard but offer an additional option if you have substantial unrealized capital gains in taxable brokerage accounts (and anticipate being able do Roth conversions in future years): taking capital gains in the 0% bracket.

You have to choose one or the other in any given year.

 

[hopefullyoneday]

If your taxable income for this year is really going to be just $1300, the Roth convert maybe to the top of the 12% Federal bracket, depending on your normal income level and your retirement projections.

Even if your starting point taxable income is quite more than $1300, still give thought to top of 12% bracket for Roth conversions...

Can I do the conversions by April 15 of 2026 for tax year 2025, that way I will know what my actual taxable income will be and I can max out the 12% bracket. Or do I have to do it sometime in 2025 for 2025. Thanks for the help.

 

[N02L84ER]

You have to finish it by Dec 31st of the tax year.

 

[Out-to-Lunch]

Can I do the conversions by April 15 of 2026 for tax year 2025, that way I will know what my actual taxable income will be and I can max out the 12% bracket. Or do I have to do it sometime in 2025 for 2025. Thanks for the help.

As N02L84ER said, you must convert by Dec. 31, 2025. BUT, you can overshoot your conversions by a bit, and then make tIRA contributions before Apr. 15, 2026 to bring your income back down to the top of the 12% bracket. (This assumes you still have W-2 income [edit: or other earned income].)

 

[hopefullyoneday]

As N02L84ER said, you must convert by Dec. 31, 2025. BUT, you can overshoot your conversions by a bit, and then make tIRA contributions before Apr. 15, 2026 to bring your income back down to the top of the 12% bracket. (This assumes you still have W-2 income [edit: or other earned income].)

That helps, otherwise I will need to somehow figure out the magic number. Thank you.

 

[RetiredandReady]

I asked these questions to my tax guy but he seemed a little wishy washy and confused on his answers. Which is why I will be seeking a new tax guy for this years taxes. But anyway maybe a few of you can help me out here or point me in a direction to get the help.

I am off work currently for a work-related disability. By the time I go back my earned income for the remainder of the year will be around 60k. Work related disability payments are tax exempt and don't count as earned income from what I understand. So my thinking is that my work takes out 14% for my pension so that knocks me down to 51.6k then I am also contributing the max to my 457 which is 31k (which is supposed to be from a earned income source) so that will bring my earned income down to around 20.6k. Then I contribute to a HSA account at $4,300 so know down to 16.3k, then standard deduction for individual for 2025 is 15k. So am I thinking correctly that me new taxable income is going to be $1,300. I also have carryover losses from previous years from my rental and stock losses. So can or should I do the following.

Do roth conversions to raise my income up to cover my carryover losses so then I won't have to pay taxes on the conversions.?

Do a $8k Roth conversion then do a tradition IRA contribution for this year in the same amount to offset the taxes on the conversion?

I am only a few years away from retirement so I want to do roth conversions of my tax deferred accounts since my income will be little to nothing and save paying the tax on the conversions.
Is my thinking flawed or am I thinking clearly. Any help is appreciated. Thank you.

You're actually thinking along the same lines I did a few years back when I had a really low-income year. I remember running all the numbers myself because my tax guy at the time gave me vague answers too, and it made me realize how important it is to find someone who actually understands Roth strategy.

From what you wrote, your logic makes a lot of sense. Work comp isn’t taxable, and you’re smart to stack up your 457 and HSA contributions to drop your taxable income. Using carryover losses to cover a Roth conversion can be a huge win—you basically get to shift money into your Roth with little or no tax hit, which sets you up nicely for retirement.

The only thing to double-check is whether you can actually deduct a traditional IRA contribution. If you’re covered by a retirement plan at work, even a little bit, your deduction might be limited based on your income level.

Bottom line: you’re not crazy. You’re actually planning ahead better than most. Just make sure you get a tax advisor who really gets this stuff—you’ll thank yourself later. I wish someone had told me that earlier.

 

[hopefullyoneday]

If your taxable income for this year is really going to be just $1300, the Roth convert maybe to the top of the 12% Federal bracket, depending on your normal income level and your retirement projections.

Even if your starting point taxable income is quite more than $1300, still give thought to top of 12% bracket for Roth conversions...

Thank you, I really appreciate the advice. I wish I could find a tax person that will look out for me and offer suggestions when they do my taxes to help me out. Seems everyone I find just plugs numbers into the program and do nothing more.

In my original post does it seem like my logic of the 1300 seem correct as I explained it. That way I can get close enough for my conversion amount. Thanks again.

 

[TickTock]

Seems everyone I find just plugs numbers into the program and do nothing more.

I experienced the same issue this tax year. I thought a certain IRA transaction should be on a different 1040 line; the advisor told me, "This is the line the program puts that form on". No other explanation. It didn't change the bottom-line number, so I let it go.

That is not the only reason, but we will be doing our own taxes next year, for the first time in over 30 years.

 

[hopefullyoneday]

I experienced the same issue this tax year. I thought a certain IRA transaction should be on a different 1040 line; the advisor told me, "This is the line the program puts that form on". No other explanation. It didn't change the bottom-line number, so I let it go.

That is not the only reason, but we will be doing our own taxes next year, for the first time in over 30 years.

I am thinking of doing my own also. The wife and I each have 1 rental property and our current tax guy has been doing the taxes for the past 3 years with no changes. I look over the returns every year and they make sense so I think I could do them myself but hope to find a program that will let me know if I qualify to do certain things based on income levels and such. A few years ago I had long covid and was off all year so technically had no earned income because it was w/c disability and my tax guy never offered Roth conversion advice back then. I mentioned to him when I went to pick up my 24 taxes that next year my income will be low to nothing and asked about doing Roth conversions and he said "maybe, if you want remind me when I do your taxes next year" I wonder how many other tax breaks or strategies I could have taken over the years but was not told about.

 

[TheWizard]

That helps, otherwise I will need to somehow figure out the magic number. Thank you.

I think that many retirees who have been doing their own income taxes for a few decades will find it rather easy to compute their approximate AGI and taxable income in early December, especially since most folks use the standard deduction presently.
You can then determine an additional Roth conversion amount to get your Taxable Income up towards the top of the 12% bracket, if that's your goal. If you err and go $100 into the 22% bracket , that'll cost you a whole $10 more.

It's a different situation for folks dealing with keeping their AGI under the next higher IRMAA threshold, but that's not an issue at the income level discussed here...

 

[SevenUp]

That helps, otherwise I will need to somehow figure out the magic number. Thank you.

Discussion in the Whether, when, and how much to convert and Using a spreadsheet section of that article might help.

 

[pb4uski]

Thank you, I really appreciate the advice. I wish I could find a tax person that will look out for me and offer suggestions when they do my taxes to help me out. Seems everyone I find just plugs numbers into the program and do nothing more.

In my original post does it seem like my logic of the 1300 seem correct as I explained it. That way I can get close enough for my conversion amount. Thanks again.

To be fair to the tax people, the vast majority are just tax preparers. You really need to find a unicorn that bisects tax planning and retirement planning. It's such a barrow niche that few tax practitioners focus on it. Luckily, with a little study and thought it's pretty easy to DIY.