HealthyFuture
Recycles dryer sheets
- Joined
- May 12, 2021
- Messages
- 107
I suspect if I did my own taxes, I could make sense of this in a heartbeat. But I do not, and despite reading a lot, my brain remains muddled.
MFJ - current anticipated ordinary income (interest, dividends) of $36,000 for 2025. LTCG already incurred of $68,000. Ordinarily we are in the 22-24% tax bracket.
At the moment, we’d be paying $0 LTCG tax, and can do a Roth conversion of ~$25,000 or so and still not pay any LTCG taxes.
And:
- We do not expect to have any LTCGs for the next several years.
- I am 54 this year; wife 63 (and I know about IRMAA thresholds).
- The market is where it was a year ago, making it ‘cheaper’ today than presumably in future years to convert more shares to Roth for the same money.
- The calculator I use for Roth modeling (Boldin, formerly New Retirement) suggests we should be doing the largest Roth conversion we reasonably can this year, and then none for several decades. We could land ourselves in the 32-35% tax bracket from RMDs down the line IF we do not do any QCDs (we will do some) and IF by then we haven’t taken money tax free from our retirement accounts for long-term care.
It is REALLY appealing of course to pay 0% LTCG tax versus 15%. But I simply cannot figure out what the math is to compare the ‘cost’ of converting additional monies to Roth now versus later — the LTCG tax hit this year vs waiting and converting fewer shares for the same money in future years and losing that time of tax-free growth within the Roth.
I recognize that tax brackets could revert back to 2017 levels next year, but I do think that’s unlikely. Also, I would not ever do Roth conversions that take us above 22% (and despite what the Boldin program says, I would do Roth conversions of some kind for the next 4-5 years). Given the economic uncertainty, I will be weighing my comfort with less versus more cash on hand, but that’s an entirely different consideration.
I welcome your wise insights.
MFJ - current anticipated ordinary income (interest, dividends) of $36,000 for 2025. LTCG already incurred of $68,000. Ordinarily we are in the 22-24% tax bracket.
At the moment, we’d be paying $0 LTCG tax, and can do a Roth conversion of ~$25,000 or so and still not pay any LTCG taxes.
And:
- We do not expect to have any LTCGs for the next several years.
- I am 54 this year; wife 63 (and I know about IRMAA thresholds).
- The market is where it was a year ago, making it ‘cheaper’ today than presumably in future years to convert more shares to Roth for the same money.
- The calculator I use for Roth modeling (Boldin, formerly New Retirement) suggests we should be doing the largest Roth conversion we reasonably can this year, and then none for several decades. We could land ourselves in the 32-35% tax bracket from RMDs down the line IF we do not do any QCDs (we will do some) and IF by then we haven’t taken money tax free from our retirement accounts for long-term care.
It is REALLY appealing of course to pay 0% LTCG tax versus 15%. But I simply cannot figure out what the math is to compare the ‘cost’ of converting additional monies to Roth now versus later — the LTCG tax hit this year vs waiting and converting fewer shares for the same money in future years and losing that time of tax-free growth within the Roth.
I recognize that tax brackets could revert back to 2017 levels next year, but I do think that’s unlikely. Also, I would not ever do Roth conversions that take us above 22% (and despite what the Boldin program says, I would do Roth conversions of some kind for the next 4-5 years). Given the economic uncertainty, I will be weighing my comfort with less versus more cash on hand, but that’s an entirely different consideration.
I welcome your wise insights.