I am using 2023 TT desktop and trying to do scenario planning for 2024. I realize that isn't perfect, but should be close enough for what I'm doing. I am planning a 401k conversion to a Roth IRA in late 2024 and trying to understand the tax ramifications. I understand that a 401k conversion to Roth is taxed at my marginal tax rate, but am having difficulty understanding the actual calculation steps.
My income is in Dividends (mostly qualified) and Capital Gains. I first do a scenario with no conversion, and then one with a $30k conversion, so that I can compare the impact. To examine the tax calculation, I am going to the Qual Dividends and Capital Gains Tax Worksheet in TT.
All looks fine in the first scenario, without the conversion. When I add the conversion on a 1099R, TT appropriately adds the $30k to Taxable Income as I expect. On the Qual Div and Capital Gains tax worksheet, TT then subtracts $89250 (MFJ tax bracket for Cap Gains) from Taxable Income and multiplies by 15% (lines 17-18). Thus, the $30K conversion is being implicitly taxed at 15% since it isn't excluded from Taxable Income in this step. TT then does another tax table calculation for any non-Qual dividends + $30k conversion less Itemized Deductions. The tax table rate is about 11% blended. Thus, the conversion is taxed twice, once at 15% and then again via tax table. The outcome is my conversion is taxed and the marginal rate when I compare the 2 scenarios is about 26% which is not what my marginal rate should be.
Can you help me with the calculation logic?
