Tax bracket change for Roth Conversion

Forum|Forum|6 years ago
August 17, 2019
1 reply
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I have about 700k in a tax deferred account (IRA). I am considering moving some of it to my Roth IRA. My wife has no retirement accounts. My wife and I will file taxes "married filing jointly". If the Roth conversion is not done we will be near the high end of the 22% tax bracket (for this discussion, lets say we're at the top of it, at around $168,000).

My question is, if I want to convert some of my taxed deferred IRA to Roth and stay out of the 32% bracket and only get moved up to the 24% bracket, is the $321,000 cutoff for married filing jointly the number I should consider? In other words, if we made 168k and I converted 321-168 = $153,000, would I stay in the 24% tax bracket? (For simplicity lets say I convert slightly less e.g. 150k or so to avoid being near the cutoff).

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Best answer by fanfare

Your analysis is basically correct.

Keep in mind you will still pay the same tax on you wage income as before (progressive tax rates).

You will pay 24% on the amount you convert to Roth.

This is probably a good move if you expect your Roth to grow.

You didn't say how old you are.

fanfareAnswer

Level 15

Your analysis is basically correct.

Keep in mind you will still pay the same tax on you wage income as before (progressive tax rates).

You will pay 24% on the amount you convert to Roth.

This is probably a good move if you expect your Roth to grow.

You didn't say how old you are.

dmertz

Level 15

You'll also want to consider possible side effects due to the increase in AGI. It might make you subject to Net Investment Income Tax. It might reduce your itemized deduction for medical expenses. There are a number of other possibilities, so you'll want to prepare simulated tax returns with and without various amounts of Roth conversion to calculate the actual marginal tax rate. The increase in AGI could also cause increased Medicare Part B and D payments (if you participate) of about $4,800 for the year two years after the year of the conversion.

Don't forget to consider state income taxes.

quietstormAuthor

Level 2

dmertz,

Thank you for the reply. With respect to your warning about becoming subject to Net Investment tax (as well as some other things you said), I have some questions:
1. If I don't retire for five or ten years is that Medicare issue you brought up moot?
2. Aside from that Medicare issue, is staying in the 24% bracket my primary benchmark/metric? Or maybe in simpler terms, if I accomplish the goal of a Roth conversion while staying in the 24% bracket, is there any other thing I need to worry about or take care of?
3. Can I use Turbotax to prepare the simulated tax returns you mentioned, and does that just mean almost finishing a return, writing down the results, then going back and changing stuff and almost finishing it again?