My wife and I are retired and our sole income comes from dividends and capital gains. We are not yet collecting social security and we’ve not yet started to take funds from our IRA accounts, of which we each have both a traditional IRA as well as a Roth. I am questioning whether we should convert some of the traditional IRA funds to Roth. Are these conversions taxed as Earned Income? And if so, is the following correct?
Where are deductions applied?
In a scenario where we convert $80k of Traditional IRA to Roth, have $75k of income from Dividends & Cap Gains, and have $50k of deductions, is the following correct? The $80k is reduced by the $50k deduction to $30k and taxed at $2,055 plus 12% of the amount over $20,550. And there would be no tax on the Capital Gains since it is below $83,350.
You'll need to sign in or create an account to connect with an expert.
Let's start by breaking down taxability of each item.
The next issue is what determines what tax bracket we are in:
First you add up all income including the capital gains and then you subtract your standard deduction or itemized deductions whichever is greater. You can go to Intuits tax bracket calculator to see where you fall using this link Tax Bracket Calculator
Based on your example you stated that you would have income of roughly (80,000+75,000)= $155,000 you would then deduct 2022 standard deduction or $25,900 or itemized if higher. Thus your taxable income would be $129,100 which if you look at tax bracket calculator you would be paying tax at a rate of 22% on ordinary income and 15% on long term capital gains. To get the best estimate of tax you can go to intuits tax caster using this link and put your actual numbers in and use different numbers for projections. Taxcaster
I hope that helps.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
DFS1
Returning Member
FreakingTax
Level 1
easyxpress
Level 3
syoung123
Level 5
solow2012
Returning Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.