Converting IRA to Roth tax rate?

[ripvanwinkle]

I'm thinking of converting $5K-10K of my traditional IRA to my Roth. Yes, I'll have to pay taxes. Yes, there are restrictions afterwards.  I'm looking for some sort of chart or work sheet to show me how much taxes I'll have to pay.

Also, would the conversation count towards my yearly $7000 contribution?

[tallguy]

The taxes are at your marginal rate.  No, the conversion does not count toward your contribution limit.

ETA:  If you are only going to convert $5-10,000 anyway, why not just deposit the $7000 directly into the Roth instead, or is that in addition to a Roth contribution?  

[teen persuasion]

Just note that your marginal rate includes not only your tax bracket, but also any phaseout ranges your additional income (the conversion amount) pushes you thru or into.  For me, it would be an extra 21% on phaseout of EITC, and an additional 6.3% for lost state EITC (it's 30% of the federal EITC, .30*.21=.063) so 27.3% plus my federal and state tax brackets.

Some on Bogleheads are noting that if you didn't get the full stimulus check (because you were phased out), conversions in 2020 that also phase you out partially are an effective 5% extra marginal tax - the phaseout is 5%.

If you are near the LTCG border, and conversion pushes you over, that's an extra 15% marginal rate.

If you are already receiving SS, this could push more of the SS into 85% taxable range (unless you are already past the tax hump).

If you are 2 years away from Medicare, or already receiving it, this could trigger IIRMA.

[ripvanwinkle]

May 14, 2020 8:59:36 GMT -5 teen persuasion said:

Just note that your marginal rate includes not only your tax bracket, but also any phaseout ranges your additional income (the conversion amount) pushes you thru or into.  For me, it would be an extra 21% on phaseout of EITC, and an additional 6.3% for lost state EITC (it's 30% of the federal EITC, .30*.21=.063) so 27.3% plus my federal and state tax brackets.

Some on Bogleheads are noting that if you didn't get the full stimulus check (because you were phased out), conversions in 2020 that also phase you out partially are an effective 5% extra marginal tax - the phaseout is 5%.

If you are near the LTCG border, and conversion pushes you over, that's an extra 15% marginal rate.

If you are already receiving SS, this could push more of the SS into 85% taxable range (unless you are already past the tax hump).

If you are 2 years away from Medicare, or already receiving it, this could trigger IIRMA.

WOW..Thats a lot of bother. I'll just put cash in the Roth and forget this.

[teen persuasion]

Well, yeah, if you still have room to contribute to a Roth IRA, and earned income to be eligible, that's the easiest, and no extra cost.

My list was just a few of the weird situations to watch for.  Most don't apply to people, and can't all apply to the same person (low income EITC, high income LTCG getting to 15%).  You either hit each of those, or don't.  Are you 63+?  If not, no IIRMA concerns.  Etc.