Help Estimating Taxes: First Years of Roth Ladder

[tarheeldan]

Looking ahead to FIRE, I plan to start a Roth Conversion Ladder, and am trying to figure out what taxes will look like.

Single
Qualified Dividends: $3,500
Roth Conversion: $30,000
Long-Term Capital Gains: $10,000

The Roth Conversion is treated as ordinary income, so that's $30,000
With the $12,400 standard deduction that leaves $17,600 to taxable income

I know QDiv and LTCG tax rates are 0% for taxable income of $0-$40,000 and 15% for $40,000 - $441,450

So $17,600 + $10,000 + $3,500 = $31,100  ... so I would pay zero Federal Tax?

If that's the case, I should try to harvest as much LTCG at the 0 tax rate right? So I could pick lots to sell from my brokerage account such that LTCG are $18,900?

[terran]

You'll still pay tax on the $17,600 of taxable Roth conversion, so ($17600 - 9875) x 12% + $9875 x 10% = $1,914.50, but yes, it would likely make sense to harvest gains to hit the top of the 0% long term capital gains bracket. Or you could make larger Roth conversions if it looks like not doing so might push you into a higher bracket eventually. $40,000 - $31,100 = $8,900, not $18,900 of available capital gains harvesting space though.

I'm not seeing anything to indicate you don't know this, but it's a common misconception, so just in case: make sure you understand how marginal tax rates work in that if your total income goes to $40,001 you'll only owe 15% on that $1 of LTCG, not all of the LTCG

[tarheeldan]

You'll still pay tax on the $17,600 of taxable Roth conversion, so ($17600 - 9875) x 12% + $9875 x 10% = $1,914.50

Thank You! So I should make quarterly estimated payments of $500?

$40,000 - $31,100 = $8,900, not $18,900 of available capital gains harvesting space though.

The 18.9 includes the original 10, same page here :)

Thanks again!

[terran]

You'll still pay tax on the $17,600 of taxable Roth conversion, so ($17600 - 9875) x 12% + $9875 x 10% = $1,914.50

Thank You! So I should make quarterly estimated payments of $500?

That should do it.