I'm trying to decide whether to recharacterize my 2018 Roth IRA contribution to a traditional IRA. It depends on how the standard deduction applies to regular taxable income vs qualified dividends.
I contributed $5,500 to a Roth in December 2018. If I convert to a trad, I'll save $660 on taxes, so a 12% marginal rate. This is a fairly low rate, but I might be able to roll over my tIRA balances in future years to a Roth at 0%. I'm LeanFIRE in my 30's and plan on working only every 2-4 years. This would leave me with 15-20 years with no earned income, and the opportunity to roll over balances tax-free.
Likely future year
Total ordinary dividends: $7,000
Non-qualified dividends: $1,000
Qualified dividends: $6,000
Roth rollover: $11,000
Standard deduction: $12,000
My understanding: the standard deduction would be applied first to the $1,000 in non-qualified dividends and $11,000 in Roth rollover money, leaving me with $6,000 in qualified dividends that will be taxed at 0%.
Is it possible that the standard deduction would be applied to the $7,000 in total dividends, then $5,000 of my Roth rollover, leaving $6,000 of the Roth rollover to be taxed at ordinary income rates?
