Please Review my Roth Conversion Estimate

[JLTinVA]

2019 is the first year I'll be doing a Roth Conversion, and I want to make sure I'm doing it right. Would greatly appreciate a review of the numbers I put together to see if I'm thinking about it correctly. I'll attach the spreadsheet as well, but I sometimes have trouble with attachments on this site (user error, I'm sure).  Since these are estimates, I'll probably convert about $5000, just to make sure I don't trigger any taxes.

#		Item		Comment	Amount
1		0% Capital Gains Income Limit		Married Filing Jointly		78750
2		Standard Deduction		2019 Amount		24400
3		Estimated Total Dividends		From recent statement		28524.79
4		Estimated Total Qualified Dividends		#3 * 95% (Based on prior year amounts)		27098.55
5		Estimated Total Non Qual Dividends		#3 - #4		1426.24
6		Estimated Total Foreign Tax Paid		Based on Prior Year Amounts		500
7		Estimated Short Term Capital Gains		From recent statement		0
8		Estimated Long Term Capital Gains		From recent statement minus $3000 carry over capital loss		4434.07
9		Estimated Earned Income		No wages/salaries/tips		0
10		Estimated Interest Income		Based on latest statements		1000
11		Total ACA Income		#3 + #7 + #8 + #9 + #10		33958.86
12		Determine Max Roth Conversion		#2 - (#9 + #10 + #5 + #7)		21973.76
13		Determine Max Long Term Capital Gains Harvest Amount		#1 - (#4 + #8 + #9)		47217.38
14		ACA Income Declared at Beginning of Year				40000
15		Max Roth Conversion OR Capital Gains Harvest Amount Taking Into Account ACA		#14 - #11		6041.14

[seattlecyclone]

Your arithmetic looks reasonable.

What are your priorities? Keep your ACA income to a set level? Max out the standard deduction with Roth conversions? Harvest capital gains up to the 0% limit? These are often mutually exclusive with each other.

What do your savings buckets look like between taxable/pre-tax/Roth? That will help inform the best strategy for long-term wealth maximization.

[MDM]

Do you know your monthly Enrollment Premium, SLCSP cost, and APTC for 2019?  These are the https://www.irs.gov/pub/irs-pdf/f1095a.pdf Part III numbers.

[JLTinVA]

Our priority is to minimize spending now and decrease our tax burden later when we'll be in a higher tax bracket with RMDs. I thought keeping a low income for the ACA (therefore minimizing spending on health insurance) and filling in "the gap" with Roth conversions would do that. I don't anticipate accessing the converted funds before age 59 1/2 <knock on wood>. I mainly have the Capital Gains Harvest Amount in there as a reminder to myself if priorities or circumstances change down the road. I've upped the ACA income estimate a bit for 2020. We're paying a higher premium, but have more wiggle room on the conversion next year.

Thanks for responding!

[secondcor521]

Your math on line 15 seems to assume that you don't want to go above your $40K ACA estimate (line 14).  Why?  If you go over your ACA estimate, you'll have to repay some of your subsidy.  It works like an additional parallel tax on AGI of maybe 10%-15% depending on your income.

I personally would not use that as my maximum for purposes of Roth conversions or 0% cap gains.  I would probably pick the top of a tax bracket, or the top of one of the FAFSA limits if I had kids in college (which I do).

Depending on what you're trying to prioritize between Roth and 0% cap gains, you could possibly do more 0% cap gains, since the top of the 0% cap gains for MFJ (assuming that's your filing status) should be line 1 plus line 2 minus other existing AGI (dividends, interest, cap gains, Roth conversions).  From your math it seems like you may not understand how ordinary and preferenced income and the brackets work.

I'd encourage you to plug your numbers into a tax prep program and see how various Roth conversions and additional cap gains affect your tax due or refund.

[MDM]

I'd encourage you to plug your numbers into a tax prep program and see how various Roth conversions and additional cap gains affect your tax due or refund.

+1

Thus the question about the Enrollment Premium, SLCSP cost, and APTC....

[secondcor521]

I'd encourage you to plug your numbers into a tax prep program and see how various Roth conversions and additional cap gains affect your tax due or refund.

+1

Thus the question about the Enrollment Premium, SLCSP cost, and APTC....

Right, but that whole ball of wax can *somewhat* be set aside relative to Roth/0% cap gains/ordinary income.  At least in my opinion.  Although there are definitely interactions, so I see your point.

[MDM]

I'd encourage you to plug your numbers into a tax prep program and see how various Roth conversions and additional cap gains affect your tax due or refund.

+1

Thus the question about the Enrollment Premium, SLCSP cost, and APTC....

Right, but that whole ball of wax can *somewhat* be set aside relative to Roth/0% cap gains/ordinary income.  At least in my opinion.  Although there are definitely interactions, so I see your point.

E.g., the marginal rate chart might look something like


But the details depend on the ACA inputs....

[JLTinVA]

since the top of the 0% cap gains for MFJ (assuming that's your filing status) should be line 1 plus line 2 minus other existing AGI (dividends, interest, cap gains, Roth conversions). 

Yes! Good catch...thank you! And yes, I put the "Max Roth Conversion OR Capital Gains Harvest Amount Taking Into Account ACA" on one line because I don't want to go over the ACA declared income for 2019. I know they'd be treated differently for tax purposes.

For 2020:
SLCSP: $1,219 per month ($14,633 per year)
APTC: $891 per month ($10,687 per year)
Premium: $150 per month ($1,800 per year)

I usually use Taxcaster, but that hasn't been giving me a result (just keeps sending me endlessly through the questions. Taxact.com shows $0 tax liability.

Really appreciate the input and thoughts as I work through the first year of having no "traditional" income.

[MDM]

2019 is the first year I'll be doing a Roth Conversion, and I want to make sure I'm doing it right.

For 2020:
SLCSP: $1,219 per month ($14,633 per year)
APTC: $891 per month ($10,687 per year)
Premium: $150 per month ($1,800 per year)

2019 or 2020 for all (Roth conversion, ACA, etc.) these numbers?

[MDM]

Using all given numbers along with 2019 tax brackets yields a chart similar to the one shown earlier, but with somewhat different y-axis values (because I had just guessed at the ACA numbers).

If you have Excel, downloading the case study spreadsheet should allow you to replicate those results.  I didn't look at the response vs. LTCG.

[JLTinVA]

I've downloaded the spreadsheet. Thanks to all!