Author Topic: Should I do Roth conversion?  (Read 971 times)

harvestbook

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Should I do Roth conversion?
« on: November 26, 2018, 07:25:51 AM »
It looks like we're going to have some untaxed space and I am considering doing a Roth conversion up to the ceiling. I've never done one before since we tend to max out deductions but this year our self-employed income dipped a little. Also, do I have to do this before end of year, or by April 15, 2019?

We are married filing jointly and we each own businesses. I am 56 so I get the catch-up contributions on HSA and retirement accounts. We have been putting into Roth instead of tIRA once we realized we would have space.

Projected net income: $59,000

Deductions:
Health Insurance $13,868
HSA $7900
401K $30,500
tIRA $2,300

Total deductions: $54,568

2018 Roth contributions: $9,700 + Roth 401k $1,000= $10,700

So, $59,000 plus $10,700 minus 54,568= approximately $15,132 of taxable


My thinking is to do just under $9,000 in Roth conversions to stay below our standard deduction of $24,000 and pay no income tax on that conversion. Am I missing something? Thanks for any input.

eta: sorry for the edits, just remembered dividends!
« Last Edit: November 26, 2018, 07:46:45 AM by harvestbook »

Boofinator

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Re: Should I do Roth conversion?
« Reply #1 on: November 26, 2018, 09:22:01 AM »
Why are you adding Roth contributions to your net income? You treated traditional contributions as a deduction, I would think Roth contributions would not affect net income.

walkwalkwalk

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Re: Should I do Roth conversion?
« Reply #2 on: November 26, 2018, 12:00:28 PM »
Like other poster said, you're confusing me with adding roth, but did you already subtract it to begin with? Really confused.

Catbert

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Re: Should I do Roth conversion?
« Reply #3 on: November 26, 2018, 12:01:10 PM »
Roth conversions would have to be complete by Dec 31st.  Only on contributions do you have until
Apr 15.

terran

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Re: Should I do Roth conversion?
« Reply #4 on: November 26, 2018, 12:28:06 PM »
You can, however, recharacterize your traditional IRA contributions to Roth or your Roth IRA contributions to traditional until your tax filing deadline, so you can use that to fine tune once you start doing your taxes at the beginning of next year. Note that only contributions (not conversions) can be recharacterized (that's new this year with the new tax law).

harvestbook

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Re: Should I do Roth conversion?
« Reply #5 on: November 26, 2018, 02:41:18 PM »
Yeah, I don't know why I added the Roth! That makes no sense.

So it looks like a possible tax-free conversion of nearly $20,000.

Thanks.

walkwalkwalk

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Re: Should I do Roth conversion?
« Reply #6 on: November 26, 2018, 03:03:10 PM »
Yeah, I don't know why I added the Roth! That makes no sense.

So it looks like a possible tax-free conversion of nearly $20,000.

Thanks.

If that is the case, then you have $65,258 in deductions, which at 59,000 is not possible. You don't have enough earned income to do all of those things.

MDM

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Re: Should I do Roth conversion?
« Reply #7 on: November 26, 2018, 03:42:58 PM »
Yeah, I don't know why I added the Roth! That makes no sense.

So it looks like a possible tax-free conversion of nearly $20,000.

Thanks.
What do you mean by "net" income, from which various things are then being subtracted?

walkwalkwalk

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Re: Should I do Roth conversion?
« Reply #8 on: November 26, 2018, 05:31:48 PM »
Also, doesnt make sense to contribute to traditional IRA/401(k) only to convert other traditional IRA to Roth.

MDM

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Re: Should I do Roth conversion?
« Reply #9 on: November 26, 2018, 05:54:39 PM »
Also, doesnt make sense to contribute to traditional IRA/401(k) only to convert other traditional IRA to Roth.
True on the federal level, but some states (e.g., Illinois) allow a deduction for a tIRA contribution but don't tax a traditional->Roth conversion.

harvestbook

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Re: Should I do Roth conversion?
« Reply #10 on: November 26, 2018, 07:31:07 PM »
Also, doesnt make sense to contribute to traditional IRA/401(k) only to convert other traditional IRA to Roth.

We contributed to tIRAs before we realized we'd have a low-tax year, and then we switched to Roths mid-year.

Net income is from our businesses plus about $3,000 in taxable dividends, and the $59,000 is a year-end projection since income fluctuates. We spent (invested) close to our net income this year for various reasons-- I sold some taxable funds I wanted to be rid of, I get a travel reimbursement from my corporation, we spent down some cash since we had too large of an emergency fund, I had some hobby income. The self-employed health insurance is the only deduction that wasn't an investment.

I guess I need to plug these numbers into a dummy tax form and see how it comes out. It looks like we're just crazy frugal savers. Thanks for the input.