Author Topic: Roth conversions and child tax credit  (Read 516 times)

lhamo

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Roth conversions and child tax credit
« on: July 17, 2018, 02:30:25 PM »
Trying to figure out how much we should target for Roth conversions this year.

We have one child still under age 17, and our income will be well within the phase-out thresholds this year -- will probably only have under $20k in dividends/capital gains in our taxable accounts, plenty in savings so we don't need to cash out more than that.  We will not have any earned income from wages/salaries, businesses, rents, etc.

We are MFJ, so our standard deduction will be at the new 24k level.  I doubt that we would have other deductions that would exceed that.

Am I understanding correctly that if convert 44k from traditional accounts to Roths, the child tax credit should fully offset the 2k we would normally owe on the 20k of the conversion that exceeds the standard deduction amount, and that our dividends/capital gains would still be in the 0% bracket?

We will also get a K1 from my mom's estate for our share of losses on her investments from time of death until time of cashout.  Can we do a further Roth conversion up to that amount and still essentially remain in the tax free zone for 2018?

terran

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Re: Roth conversions and child tax credit
« Reply #1 on: July 17, 2018, 03:08:26 PM »
Sounds right to me at first pass. You might consider waiting until preliminary tax forms come out so you can do a dummy return before you actually make the conversions.

I don't know if losses that come through a K1 work the same, but regular capital losses offset capital gains first, before offsetting regular income, so unless you'll have more losses than gains you probably can't use them to offset more Roth conversions. You could consider Roth conversions and/or capital gains harvesting to push enough of your capital gains above the 0% capital gains bracket to "use" the losses in that way.

I think you're on top of this from other threads, but don't forget to account for ACA thresholds in your figuring.

MDM

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Re: Roth conversions and child tax credit
« Reply #2 on: July 17, 2018, 06:04:40 PM »
Not familiar with all K1 wrinkles.

Some things about the CTC aren't clear yet.  See this post for more.

With the above in mind (and noting that one can flip Calculations!S61 to see if the CTC calculation changes for your situation), the most recent version of the case study spreadsheet should address all the points raised so far in this thread - good luck!

See also the"what if?" worksheets of TurboTax, TaxAct, etc. if you have access to those.