Roth conversion amounts post FIRE

[ZiziPB]

FIRED in 2018 and have been doing Roth conversions of some of my retirement savings since then. So far I have been converting amounts that allowed me to stay in 12% tax bracket each year, so as not to pay capital gains taxes on the income generated by my taxable investments. But I'm wondering if I should be converting more given my expected income once start collecting SS.  My tax situation is fairly complicated now because I live outside of the US and pay income taxes both in the US and in my country of residence - but I recently realized that I could increase the conversion amount without increasing my overall tax burden relating to the current income.  Does anyone know of any calculators/spreadsheets that I could use to figure out conversion amounts that would allow me to optimize my taxes now and later?

[secondcor521]

Nope.

I just do it with my own homebrew spreadsheets.

I have a spreadsheet which sort of lays out my tax situation between now and 85.  It doesn't replicate everything; it just does the main things, which for me are income taxes, Roth conversions, RMDs, SS, an inherited IRA, and IRMAA.

From that I can see what the highest marginal rate is that I will pay between now and 85.  I chose 85 because I've got a decent chance of not being alive at that point.  If I'm not alive at that point, then my tax situation won't matter and it will be my kids' problem.

I then use the Case Study Spreadsheet (CSS) to mock up my tax return for the current year.  I can see from the graph there how much more in Roth conversion I should do.  Basically, I'm willing to pay marginal rates now that are close to but slightly below the maximum I would pay between now and 85.

For example, if my top marginal rate at age 73 is 28%, I should be willing to Roth convert now any dollars I can at up to 28% rates.

Lather, rinse, repeat each year.

It doesn't have to be perfect - paying 30% on a few thousand dollars of Roth conversion isn't that much of a loss, and paying 26% on a few thousand dollars of Roth conversion isn't that much of a win.

But if you leave, say $10K of Roth conversions at 12% on the table and are going to be paying 26% later, and you do that over 20 years, it can add up.

With your expat tax situation, you might need some expert help to figure your current year taxes.  If you're working, maybe your employer's tax assistance might be able to generate the information you need that the CSS supplies for me.

[ZiziPB]

@secondcor521  - thank you.  I was hoping for a simpler solution :-)

So far, I have converted amounts that would keep me in 0% capital gains tax rate for my US return.  Where I live I have to pay 19% flat tax on the income my taxable investments generate but I can offset the tax paid in the US with respect to that same income.  No tax is payable in my country of residence on the conversion.  Tax is due on withdrawal of retirement funds, but I hope to move back to the US before I start withdrawing retirement funds and collecting SS.  In other words, if I decided to convert more, I would have to pay 15% in the US on the income generated by the taxable account, but the tax in my country of residence would be only additional 4%, and my overall tax burden for the year would stay the same.  So theoretically, I can convert more to Roth each year.

Currently I have about $240K in Roth funds and about $800K still in traditional 401K.  I just turned 56 so I can do another 11-14 years of conversions.   

[lhamo]

It is a bit complex/daunting to figure out when you first start using it (hint:  be patient and ignore all the error symbols until you put in ALL your data....), but I like the Bogleheads retiree portfolio model as a tool for Roth conversion planning. 

https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Not sure how it will deal with your foreign tax situation, but maybe you can use the area where they ask for state taxes as a proxy for that?

[reeshau]

Just chiming in to say my situation is similar to yours, and my process is, too.  I FIRE'd in 2020, am living on LTCG.  I repatriated on FIREIng, although I did have foreign income taxes that year.  Instead, I am balancing ACA subsidies as my second tax.  I do a pro forma tax return at the end of the year, and do a Roth conversion to balance everything out, including nonrefundable child tax credits.

If I end up with something remaining in my tIRA by the time RMD's come up, and there is a negative tax consequence, then I will consider that I have won the game, and look to make direct charitable contributions with whatever that is.