Disclaimer: I'm used to having H&R Block do my taxes for me. Working on changing that starting this year. Any guidance from those more experienced would be much appreciated. Specifically, I need some advice on how to optimize my use of Roth conversions. I was inspired by this article from Kitces:
https://www.kitces.com/blog/end-of-year-roth-conversions-and-capital-gains-harvesting-paying-taxes-to-save-taxes/My basic saving strategy since getting hip to this tax-deferred stuff about eight months ago has been something I've come to think of as "zombie retirement," in the sense that I'm living on a small fixed income while continuing to work full time. This is because I'm maxing out a 403b and a 457b
and a traditional IRA on a salary of less than $60k. I front load my contributions and take zero paychecks for nine months out of the year, exempt myself from tax withholding because I owe no income tax on the remainder, then get three or four big fat (well... for me) paychecks at the end of the year. Those go into a high-yield bank account and are eked out over the course of the next nine months. I'm able to do this because I keep my monthly expenses pretty low. (I also have a medium-term goal of meeting 100% of expenses through side income; currently at about 50%.)
Anyway. The goal with the Roth conversions is to implement a "Roth stepladder" if you will: Since my earned income is so low – atypically, during my working years – why not take advantage of it to get the Roth ladder started while I'm still working? If I quit in five years then it will be immediately available. After all those deferrals I'm in the 10% bracket; I actually have negative tax liability due to some bad investments I'm writing off. I only have two years' worth of contributions sitting in the tIRA, but my 403b/457b custodian allows in-plan Roth conversions and, presumably, recharacterizations (though this seems to be a little-used feature of the plan; I had to go through hell just to find someone who could tell me if it was possible). That makes another $36k available. I need to make the conversion(s) by year end, but have until the tax filing deadline to recharacterize.
All this has been kicking around in my head for the past couple of months, but the arrival of November has inspired me to get this figured out real soon. What I'm having trouble with, as a tax novice, is calculating the amount of the conversion that will leave me with little or no tax liability. (Yes, I'm trying to be mindful of the gotchas Kitces mentions in his article, such as the phaseout of federal tax credits and impact on state taxes.) I've used TaxCaster to juggle the numbers a little but I don't think it's giving me the level of detail I need to make this calculation.
Perhaps it's way more complicated than this... but what I would really appreciate is something like "You just need to download IRS form XXX and fill everything out, then subtract line Y from Z and that's the amount you can convert without raising your tax liability." Or if it's not that simple, help me figure out how I should be thinking about it.
Thanks...
