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new tax brackets and roth conversion

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  • new tax brackets and roth conversion

    I want to make sure I'm not missing anything on this.

    Resident here making ~$55k. Spouse makes ~$90k but started 6 months ago so only ~$50k for 2017. We have an old 401k with $38k invested and are planning on a roth conversion since we are currently in a low-ish bracket during residency, despite my spouse working (by my math still advantageous), and expect to make significantly more in my specialty when I finish in 2-3 years. We have money available to pay the taxes on the conversion (after our own 401ks this year, maxing roth IRAs, HSA etc) and was waiting on the bill to pass before pulling the trigger. With the new tax code, my 2 options as I see it are thus:

    1) Convert the 401k now for 2017, with an income of let's say $105k. This will likely be our lowest income year. Simple back of the napkin math puts our MFJ tax liability at $17,727 (capping at 28% bracket before deductions, adjustments etc) and marginal rate 16.7%.

    2) Wait until 2018 to convert with an income of around $155k, but with new brackets (we'll cap out at 24% bracket) we are still at 16.7% marginal rate.

    What am I missing here? Is there any advantage to converting this year vs next? If I have the same marginal rate with both options, and "room" within the new 2018 24% bracket to add my 401k conversion all the way up to $315k now, it seems to me that option two gets the edge. I'm a novice so my math and assumptions could be way off base.

  • #2
    Option 3) Convert some this year and some next year.

    If you're maxing 401(k)s and HSA, I would guess your taxable income is much lower than $105K in 2017. More like $65k before a standard deduction. So closer to $50K.

    I would convert up to the 15% bracket this year, and convert the rest next year, but run the numbers yourselves with Taxcaster or similar.

    Cheers!

    -PoF

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