Episode description

You have 28 months before the 2018 TCJA (Tax Cuts & Jobs Act) sunsets.

▶ If it expires, we roll back to prior tax brackets 📈

or

▶ It could be extended and remain as-is

or

▶ It could be replaced w/a new act and higher tax rates 📈

2/3 of outcomes lead to higher taxes ❗ 

Roth conversion? 

Maybe. 

▶ Depends on your tax situation, your current income bracket, your ability to pay the taxes on the conversion, your understanding of all conditions that apply including the NIIT(Net Investment Income Tax) if it raises your MAGI (Modified Adjusted Gross Income).

▶ Depends on your future vision of taxes. Will they be higher or lower 10, 15, 20 years from now?

▶ Depends on whether you anticipate being in a higher or lower tax bracket based on income. Are you advancing in your career and expecting to have a higher standard of living, thereby taking more in income from assets in retirement? Is your income projected to stay relatively flat, with adjustments for inflation? Are you looking to take less in income when you get older? Take from non-taxable sources first, then taxable?

Remember that partial conversions can be done. For instance, if you have a $200,000 Traditional/Rollover IRA and you want to convert part of it. The amount you convert will add to taxable income. So you'd work with the #'s and determine what you're comfortable moving this year and next that doesn't cause a serious impact to you by moving you into higher tax brackets. If you have say $1mm in Trad IRA $$, it's going to be a more careful calculation, as a $200-250k conversion could put you into the highest tax brackets at 35-37%.

Consider that the biggest jump in the current tax bracket happens for single filers right at the $182k mark. That's for MAGI. It's a 6% jump. A tax torpedo if you're not careful. Does not apply to married couples filing jointly, as you can see.

In short, work the math. Keep yourself from jumping too much in terms of tax bracket, with the addt'l amount from a Roth conversion, because the amount you pay at a higher tax rate on that conversion could work toward negating the incentive.

Nevertheless it may work out for you to do partial conversions this year and next, in advance of the tax situation changing in 2025.