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Subject Author Date
strategy for Roth conversion revheck 01-16-2007
Posted by revheck on January 16, 2007, 7:40 pm
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 Due to a confluence of deductions, my wife and I will be in
the lowest 10% tax bracket for the next few years. Yeah! My
estimated MAGI for 2007 is only $6000. So it seems an
opportune time to convert our $130K IRA to a ROTH IRA.

My question is: How much should I convert this year?

For 2007, the 15% bracket kicks in at $15650, and the 25% at
$63700. We won't be in the magical 10% bracket for enough
years to convert at that rate, but we could stay in the 15%
bracket for long enough to convert everything. I'm thinking
of converting roughly 64000-6000=$58000, so that our MAGI
just hits the 25% bracket. Repeating each year we are in 10
or 15% bracket, until everything is converted. We do have
enough savings to pay the taxes.

Does this make sense?

But what if I'm off and our MAGI is higher, so that we spill
over further into the 25% bracket? Could we do a partial
re-characterization at the end of the year, putting extra
funds back into IRA, and wait to later years to reconvert?

Or should I be more conservative with conversion so that
this doesn't happen?

Thanks in advance for any advice.

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
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Posted by A.G. Kalman on January 18, 2007, 4:01 am
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 revheck wrote:

> Due to a confluence of deductions, my wife and I will be in
> the lowest 10% tax bracket for the next few years. Yeah! My
> estimated MAGI for 2007 is only $6000. So it seems an
> opportune time to convert our $130K IRA to a ROTH IRA.
>
> My question is: How much should I convert this year?
>
> For 2007, the 15% bracket kicks in at $15650, and the 25% at
> $63700. We won't be in the magical 10% bracket for enough
> years to convert at that rate, but we could stay in the 15%
> bracket for long enough to convert everything. I'm thinking
> of converting roughly 64000-6000=$58000, so that our MAGI
> just hits the 25% bracket. Repeating each year we are in 10
> or 15% bracket, until everything is converted. We do have
> enough savings to pay the taxes.
>
> Does this make sense?
>
> But what if I'm off and our MAGI is higher, so that we spill
> over further into the 25% bracket? Could we do a partial
> re-characterization at the end of the year, putting extra
> funds back into IRA, and wait to later years to reconvert?
>
> Or should I be more conservative with conversion so that
> this doesn't happen?

Why don't you just perform the conversion in late December
when you know just about where you stand on taxes and the
politicians have finished playing with the tax law?

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Phil Marti on January 18, 2007, 4:01 am
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> Due to a confluence of deductions, my wife and I will be in
> the lowest 10% tax bracket for the next few years. Yeah! My
> estimated MAGI for 2007 is only $6000. So it seems an
> opportune time to convert our $130K IRA to a ROTH IRA.
>
> My question is: How much should I convert this year?
>
> For 2007, the 15% bracket kicks in at $15650, and the 25% at
> $63700. We won't be in the magical 10% bracket for enough
> years to convert at that rate, but we could stay in the 15%
> bracket for long enough to convert everything. I'm thinking
> of converting roughly 64000-6000=$58000, so that our MAGI
> just hits the 25% bracket. Repeating each year we are in 10
> or 15% bracket, until everything is converted. We do have
> enough savings to pay the taxes.
>
> Does this make sense?

The concept does, but rework your numbers. You're not
taking into account the standard (or itemized) deduction or
the personal exemptions, which give you even more room to
convert.

Sit down with a 1040 from 2006 and see what you could
convert and still stay in the 15% bracket. That will give
you wiggle room since the 2007 standard deduction and
personal exemptions are higher than the 2006.

> But what if I'm off and our MAGI is higher, so that we spill
> over further into the 25% bracket? Could we do a partial
> re-characterization at the end of the year, putting extra
> funds back into IRA, and wait to later years to reconvert?

Yes. See Publication 590.

--
Phil Marti
Clarksburg, MD

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

Posted by Benjamin Yazersky CPA on January 18, 2007, 4:01 am
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> Due to a confluence of deductions, my wife and I will be in
> the lowest 10% tax bracket for the next few years. Yeah! My
> estimated MAGI for 2007 is only $6000. So it seems an
> opportune time to convert our $130K IRA to a ROTH IRA.
>
> My question is: How much should I convert this year?
>
> For 2007, the 15% bracket kicks in at $15650, and the 25% at
> $63700. We won't be in the magical 10% bracket for enough
> years to convert at that rate, but we could stay in the 15%
> bracket for long enough to convert everything. I'm thinking
> of converting roughly 64000-6000=$58000, so that our MAGI
> just hits the 25% bracket. Repeating each year we are in 10
> or 15% bracket, until everything is converted. We do have
> enough savings to pay the taxes.
>
> Does this make sense?
>
> But what if I'm off and our MAGI is higher, so that we spill
> over further into the 25% bracket? Could we do a partial
> re-characterization at the end of the year, putting extra
> funds back into IRA, and wait to later years to reconvert?
>
> Or should I be more conservative with conversion so that
> this doesn't happen?

Why look for ways to generate tax/taxable income.???

I always thought ---> tax planning 101 is to find ways to
reduce taxable income, not create it
(ignroing amt here)

___________________________________
<<< Benjamin Yazersky, CPA [NJ & NY] >>>
-----> real address on hobokeni or hobokenx <-----

<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>

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