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The best tax brackets for Roth conversions
When crunching the numbers for a Roth conversion, you want to consider how the transfer affects your current tax bracket, according to Tommy Lucas, a certified financial planner with Moisand Fitzgerald Tamayo in Orlando, Florida.
You can stay in the 12% tax bracket or lower, “a no-brainer, 99% of the time,” he said. But anything above 12% is “situational,” depending on the client’s goals and other factors.
Ryan Losi, a certified public accountant and executive vice president of the Piascik CPA firm, also uses the “rule of thumb” to explain Roth conversions.
“If we can convert and still stay in the 24% range or lower, I’m bullish,” he said. But bumping into the 32% bracket extends the “recovery period” for early tax recovery.
Of course, those benchmarks can vary based on a client’s unique circumstances, such as estate planning goals, experts say.
Consider rebalancing in lower income years
When completing a Roth conversion, advisors typically aim to fill a specific tax bracket with income without spilling over into the next.
But you can miss out on other planning opportunities by focusing only on Roth conversions, Lucas said.
For example, if you’re sitting on a large brokerage account with high earnings, you can take advantage of your lower tax brackets to balance your portfolio, he said.
Known as “Strategy”.tax revenue collection“It involves strategically selling profitable assets during lower income years.
Through 2024, you can receive the 0% long-term capital gains tax on taxable income up to $47,025 if you’re a single filer or up to $94,050 for married couples filing jointly.
These figures will include assets sold from your brokerage account.
