Roth Conversion Knock On Effects
I have been considering Roth conversions in order to reduce the tax rate in the event I or my spouse pass. We currently are in the 12 % marginal rate but would be in the 22 % rate if one of us passed away. This seems like a no brainer but I noticed that the knock on effects of conversion significantly affect my state taxes. In MN, taxed social security is an income subtraction up to an agi limit of 100k then diminished by 10% for every 4k over 100k. In addition there is a significant rebate for property taxes that is income limited. So, even though I may achieve a reduced future federal tax rate, the effects of doing so may significantly affect my current tax situation. How should I evaluate this?
Permalink Submitted by Alan - IRA critic on Mon, 2024-01-08 15:26
You would probably need tax software to run various scenarios. The easy part is determining the current year added tax implications of various conversion amounts, and you would have to do this every year for which you plan a conversion. The more challenging calculation will be subject to your assumptions about future tax rates and how many years of single filing status there might be. Then compare the added cost of the conversion year to the future tax savings by way of reduced RMDs.