Is there a written formula to manually calculate how much a person can convert from an IRA to an established Roth in 2019 while staying in the current 12 percent tax bracket?
Is there a written formula to manually calculate how much a person can convert from an IRA to an established Roth in 2019 while staying in the current 12 percent tax bracket? I am a single person on Social Security.
For the 2019 tax year, the 12% tax bracket for a single taxpayer ends at $39,475 and the standard deduction is $12,200. So, making some simplifying assumptions, you'll need to keep your taxable income, including your Roth conversion, below $51,675 ($39,475 + $12,200).
Keep in mind your Social Security is at most partially taxed. Also, there are tax preferences on long-term capital gains and qualified dividend income, which mean you might only be in a 15% marginal tax bracket when your taxable income somewhat exceeds $51,675.
Below is a link to a free online tax estimator that I recommend to better model the effect of Roth conversions on your marginal tax bracket.
For 2019 individuals in the 12% tax bracket can make $9,700 up to $39,474. Depending on what your current income is will determine how much you can convert while keeping you in the 12% bracket.
The other thing to keep in mind, if you are under your Full Retirement Age (this varies by what year you were born) and are receiving Social Security, you're allowed to make up to $17,640. If you make more than that, some of your Social Security benefits will be withheld by the government. Specifically, they'll keep $1 for every $2 you receive. Your conversion will not count towards this, however.
I hope this helps!
Gret question! In 2019, individuals in the 12% tax bracket can earn from $9,700 to $39,474. so take $39,000 minus your annual "earned income" this year if you are employed. and the difference would be the amount you could convert. All the best!
-Jordan Jones, RFC
I wish there is a simple formula for you to plug in, and you get your result. Having said that, the task is not super difficult either. Since you’re single and the only current income source is from SSA, you can estimate the Roth conversion amount. As long as your total income is up to $39, 475 as a single filer, you will remain in the 12% tax bracket.
Keep in mind that once your income is above $25k but below $34k, 50% of social security benefits are subject to taxation; above $34k, 85% of that income is subject to taxation. Therefore, you must take the social security income into consideration when you do the calculation for the Roth conversion amount.
If you’re not comfortable, find a financial planner who has tax software to do the estimate. In a few minute, you would have your answer. Best!