Converting vs. Conversion for a Roth

I think what I am really after is the following:

r1 = effective marginal rate on Federal taxes r2 = effective marginal rate on State taxes T= Target tax bite due to Roth conversion C= = Amount that can be converted to Roth for T tax bite

C=T/(r1+r2)

ASSuME that Roth conversion does not change tax bracket, does this sound right?

It is if what you're looking for is the answer to "I have $X available to pay taxes on a conversion. How much can I convert?"

Yes, assuming you don't itemize deductions. That would slightly lessen the Federal tax bite because of the deduction for state income tax. Unless you're in AMT land, in which case you don't deduct state taxes.

It's called simplification. Ask any member of Congress.

Phil Marti Clarksburg, MD

Getting a precise estimate is indeed affected by the cross-effects of deducting state taxes, but that overly complicates the formula, which is just a good first guess.

Another issue is how much T grows in a money market, or, say, balanced mutual fund, before the tax has to actually be paid, not to mention taxes on gains in the balanced fund.

Silly me, I did modify the formula to take into effect of state tax on federal tax.