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strategy for Roth conversion

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.

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Reply to
revheck
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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?

Reply to
A.G. Kalman

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.

Yes. See Publication 590.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

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)

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Reply to
Benjamin Yazersky CPA

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