Roth Conversion due to first year in Fiscal Year End? end

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Spedward
Posts: 143
Joined: Mon Jun 13, 2011 4:48 pm

Roth Conversion due to first year in Fiscal Year End? end

Post by Spedward » Thu Aug 16, 2018 9:10 am

All -

I am in a position whereby my income will be increasing substantially in the next few years. However in 2018 I will fortunately be in a position whereby I will only have 9 months of taxable income due to the first year in a business with a fiscal year end of 9/30 that I will receive a k-1 from - no more w-2s. So my income from 10/1-12/31 will be captured on my 2019 return.

We have about 100K-ish sitting my wife’s solo 401(k). Given that we will likely be in the 24% federal tax bracket in 2018, and likely in the highest in the foreseeable future, I was considering rolling over my wife’s solo to an IRA and converting to a ROTH in 2018. The conversion will push us into higher brackets but we have the cash to otherwise pay the tax.

We are 37 and have plenty of money in emergency fund, taxable and tax deferred accounts. My thought is I would likely not be in a position to convert otherwise until retirement due to the high tax bracket, and even then, may very well still be in a high bracket at that point.

Any thoughts would be greatly appreciated.

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FiveK
Posts: 5353
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth Conversion due to first year in Fiscal Year End? end

Post by FiveK » Thu Aug 16, 2018 11:39 am

It is the marginal rate you expect to pay when withdrawing, not the marginal rates you expect to pay in future years while working, that should be compared to this year's 24%.

But if you do expect to be paying 24% or more in retirement, converting now makes sense.

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