Negative Consequences of 401k Contribution Offset By Trad IRA to ROTH IRA Conversion?

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pdavi21
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Joined: Sat Jan 30, 2016 4:04 pm

Negative Consequences of 401k Contribution Offset By Trad IRA to ROTH IRA Conversion?

Post by pdavi21 » Thu Dec 06, 2018 12:58 pm

I plan on using Traditional 401k contributions to reduce my Wages (and AGI) and a Traditional IRA to ROTH IRA conversion to increase my AGI.
It's like a buffer that gets me to a specific AGI for retirement saver's credit cutoff to account for unexpected income (bonus amounts, capital gains, unexpected dividends, windfalls, etc late in year).

How it works is I will overestimate bonus (and other unexpected income) and over-contribute to 401k (trad), then late in the year, I will do a ROTH conversion to boost AGI back near the limit.

Besides missing, are there any negative tax consequences I may face with this method? Some I can already think of are:
1. EITC goes off wages AND AGI, so it may be reduced by doing this (not going for EITC)
2. Some health Insurance subsidies and programs (that are exempt from ACA requirement to use MAGI) may be calculated off of gross income (which isn't reduced by Trad 401k Contributions and may be increased by ROTH conversions?). Good examples are pregnancy Medicaid and CHIP. (I actually have CHIP and may be close to income limit next year.)
3. Other credits / breaks I risk losing or have negatively affected?

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