This year is the first year that Roth option is available at work for the entire year, so I need to do some tax planning as my goals are
1) to contribute exclusively to Roth (thus no tax deductions),
2) to stay in as low of a tax bracket as possible, and
3) no NIIT tax.
For 2025, the tax brackets of taxable income that are relevant to me (single) are
10% [$0, $11,600]
12% [$11,601, $47,150]
22% [$47,151, $100,525]
24% [$100,526, $191,950]
32% [$191,951, $243,725].
I want to stay away from the 32% bracket.
My current salary is $125,000, which is far away from the 32% bracket. For this year only, I have agreed to take on additional duties for an extra $32,000. (This is a one-time event. I agreed to do it for this year but the plan is to hand it off to someone else next year.). This brings the total to $157,000, still far away from the 32% bracket. I will use standard deduction of $15,000. I do have dividends/interest/capital gains. So my taxable income is $142,000 + dividends/interest/capital gains. In terms of tax brackets, it is based on $142,000 + interest + non-qualified dividends, as qualified dividends and long-term capital gains are taxed at a lower rate. So I have
$191,951-$142,000=$49,951 room for interest + non-qualified dividends. For me, I will assume AGI=MAGI. Since the threshold for NIIT is $200,000, I have $200,000-$157,000=$43,000 room for interest + non-qualified dividends + qualified dividends + long-term capital gains. So as long as interest + non-qualified dividends <= $49,951, and interest + non-qualified dividends + qualified dividends + long-term capital gains <= $43,000, I will meet my goals.
My 2023 information
Interest: $11,000
Non-qualified dividends: $4,000
Qualified dividends: $12,500
Long-term capital gains: $2,400.
So interest + non-qualified dividends = $15,000 <= $49,951 and interest + non-qualified dividends + qualified dividends + long-term capital gains = $29,000 <= $43,000. Plenty of room.
My preliminary 2024 information.
Interest: $11,000
Qualified and non-qualified dividends: $23,500 (At his point I do not how much is qualified.)
Long-term capital gains: $3,300.
Since the total is $37,800, there is still room but close to the $43,000 room to not pay NIIT tax.
My questions are
1) Are my understanding and the calculations correct?
2) Would you do all Roth and hope that everything is still under the limit or would you do some pre-tax to lower the taxable income and AGI/MGAI. (The reason for wanting to do all Roth is I have about $2M in pre-tax. I am in my late 50's and plan to retire at around 65.)
3) Are there any other considerations that I have missed?
Thank you for any insights that you can give me.
1) to contribute exclusively to Roth (thus no tax deductions),
2) to stay in as low of a tax bracket as possible, and
3) no NIIT tax.
For 2025, the tax brackets of taxable income that are relevant to me (single) are
10% [$0, $11,600]
12% [$11,601, $47,150]
22% [$47,151, $100,525]
24% [$100,526, $191,950]
32% [$191,951, $243,725].
I want to stay away from the 32% bracket.
My current salary is $125,000, which is far away from the 32% bracket. For this year only, I have agreed to take on additional duties for an extra $32,000. (This is a one-time event. I agreed to do it for this year but the plan is to hand it off to someone else next year.). This brings the total to $157,000, still far away from the 32% bracket. I will use standard deduction of $15,000. I do have dividends/interest/capital gains. So my taxable income is $142,000 + dividends/interest/capital gains. In terms of tax brackets, it is based on $142,000 + interest + non-qualified dividends, as qualified dividends and long-term capital gains are taxed at a lower rate. So I have
$191,951-$142,000=$49,951 room for interest + non-qualified dividends. For me, I will assume AGI=MAGI. Since the threshold for NIIT is $200,000, I have $200,000-$157,000=$43,000 room for interest + non-qualified dividends + qualified dividends + long-term capital gains. So as long as interest + non-qualified dividends <= $49,951, and interest + non-qualified dividends + qualified dividends + long-term capital gains <= $43,000, I will meet my goals.
My 2023 information
Interest: $11,000
Non-qualified dividends: $4,000
Qualified dividends: $12,500
Long-term capital gains: $2,400.
So interest + non-qualified dividends = $15,000 <= $49,951 and interest + non-qualified dividends + qualified dividends + long-term capital gains = $29,000 <= $43,000. Plenty of room.
My preliminary 2024 information.
Interest: $11,000
Qualified and non-qualified dividends: $23,500 (At his point I do not how much is qualified.)
Long-term capital gains: $3,300.
Since the total is $37,800, there is still room but close to the $43,000 room to not pay NIIT tax.
My questions are
1) Are my understanding and the calculations correct?
2) Would you do all Roth and hope that everything is still under the limit or would you do some pre-tax to lower the taxable income and AGI/MGAI. (The reason for wanting to do all Roth is I have about $2M in pre-tax. I am in my late 50's and plan to retire at around 65.)
3) Are there any other considerations that I have missed?
Thank you for any insights that you can give me.
Statistics: Posted by student — Sun Jan 05, 2025 2:02 pm — Replies 0 — Views 86