This clarifies a lot. I edited tax as 12%, as corrected by you. I will follow all your suggestions.1) Yes, immediately change your 401(k) selection to Roth 401(k) for the remainder of the year. I suspect that change won't be effective until Oct 31st paycheck, so you will have 5 paychecks left. You had so far contributed 19 paychecks * $820 per paycheck = $15,580 as pretax. You have room for $23,000 - $15,580 = $7,420 more. Which means per paycheck that is $7,420 / 5 = $1484 for every future paycheck.
2) You have $18,462 in Rollover IRA at Fidelity, correct? If you convert $15,580 of that amount to Roth IRA, that's the exact equivalent of NOT touching your Rollover IRA and contributed to Roth 401(k) at work from the beginning of this year. Do this Roth conversion before the end of the year 2024.
{Edit: be mindful of tax liability incurred through Roth conversion, so I will also suggest that you increase your tax withholding at your job to account for this Roth conversion. It would be 12% of $15,580 = $1869; you need to meet this over next 5 paychecks, so increase your withholding by additional $350 dollars per paycheck. It would result in a slight liability that you can pay off next year. Draw down on your $121k SPAXX for any shortfall of living expenses for the next 3 months, indirectly you converted your taxable account into Roth account with no further tax liability}
3) The "medical insurance premiums" in the formula I wrote above includes also Vision and Dental, so that's $14 + $364 + $4 = $382 per paycheck, or $382 * 24 = $9,168 per year. This is BARELY above the $9,000 limit I assumed in my previous post.
In other words, once you do Roth convert exactly $15,580 this year, you will be at the very tippy-top of the 12% tax bracket with very little room. Therefore, I do NOT suggest converting the entire $18,462 in your Rollover IRA to Roth IRA.
According to this link: https://www.forbes.com/sites/kellyphill ... -and-more/ the top of 12% tax bracket in 2025 will be $96,950, standard deduction will be $30,000 even ... so the AGI for top of the 12% tax bracket is $126,950. If nothing changes with respect to medical insurance premiums, you have room of $132,000 gross income - $9,168 medical premiums - $126,950 top of 12% bracket = $4,118 to convert to Roth and yet remain in 12% tax bracket.
So convert the remainder of $3k odd left in the Rollover IRA to Roth IRA in 2025. And of course, max out the $23k Roth 401k throughout the year.
If you actually are able to save the $8,300 in HSA, you will have more room in the 12% tax bracket. Basically your salary can increase to $140k next year (and hope you will win that raise!), you can STILL remain in the 12% tax bracket through your HSA contribution.
PS Edit: I suggest you also edit the original post to correct and clarify that your Federal marginal tax bracket is 12%, not 22%, if someone were to read through this thread and provide suggestions/ideas different than mine.
I will max out 401k, to make maximum of $23,000 for 2024 and will continue same for 2025 too.
I have $18,462 in Rollover IRA at Fidelity. This was the 401k from my previous employer and after I resigned from there I converted it into Rollover IRA. I will ask Fidelity to convert $15,580 out of it to Roth IRA. Will leave $3000 in Rollover IRA and will ask this amount also to move to Roth IRA in January.
My last two questions :
- When you mention "increase your withholding by additional $350 dollars per paycheck", what does it mean? Our payroll is with ADP. Should I ask them to deduct extra $350 per paycheck for rest of 2024?
- Last year I put $7000 for me and $7000 for my wife in ROTH IRA. Should I do same for 2024 too ? If so, I will take 14,000 from my cash components.
Statistics: Posted by dips — Fri Oct 11, 2024 9:05 pm — Replies 12 — Views 930