Is there a way to "test" a Roth Conversion for the marginal tax rate it is creating?

Question

For example, let's say I make a large Roth Conversion to bring me to the top of the 24% tax bracket but now I want to see what the marginal tax would be for an additional $10K of Roth Conversion. Do I have to "create" a different tax payer to do this or can I just play with it in my own profile?

Thanks!

tony73 · Answer

Hi Bill,

Thanks for the response and info! Unfortunately (as I have learned using the planning feature of TurboTax) just seeing that you are going into the tax bracket is not the full picture. These tax programs reveal other taxes that come into play when limits are exceeded. I will just manually (as you suggested) make the conversion larger than planned … then remove it to see what the net effect is. As you said … it is a doable way to handle this.

Thanks again!

BillA · Answer

Well, if you exceed the 24% tax bracket, the next marginal federal tax rate is 32%. The brackets and rates for both federal and state taxes are readily available online.

In terms of simulations, you bump into FreeTaxUSA's information-saving philosophy that is different from other tax software; the information is saved for you as you go. You cannot save your file, make some changes and study the effect, and then save that file with a new name or simply revert to the previously saved version to undo the changes. This means that you have to manually undo whatever changes you made after the study. Problematic, but doable if the changes are few (such as what you want to do).

Creating a different taxpayer is the other option, but requires entering all the tax information, not just your change.

The above is based on my limited knowledge of the software. I'm happy to hear if there's a better way as I too like to study some of these "what-ifs".