This is the best tax bracket for a Roth IRA conversion, advisors say

When crunching the numbers for a Roth conversion, you’ll want to consider how the transfer impacts your current tax bracket, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

If you can stay within the 12% tax bracket or lower, “that’s a no-brainer, 99% of the time,” he said. But anything above the 12% is “situational,” depending on a client’s goals and other factors. 

Ryan Losi, a certified public accountant and executive vice president of CPA firm Piascik, also uses a “rule of thumb” to greenlight Roth conversions.

“If we can convert and still stay in the 24% bracket or lower, I’m a thumbs up,” he said. But bumping into the 32% bracket or higher prolongs the “recovery period” to recoup upfront taxes. 

Of course, these benchmarks can change depending on a client’s unique circumstances, such as estate planning goals, experts say. 

When completing a Roth conversion, advisors typically aim to fill a specific tax bracket with income without spilling into the next one.

But you could miss other planning opportunities by focusing solely on Roth conversions, Lucas said.

For example, if you’re sitting on a large brokerage account with sizable gains, you could leverage your lower tax brackets to rebalance your portfolio, he said.

The strategy, known as “tax gain harvesting” involves strategically selling profitable assets during lower-income years.

For 2024, you may qualify for the 0% long-term capital gains rate with a taxable income of up to $47,025 if you’re a single filer or up to $94,050 for married couples filing jointly. 

These figures would include assets sold from your brokerage account.