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I am currently trying to convert as much of my wife’s traditional IRA to a Roth. I consider the 12% tax bracket the sweet spot as for every dollar after that the tax nearly doubles to 22%. Earlier this year I calculated what I think is the maximum income one can have for a couple 65+, married, filing jointly with no other complicating additional income, deductions, nor credits, and using the standard deduction. Some terminology may be incorrect. I would appreciate input into the correct IRS terms for those errors.
Since there are so many tax experts at this site I would like your input as to if my calculations are correct, or if not what am I missing. Again these calculations are for a base scenario.
My calculations results in a maximum income of $143,650.
Here are my numbers:
$96,950 top income in the 12% tax bracket
$31,500 standard deduction
$3,200 senior deduction
$12,000 new senior bonus
Am I correct?
Highly recommend the tax calculator referenced by Tom S. I am in the 12% bracket. This year because of the $12000 filing jointly additional standard deduction, only 74% our social security is being taxed instead of 85%. It took me a while to figure out the tax torpedo. Basically what it means for my situation is that if I take an additional $1000 out of my IRA it is taxed at 12%, but the taxable percentage of SS also increases. The amount that the percentage increases will depend on your individual numbers. For me it looks like the increase ends up being taxed at closer to 20%. For example, a $1000 would be taxed at 12% ($120) + $80 tax increase because all of my social security would be taxed at higher than 74%.
If you can wrap your head around this, you are doing better than I am. In the past the taxable percentage on SS stepped up to 85%. Now it varies and line 6 on the 1040 give a taxable amount that has to be calculated. This is just one more complication for seniors. Play around with the tax calculators to see how you will be affected. The only good thing is that you probably owe less in taxes than you expected.
from Tom S:
https://thefinancebuff.com/social-security-taxable-calculator.html
Fyi in case it applies: the new TY 2025 “enhanced deduction for seniors”, which starts at $6k for singles ($12k for couples with spouse born before 1/2/1961), decreases on a sliding scale if AGI (line 11b, Form 1040) is greater than $75k for a single filer, or $150k for a couple filing. See new Schedule 1-A, Part V. Something to keep in mind if doing Roth conversions and cutting it too close to the line. (Caveat – you need to check the forms themselves – I’m looking at my tax prep software’s version of the form, which may or may not be accurate at this point in time.)
I wouldn’t worry about cutting it close. There is no cliff to go over, just a phaseout as parkslope mentions. This is a 6% phaseout ($6k deduction over $100k range) so the effective marginal tax rate for the 22% bracket would be 22%*1.06=23.32%.
Or if you’re in the 12% income bracket and happen to push more qualified dividends or capital gains into the 15% bracket, it would be (12%+15%)*1.06=28.62%.