I'm trying to decide whether to do a Roth conversion or take the American Opportunity Tax Credit (AOTC) for my daughter going to college this year. The Roth conversion would push me over the income limit of $160K married filing jointly, so I would not be able to take the AOTC (worth up to $2500) anymore. Here some additional info:
- Federal tax bracket 22%, I expect to remain in that tax bracket
- State tax bracket 5%, I expect to remain in that tax bracket
- 529 sufficiently funded (meaning that paying for my daughter's college expenses out of pocket to get the AOTC is not strictly necessary)
- Roth conversion amount $40K
- AGI with Roth conversion $200K
- AGI without Roth conversion $160K
- Good amount of pre-tax retirement assets, thus trying to avoid putting more money into pre-tax
- 2022 thus far, with depressed asset prices, appears to be a "good" conversion opportunity
- I expect taxes to rise
If the $40K grew by ~23% (~$9250) I'd be indifferent between conversion and AOTC, since the added taxes on the $9250 would equal the AOTC value of $2500.
I'm leaning towards the conversion, but are curious what the forum thinks. One question I have is over which time frame I should assume the ~23% growth: 2023 or longer time period? Longer time period, assuming historical growth rates, would probably also favor the conversion.
Please let me know if you need any additional facts and thank you for your answers!