Let's assume my wife and I have $10K in free cash. We are in the 12% bracket, married filing jointly.

Here are the options we are looking at, and we are trying to figure out which one makes more sense (looking at federal taxes only):

  1. Reduce our AGI to a level where we'd receive a savers tax credit amounting to 10% of the pre-tax contribution to our IRAs. That would be $1K.
  2. Do a Roth conversion and fund the taxes with the $10K. If we convert at 12%, then we could convert $83.3K (we'd likely have to do that over 2 years to stay in the 12% bracket, 2023 and 2024). So, basically, we are "filling up the [12%] bucket".

So, which option makes more sense?

Let's assume the TCJA is not extended and that the 12% bracket goes back up to 15%, then we'd pay (at some point, when we take the money out or convert) $12.5K in taxes on the same $83.3 conversion amount, $2.5K more than before. (I realize there are other moving parts here, such as personal deduction etc. - I'm simplifying)

In sum, that would tell me, if TCJA is not extended, option 2 is the better one. If it is extended, then option 1 is better.

Or is there anything else I'm missing?

  • 2
    The Savers Credit is limited to $4,000 of retirement account contributions for MFJ filers, so the most you'd be able to get at 10% is $400. As for everything else, there's not enough information to definitively say which option is more financially advantageous.
    – Stan H
    Commented Nov 19, 2023 at 23:38
  • Ooops, I totally missed that - thank you for making me aware. In that case, I think I'll stick with filling up the buckets: $400 is not worth worrying about.
    – tmwn6919
    Commented Nov 20, 2023 at 17:24


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