4

I am a U.S. citizen currently living outside the United States, where I am a student finishing a university degree.

I have a small, U.S.-based income ($17k in 2015), and no foreign income. My total taxable interest, capital gains, & dividends come to $1500, and I have $2700 income from a rental. My line 22 income was -$4148, which entitled me to a full refund of all federal income tax paid. I am a single filer.

I expect the numbers to all be approximately the same in 2016.

I currently have an active SIMPLE IRA with $175k.

Does it make sense to convert some of that SIMPLE to a Roth, in light of my low income?

Assuming the same numbers for 2016, how much can I convert to a Roth without having to pay income taxes? Given the numbers above, could I convert $4148 (equal to my AGI loss, line 22) without paying any taxes at all?

If I convert more than that, is it at the lowest (15%) bracket? Or would I be able to convert, tax free, up to the single filer threshold where the 15% bracket starts?

2

Does it make sense to convert some of that SIMPLE to a Roth, in light of my low income?

Absolutely!

Assuming the same numbers for 2016, how much can I convert to a Roth without having to pay income taxes? Given the numbers above, could I convert $4148 (equal to my AGI loss, line 22) without paying any taxes at all?

Based on a quick calculation which assumes you are single, would take the standard deduction, and cannot be claimed as a dependent by someone else, you should be able to convert approximately $14,500 to the Roth without paying any tax at all.

If I convert more than that, is it at the lowest (15%) bracket?

Note you only pay the tax on the overage (above the 14.5k), not the full amount. The lowest tax bracket starts at 10%. Here is a summary, and here is the full tax table (for 2015). As an example, if you were to convert $50K to Roth, you would pay (roughly) zero tax on the first $15K, then 10% on the next $10K and 15% on the remaining $25K. In this example you would pay less than $5K in federal tax to convert $50K to Roth. (State taxes, if applicable, would be separate.)

I recommend you speak to an accountant to get this sorted. The nominal accounting fee will probably be well worth it to make sure you get this done correctly.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.