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What’s the Most Tax-Efficient Way to Give? (Donating Appreciated Securities, Qualified Charitable Distributions)

A reader writes in, asking:

“I will be turning 70 1/2 next year and one way or another I plan on giving a good sum to charity. What is the most economical way to donate?

  1. QCD from IRA
  2. Roth IRA
  3. Taxable account
  4. Take from income.

I take the standard deduction for federal tax. What factors do I need to take into consideration?”

Firstly: What’s a QCD?

A qualified charitable distribution (QCD) is a distribution from a traditional IRA directly to a charitable organization (i.e., the check is made out directly to the organization rather than to you). Unlike most distributions from a traditional IRA, QCDs are not taxable as income. And they can be used to satisfy required minimum distributions (RMDs) for a given year. QCDs are limited to $100,000/year (per spouse, if you’re married).

To qualify for qualified charitable distributions you must be at least age 70.5. (Yes, it really is age 70.5. The law that increased the age for RMDs to 72 did not change the age for QCDs.)

Also note that QCDs work on a calendar year basis. That is, there’s no “I’m doing this in March of 2022, and I want it to count for 2021” option as there is for contributions to an IRA.

Which Type of IRA to Give From

Giving via QCDs from a traditional IRA is much better than donating dollars from a Roth IRA. To you, a dollar in a Roth IRA is worth a dollar of spending, whereas a dollar in a traditional IRA is worth less than a dollar of spending (because some part of the dollar would be taxed when you took it out of the account, before you could spend it).

In contrast, to a tax-exempt non-profit, a dollar from a traditional IRA is worth a dollar of spending. When you give money to a charity via a QCD from a traditional IRA, the charity doesn’t have to pay tax on that money.

In other words, from the charity’s perspective, receiving $1,000 from a traditional IRA (via a QCD) is just as good as receiving $1,000 from a Roth IRA. But giving the money from the traditional IRA effectively costs you less (because it wasn’t really worth $1,000 to you to begin with).

Donating via QCDs or Taxable Assets

When choosing between QCDs or donating taxable assets, one advantage of QCDs is that you can take advantage of them while claiming the standard deduction. Donations from taxable assets (including regular checking account dollars) give you an itemized deduction. And that’s only valuable to the extent that your itemized deductions (in total) exceed the standard deduction for the year.

Example: Sophia is single, age 65+, so her standard deduction for 2021 is $14,250. If her itemized deductions other than donations come to $10,000, then the first $4,250 of donations from taxable assets doesn’t give her any tax benefit at all.

QCDs also have the advantage that they reduce your adjusted gross income, which can sometimes produce additional beneficial results, such as allowing you to qualify for another deduction/credit or bringing your income below a particular IRMAA threshold. In contrast, the itemized deduction from donating taxable assets does not reduce your AGI and therefore will not produce any such effects.

Conversely, an advantage of donating assets from a taxable account is that, if you donate assets that have gone up in value and that you have owned for longer than one year, you get to claim an itemized deduction for the current market value of the asset and you do not have to pay tax on the appreciation. (Note: when donating taxable property that you have held for one year or less, your itemized deduction is limited to your basis in the property.) In other words, when donating appreciated taxable assets that you have held for longer than one year, the itemized deduction is saving you money at your marginal tax rate for ordinary income, and you’re saving some additional money due to not having to pay tax on the appreciation.

So in some cases donating via QCDs will be preferable, while in other cases donating appreciated securities will be preferable. An important factor here is how much the taxable asset has appreciated. If it has gone up, say, 10% since you bought it, then getting to avoid taxation on the 10% gain isn’t such a big deal. Conversely if it is now worth ten times what you paid for it, avoiding taxation on that gain — via donating the asset — could be a very big deal. (I say “could” in that prior sentence, because there’s a possibility that the gain could have avoided taxation anyway, if it were left to heirs who would then get a step-up in cost basis.)

Which Taxable Assets to Give?

And with regard to donating taxable assets, donating appreciated assets that you have owned for longer than one year is strictly better than donating other taxable account dollars (e.g., cash in a checking account). And again that’s because you do not have to pay tax on the appreciation, while still getting to claim an itemized deduction for the current market value of the assets.

For example, imagine that you have a holding with a $10,000 market value and a $6,000 cost basis (i.e., there is a $4,000 unrealized capital gain) and you have held the asset for longer than one year. If you donate this asset, you’d get an itemized deduction for $10,000. Conversely, if you were to donate $10,000 of cash, you would also get an itemized deduction for $10,000. But donating $10,000 of cash means giving up $10,000 of spendable value, whereas donating the $10,000 appreciated holding actually costs you somewhat less (because if you were to sell it, you’d have to pay tax on the $4,000 of appreciation, which would leave you with somewhat less than $10,000 to spend).

Overall Order of Priority

To briefly summarize, for somebody age 70.5 or older, the typical order of preference is:

  1. Donating appreciated taxable assets with a holding period longer than one year or donating via QCDs, depending on circumstances,
  2. Donating via whichever of the two options above was less preferable,
  3. Donating taxable account cash (e.g., checking/savings balances),
  4. Donating appreciated taxable assets that you have held for one year or less,
  5. Donating Roth IRA dollars, and finally
  6. Donating taxable assets where the current market value is less than your basis. (This one is really bad because your deduction is limited to the market value, and you don’t get to claim a loss for the decline in value. Better to sell the asset, claim the capital loss, then donate the resulting cash.)

For somebody not yet age 70.5 (and therefore ineligible for QCDs), the typical order of preference would be:

  1. Donating appreciated taxable assets with a holding period longer than one year,
  2. Donating taxable account cash (e.g., checking/savings balances),
  3. Donating appreciated taxable assets that you have held for one year or less,
  4. Donating Roth IRA or traditional IRA dollars, and finally
  5. Donating taxable assets where the current market value is less than your basis.

But as always, tax planning is case-by-case. A household could have circumstances such that the above would need to be rearranged in some way.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

2022 Tax Brackets, Standard Deduction, and Other Changes

The IRS recently published the annual inflation updates for 2022. If you have questions about a particular amount that I do not mention here, you can likely find it in the official IRS announcements:

Single 2022 Tax Brackets

Taxable Income
Tax Bracket:
$0-$10,275 10%
$10,275-$41,775 12%
$41,775-$89,075 22%
$89,075-$170,050 24%
$170,050-$215,950 32%
$215,950-$539,900 35%
$539,900+ 37%

 

Married Filing Jointly 2022 Tax Brackets

Taxable Income
Tax Bracket:
$0-$20,550 10%
$20,550-$83,550 12%
$83,550-$178,150 22%
$178,150-$340,100 24%
$340,100-$431,900 32%
$431,900-$647,850 35%
$647,850+ 37%

 

Head of Household 2022 Tax Brackets

Taxable Income
Tax Bracket:
$0-$14,650 10%
$14,650-$55,900 12%
$55,900-$89,050 22%
$89,050-$170,050 24%
$170,050-$215,950 32%
$215,950-$539,900 35%
$539,900+ 37%

 

Married Filing Separately 2022 Tax Brackets

Taxable Income
Marginal Tax Rate:
$0-$10,275 10%
$10,275-$41,775 12%
$41,775-$89,075 22%
$89,075-$170,050 24%
$170,050-$215,950 32%
$215,950-$323,925 35%
$323,925+ 37%

 

Standard Deduction Amounts

The 2022 standard deduction amounts are as follows:

  • Single or married filing separately: $12,950
  • Married filing jointly: $25,900
  • Head of household: $19,400

The additional standard deduction for people who have reached age 65 (or who are blind) is $1,400 for each married taxpayer or $1,750 for unmarried taxpayers.

IRA Contribution Limits

The contribution limit for Roth IRA and traditional IRA accounts is unchanged at $6,000.

The catch-up contribution limit for people age 50 or over does not get inflation adjustments and therefore is still $1,000.

401(k), 403(b), 457(b) Contribution Limits

The salary deferral limit for 401(k) and other similar plans is increased from $19,500 to $20,500.

The catch-up contribution limit for 401(k) and other similar plans for people age 50 and over is unchanged at $6,500.

The maximum possible contribution for defined contribution plans (e.g., for a self-employed person with a sufficiently high income contributing to a solo 401(k)) is increased from $58,000 to $61,000.

Health Savings Account Contribution Limits

For 2022, the maximum HSA contribution for somebody with self-only coverage under a high deductible health plan is $3,650. The limit for somebody with family coverage under such a plan is $7,300.

The HSA catch-up contribution limit for people age 55 and over is not inflation adjusted, so it remains at $1,000.

Capital Gains and Qualified Dividends

For 2022, long-term capital gains and qualified dividends face the following tax rates:

  • 0% tax rate if they fall below $83,350 of taxable income if married filing jointly, $55,800 if head of household, or $41,675 if filing as single or married filing separately.
  • 15% tax rate if they fall above the 0% threshold but below $517,200 if married filing jointly, $488,500 if head of household, $459,750 if single, or $258,600 if married filing separately.
  • 20% tax rate if they fall above the 15% threshold.

Alternative Minimum Tax (AMT)

The AMT exemption amount is increased to:

  • $75,900 for single people and people filing as head of household,
  • $118,100 for married people filing jointly, and
  • $59,050 for married people filing separately.

Annual Gift Tax Exclusion

For 2022 the annual exclusion for gifts has increased from $15,000 to $16,000.

Estate Tax

The estate tax exclusion is increased to $12,060,000 per decedent.

Pass-Through Business Income

With respect to the 20% deduction for qualified pass-through income, for 2022, the threshold amount at which the “specified service trade or business” phaseout and the wage (or wage+property) limitations begin to kick in will be $340,100 for married taxpayers filing jointly and $170,050 for single taxpayers, people filing as head of household, and for married people filing separately.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

2021 Editions: Taxes Made Simple, Sole Proprietor Taxes, LLC vs S-Corp vs C-Corp

Just a quick note today: the 2021 editions of my three tax books are now available.

For anybody who has not read any of my books before, the idea is for each book in the series to provide a clear, succinct explanation of the topic in question — suitable for an initial introduction. The books do not strive to provide an expert-level depth of material. (People have often compared them to Cliffs Notes for personal finance topics.)

With regard to the paperbacks, please note that Amazon still has copies in stock for the prior editions. And when you click around on the Amazon site, it won’t necessarily direct you to the newest edition. So be careful to check for the 2021 publication date to make sure you’re on the page for the latest version. (The prior-year Kindle editions have been removed, so there shouldn’t be any way to accidentally purchase those.)

Since some people have asked about it recently, there was not a 2020 edition of Taxes Made Simple. Last year was such a whirlwind of tax legislation that every time I got the book to the point where it was almost ready for release, a new piece of legislation was passed, thereby requiring further changes. Eventually it became clear that it would be smarter to give up on the idea of a 2020 edition and begin work on a 2021 edition instead. (Since originally releasing these books in 2008, 2020 was the first year for which I did not manage to publish a new edition for all three of them.)

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

Predicting Tax Legislation is Harder Than Timing the Market

Timing the stock market is hard. It’s so hard, in fact, that there’s a reasonably broad consensus that it’s unwise to even try.

And that’s in spite of the fact that, when attempting to time the stock market, you’re really only trying to predict one thing: what will the market do next? And there are only three possible outcomes: go up, stay flat, or go down.

Trying to predict specific changes to our tax law in any way that is useful for tax planning is far, far harder than trying to time the stock market.

Take one example: will distributions from Roth IRAs be made taxable in the future? And how should a person adjust their tax planning based on that possibility?

People ask me about that (and other similar topics) all the time. And it doesn’t seem like it should be that complicated — either some law gets passed that makes Roth IRA distributions taxable or no such law gets passed. Two possible options, right?

Unfortunately, no. There’s also the possibility that it would work like taxation of Social Security benefits. That is, we could see a change where Roth distributions remain nontaxable, unless your income is over a certain threshold. And this third possibility is itself an unlimited number of possibilities, because the threshold could be set at any level. And the calculation (for what percent of your Roth distributions are taxable, based on the amount by which your income exceeds the chosen threshold) could work in any number of different ways.

In other words, you could make a prediction that a bill will be passed that causes Roth distributions to be taxable. And you could be right about that prediction, but you have to get the details right too. If you get the details wrong, any tax planning decisions that you make based on your prediction are as likely to be harmful as helpful.

And if you do somehow manage to get the details right?

Well, there’s still the issue of timing.

You might precisely predict what this new provision in our tax code looks like — but be off by ten years as to when the legislation gets passed. And if that is the case, then you’re again in a situation where any tax planning decisions that you make based on your prediction are as likely to be harmful as helpful.

And even if you are right as to the details of how the new provision works and you are right as to the timing, there’s yet another problem: tax legislation never changes just one thing. Most pieces of tax legislation are hundreds of pages long.

Even if you accurately predict the details of the provision in question and when it will be implemented, some other change made by the same legislation could completely mess up the math in your analysis. And once again you’re left in a situation where any tax planning decisions that you make based on your prediction are as likely to be harmful as helpful.

A vague sort of prediction that “marginal tax rates for people with high incomes might be higher later than they are now” is pretty reasonable. But trying to guess at the specifics of any particular change — and then make specific tax planning decisions accordingly — is just not worth the time and effort.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

Marginal Tax Rate: Not (Necessarily) The Same As Your Tax Bracket

A reader writes in, asking:

“I wonder if you can write about the ‘marginal tax rate is not necessarily the same thing as your tax bracket’ concept for people who are still working. My spouse and I got caught in this situation for the first time in the tax year 2020 because we will be subjected to the ‘Investment income tax’. We will be addressing this by changing part of our Roth 403b contribution to regular 403b contribution for 2021 and beyond (i.e. to keep our MAGI as a married couple to < $250,000).”

As we’ve discussed many times in prior articles, your marginal tax rate is often higher than just your tax bracket. Most often, I’m discussing that concept in the context of retirees, due to the way Social Security benefits are taxed and the way Medicare premiums are determined. But it can apply to people in their working years as well.

Things that can cause such an effect for people still working would include:

  • The 3.8% net investment income tax, as the reader above noted.
  • Any credit or deduction that phases out based on income level.
  • The way in which long-term capital gains and qualified dividends are taxed. (Other income can push LTCGs/QDs into a different tax treatment.)

Effects of Phase-Outs

As stated above, any deduction or credit that phases out based on your income can cause your marginal tax rate to be something other than just your tax bracket.

A common example would be the American Opportunity Credit, for people paying higher education expenses for somebody in their first 4 years of higher education. For a single person it phases out from $80,000-$90,000 of MAGI, which means that across that $10,000 window of income a $2,500 credit disappears — meaning the marginal tax rate is whatever it would otherwise be, plus 25%! And the credit is per student. For a single person who has, for example, a freshman and a junior in college, their marginal tax rate across that range of income would be whatever it would otherwise be, plus 50%!

For a married couple filing jointly, the phaseout range is from $160,000-$180,000, which means that the increase in marginal tax rate is only half as severe (i.e., an additional 12.5% per eligible student), but it applies across a range of income that is twice as large.

Also of note: beginning in 2021, the Lifetime Learning Credit has the same phaseout range.

Another common example is the premium tax credit for anybody buying insurance on the exchange (which is relevant for self-employed people, people whose employers don’t provide health insurance, and pre-Medicare retirees). The amount of the credit steadily decreases as your “household income” approaches 400% of the federal poverty level, which means that your marginal tax rate is, again, higher than just your tax bracket.

And when your household income passes 400% of the FPL, the premium tax credit disappears entirely, which makes the marginal tax rate extremely high for the $1 of income that pushes you across the threshold. (Important exception: for 2021 and 2022 specifically, the premium tax credit will be allowed to people with income above 400% of the federal poverty level due to American Rescue Plan Act of 2021, passed just last week.)

The student loan interest deduction phases out from $70,000-$85,000 of MAGI ($140,000-$170,000 if married filing jointly). That’s limited to $2,500, and it’s a deduction rather than a credit. And the window of income is broader. So, all of those effects combined means that the effect of such is not so dramatic, but it’s still one more thing causing marginal tax rate to be greater than the applicable tax bracket.

The list goes on and on — child tax credit, child and dependent care credit, earned income credit, retirement savings contribution credit. If it phases out based on your income, it can cause your marginal tax rate to be higher than just your tax bracket.

Long-Term Capital Gains and Qualified Dividends

Long-term capital gains and qualified dividends are taxed at a lower rate than ordinary income. Rather than being taxed according to your tax bracket, they are taxed at the following rates:

  • 0% tax rate if they fall below $80,800 of taxable income if married filing jointly, $54,100 if head of household, or $40,400 if filing as single or married filing separately.
  • 15% tax rate if they fall above the 0% threshold but below $501,600 if married filing jointly, $473,750 if head of household, $445,850 if single, or $250,800 if married filing separately.
  • 20% tax rate if they fall above the 15% threshold.

Example: Bob is single. Excluding his qualified dividends and long-term capital gains, his taxable income for 2021 is $38,000. He also has $4,000 of long-term capital gains. His first $2,400 of long-term capital gains (i.e., those that fit under the $40,400 threshold) will be taxed at a 0% rate, and the remaining $1,600 will be taxed at a 15% rate.

But here’s where things get tricky. With total taxable income of $42,000, Bob is in the 22% tax bracket. But if his ordinary income increases by $1,000, his income tax for the year will increase by $270 (i.e., a 27% marginal tax rate).

That’s because the 12% bracket extends up to taxable income of $40,525. And, excluding LTCGs, Bob’s taxable income is below that threshold. However, his taxable income excluding LTCGs is now $39,000 rather than $38,000. So we have 12% regular income tax on this $1,000 of additional income (i.e., $120 of tax).

But there’s another effect going on as well. There is now only $1,400 of space for LTCGs before hitting the $40,400 threshold. That is, this $1,000 of additional ordinary income is also causing another $1,000 of his long-term capital gains to be above the $40,400 threshold and therefore taxed at a 15% rate, so that causes another $150 of income tax.

So we have $120 + $150 = $270 total dollars of tax being caused by this $1,000 of income. A 27% marginal tax rate, despite a taxable income that is in the 22% bracket.

In Summary

Even for me — having written about this concept for years — these effects are not usually intuitive.

This is why I often discourage people from trying to do tax projections using nothing but Excel. It’s hard to account for all of the different thresholds. (This is especially true when we remember that the thresholds in question apply to different income calculations! Some look at taxable income, the premium tax credit looks at “household income,” and many look at modified adjusted gross income — which itself has several different definitions.) Much better, in my opinion, to use actual tax software that automatically accounts for everything.

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"

When Does a Roth Conversion Make Sense?

After the recent article about maximizing after-tax dollars (as opposed to minimizing taxes), several people wrote in to ask about Roth conversions — specifically, when does it make sense to do one?

The answer depends significantly on how you are going to pay the tax on the conversion: would you be using money from the traditional IRA, or would you be using money from a taxable account? For example, compare the two following scenarios, each of which involves a conversion at a 20% anticipated marginal tax rate.

Example #1: Charlie takes $50,000 out of his traditional IRA and moves $40,000 of it to a Roth IRA. The remaining $10,000 will be used to pay the tax on the conversion.

Example #2: Kiara takes $50,000 out of her traditional IRA and moves all $50,000 of it to a Roth IRA. She will use $10,000 from her regular checking account to pay the tax on the conversion.

Using Retirement Account Dollars to Pay the Tax

For cases in which dollars from the traditional IRA would be used to pay the tax on the conversion, it’s purely a question of marginal tax rate.* That is, each year, for each dollar in the traditional IRA, you would ask what your current marginal tax rate would be if you converted that dollar right now, and you compare that to what the marginal tax rate would be for that dollar if you did not convert (i.e., what tax rate would be paid whenever the money comes out of the account later).

If the current marginal tax rate is lower, then a conversion is advantageous. If the current marginal tax rate is higher, then a conversion would be disadvantageous.

To back up a step, a traditional IRAs can be roughly thought of as a Roth IRA, of which the government owns a portion. For example, if you expect a 25% marginal tax rate in retirement, a traditional IRA is much like a Roth IRA, of which you own 75% and the government owns 25%.

When you do a Roth conversion, you’re essentially “buying out” the government’s share of the converted dollars. If your current marginal tax rate is lower than the marginal tax rate you expect later on (i.e., whenever you would be distributing the dollars in question), then you’re buying out the government’s share at a bargain price (e.g., paying 15% now when you would otherwise be paying 25% later). If your current marginal tax rate is higher than the marginal tax rate you expect later on, then you’re buying out the government’s share at a high price (e.g., paying 30% now when you could instead pay 25% later).

Using Taxable Dollars to Pay the Tax

If, however, dollars from taxable accounts (e.g., just a regular checking or savings account) would be used to pay the tax on the conversion, then the analysis changes somewhat. You’re using non-retirement-account dollars to buy the government’s share of your IRA. And that, in itself, provides some value.

The key point here is that taxable accounts grow at a slower rate than IRAs, because you have to pay tax on interest/dividends each year. So now there are two things going on with the conversion:

  1. As in the prior case, you’re buying the government’s share of the IRA now, rather than later (i.e., paying at your marginal tax rate now rather than your future marginal tax rate), which could be advantageous or disadvantageous, and
  2. You are using taxable account dollars to buy IRA dollars, which is advantageous.

In the analysis, marginal tax rates are still super important (because of point #1).

But now we’re also concerned with time frame and rates of return (because of point #2). Again, dollars in an IRA grow at a faster rate than dollars in a taxable account, because you don’t have to pay tax each year on the interest/dividends. The greater the length of time that these dollars will remain in the IRA, the more impactful that fact becomes. That is, the money will be compounding at a faster rate in the IRA, but if that’s only happening for a few years, that’s not so important. If it will be happening for a few decades, it’s super important. And expected rate of return matters as well. If the expected rate of return (before considering taxes) isn’t that high to begin with, then the tax cost within a taxable account isn’t so great. Conversely if the expected rate of return is very high, then the cost of having the money in a taxable account becomes much more significant.

The result of all of this is that, if you’re using taxable dollars to pay the tax, then, depending on time frame and expected rate of return, it might even be advantageous to do a Roth conversion if the current marginal tax rate is higher than you would expect it to be in the future.

*I know I harp on this over and over, but it’s critical to understand that your marginal tax rate is not necessarily the same thing as your tax bracket. In many cases, especially in retirement, your marginal tax rate will be greater than your tax bracket because additional income not only causes the normal amount of income tax, it also causes something else undesirable to happen (e.g., it causes a particular credit to phase out, it causes more of your Social Security to become taxable, or it causes your Medicare premiums to increase).

For More Information, See My Related Book:

Book3Cover

Taxes Made Simple: Income Taxes Explained in 100 Pages or Less

Topics Covered in the Book:
  • The difference between deductions and credits,
  • Itemized deductions vs. the standard deduction,
  • Several money-saving deductions and credits and how to make sure you qualify for them,
  • Click here to see the full list.

A testimonial from a reader on Amazon:

"Very easy to read and is a perfect introduction for learning how to do your own taxes. Mike Piper does an excellent job of demystifying complex tax sections and he presents them in an enjoyable and easy to understand way. Highly recommended!"
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