How to calculate a tax braket when conversion from an IRA to a Roth happens?

Question

Hi guys,

So I have a solo 401K (One of my LLC's created a solo 401K)...

And I just lost my job.

So, since I am jobless, my tax bracket is probably close to zero, since I have no income from my W2 job and my rentals are mainly loosing money.

So I thought it would be a good idea to convert my solo 401K into a Roth, since I will pay no taxes on that conversion, since my tax bracket is close to  zero now.

Does the IRS calculate a tax bracket based on the income from the current year when the conversion happens? Or the use the income from the last year even though I am jobless now and  doing a conversion this year?

Also, I have another job offer, and I am thinking of taking it. If I do a conversion from a solo 401K  to a Roth now, while I am jobless, but then start a new job (I would be working then 11 months out of 12 months in 2025...Since I am jobless for only a couple of weeks and will be starting a new job soon)... will the IRS still consider me being in a tax bracket based off on my income for 2025? Or will they allow me to do a conversion at a zero tax bracket, since I did that conversion from the solo 401K to a Roth while I had no job?

Also, does the IRS calculate the tax bracket based on the income from my W2 job, all LLC's ?

Or does the IRS calculate tax bracket only the LLC associated with that solo 401K?

Thank you so much! :-)

Michael Plaks · Answer

@Mary Jay

Nobody can give you a number that you're hoping for - like "you will owe 7.5%" or "you will owe 17%." Let me quickly explain why.

1. Tax bracket does not tell you how much tax you pay overall. It only tells you how much tax you pay on the next dollar that you add to your current income.

Example: Say you are single and have a $100k salary. You're in a 22% tax bracket. What it means is that if you receive a $1k bonus, you will pay an extra $220 in taxes. But what is the total tax you pay on your $100k salary? It's not $22k, it is about $14k. So knowing your bracket is not super helpful.

2. Your taxes are paid on the combined everything for the calendar year. If you get a new job or win a lottery in November - your taxes will change accordingly.

3. Planning for the best time to convert is tricky and involves multiple factors. Not something that you can optimize on your own, without a tax professional. But you have the right general idea: it is indeed better to do it in the year when your income is lower than usual.

Brett Synicky · Answer

@Julius Vincent is a CPA who can help you with this.

@Mary Jay there are some nasty jumps. I'd aim for staying under the next bracket. Consult a CPA.

10%

12%

22%

24%

32%

35%

37%

Aaron Zimmerman · Answer

@Mary Jay exactly. There'd still be some income tax unless you find ways to offset that income. With a Roth conversion, you're saying to the government, tax me now, but now I won't be paying any taxes later

Aaron Zimmerman · Answer

It depends How much you have to convert over to a Roth and how much you expect your income to be. I would take a look at the tax brackets published by the irs each year to see.

Rohullah Sharifi · Answer

• The IRS taxes a Roth conversion as ordinary income in the year of the conversion.
• Your “tax bracket” for the conversion is not based on last year’s income. It is calculated based on your total taxable income in the same calendar year the conversion occurs.

The IRS taxes a Roth conversion as ordinary income in the year of the conversion.

Your “tax bracket” for the conversion is not based on last year’s income. It is calculated based on your total taxable income in the same calendar year the conversion occurs.

So if you convert in 2025, the IRS will look at all your 2025 income (W-2, self-employment/LLC income, rental income, interest/dividends, etc.) to determine your tax bracket and how much tax you owe on the conversion.

Bottom line:

• The IRS uses your current tax year’s total taxable income (2025, in your case) to determine the tax on a Roth conversion.
• Your unemployment at the time of conversion doesn’t matter—the entire year’s W-2 + business + rental income is included.
• The Solo 401(k) conversion is taxed against your total taxable income, not just the income of the LLC that created it.

The IRS uses your current tax year’s total taxable income (2025, in your case) to determine the tax on a Roth conversion.

Your unemployment at the time of conversion doesn’t matter—the entire year’s W-2 + business + rental income is included.

The Solo 401(k) conversion is taxed against your total taxable income, not just the income of the LLC that created it.

Jason Malabute · Answer

When you do a Roth conversion, the tax is figured using your personal income tax bracket for the year. It’s not based on the LLC’s bracket. All of your taxable income for that calendar year gets counted in the calculation, not just what you’re earning when you actually make the conversion.

How to calculate a tax braket when conversion from an IRA to a Roth happens?

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