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    Economy faces ‘some potential storms’ in 2025, Moody’s chief economist says

    The economy is doing “exceptionally well” as President-elect Donald Trump gets ready to enter the White House, said Moody’s Analytics chief economist Mark Zandi.
    But, Zandi added, “I do think there are some potential storms coming.”

    Mark Zandi, chief economist at Moody’s Analytics, testifies during a Senate Budget Committee hearing in the Dirksen Building in Washington, D.C., May 4, 2023.
    Tom Williams | Cq-roll Call, Inc. | Getty Images

    The economy is doing “exceptionally well” as President-elect Donald Trump gets ready to enter the White House, according to Moody’s Analytics chief economist Mark Zandi.
    Zandi, speaking at the Consumer Federation of America’s financial services conference on Wednesday, noted some of the glowing areas: Gross domestic product has been growing at around 3%, productivity and business formation rates are strong, and the stock market is up.

    “The economy can weather a lot of storms,” Zandi said.
    But, he added, “I do think there are some potential storms coming” next year under the new administration.

    Immigration policy, tariffs could affect economy

    Zandi expects Trump to act quickly on deporting immigrants and implementing tariffs, two moves that could have profound impacts on the U.S. economy.
    “I believe President Trump is going to do what he said he’ll do on the campaign trail,” Zandi said. “He’s going to be quite aggressive in pursuing the policies.”
    Immigration has played a big role in the economy’s strength, Zandi said.

    Others agree. “Recent immigrants have flowed disproportionately into the parts of the labor force that were particularly tight in 2022, contributing to labor supply in places where it was most badly needed,” Goldman Sachs analysts wrote in a note to clients in May.

    Meanwhile, tariffs create “a whole lot of uncertainty for businesses,” Zandi said. As a result, they could lead to job losses.
    Tariffs are also likely to affect people’s spending, he said.
    “It’s going to mean higher costs for consumers — it’s a tax increase,” Zandi said.
    Trump’s universal tariff proposals could cause prices to skyrocket on clothing, toys, furniture, household appliances, footwear and travel goods, according to a recent report from the National Retail Federation.
    Trump has said he would impose a 10% or 20% tariff on all imports across the board.
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    The NRF found that the impact of the tariffs would be “dramatic” double-digit percentage price spikes in nearly all six retail categories that the trade group examined.
    For example, the cost of clothing could rise between 12.5% and 20.6%, the analysis found. That means an $80 pair of men’s jeans would instead cost between $90 and $96.
    These new prices would squeeze consumer budgets, especially for low-income households, which spend three times as much of their after-tax income on apparel as high-income households spend, according to the NRF report, which cited Bureau of Labor Statistics data. More

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    IRS: There’s a key deadline approaching for required minimum distributions

    If you’re age 73 or older and retired, the annual deadline for required minimum distributions is approaching, according to the IRS.
    Generally, you must start RMDs by age 73. The first due date is April 1 after turning 73, and you must take future RMDs by Dec. 31.
    Skipping an RMD or not taking the full amount by the deadline will trigger a 25% penalty.

    Eclipse_images | E+ | Getty Images

    Large balances can cause a ‘tax nightmare’

    For some investors, bigger pretax accounts can be “a tax nightmare in retirement” when it’s time for RMDs, certified financial planner Derek Williams with Veratis Advisors in Cary, North Carolina previously told CNBC.
    Pretax RMDs boost your adjusted gross income, which can cause higher Medicare Part B and Part D premiums, among other tax consequences, he said.

    Your RMD is based on your pre-tax retirement balance as of Dec. 31 from the previous year. That means your 2024 RMD uses year-end figures from 2023.

    For 2024, the calculation divides your 2023 pretax balance by an IRS life expectancy factor.  
    If you skip an RMD or don’t take the full amount by the deadline, you can expect a 25% excise tax on the amount not withdrawn. The penalty falls to 10% if the RMD is “timely corrected within two years,” according to the IRS.
    The agency could waive the RMD penalty if the shortfall was due to “reasonable error” and you take “reasonable steps” to correct it. But you must file Form 5329 with a letter of explanation.

    Reduce taxes with charitable transfer

    If you need to take an RMD and also want to plan a year-end gift to charity, it’s possible to accomplish both with a qualified charitable distribution, or QCD, experts say.
    QCDs are transfers from an individual retirement account to a non-profit organization, which “counts against your RMD but doesn’t get added to your taxable income,” according to CFP Michael Lofley with HBKS Wealth Advisors in Stuart, Florida.
    Plus, you can use the strategy to score a tax break for charitable gifts, even if you don’t itemize deductions on your tax return, said Lofley, who is also a certified public accountant.
    There’s been a higher standard deduction since 2018, and only about 10% of taxpayers itemized tax breaks on 2021 returns, according to the most recent IRS filing data. More

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    ‘Unverifiable income’ can limit your mortgage options — here’s how to get around it

    Mortgage lenders want to know if you’re financially capable of paying back the loan and will ask for documents like tax returns, your W-2 and paystubs.
    Any money that you earn that isn’t tied to a form like a W-2 can make it difficult for a lender to verify your annual income, said Jacob Channel, an economist at LendingTree.
    Here’s what to know.

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    A number of factors can get your mortgage application denied. So-called “unverifiable income” is one of them. 
    Mortgage lenders want to know if you’re financially capable of paying back the loan. One way they’ll do that is by requesting documents like your federal income tax returns, W-2 and current pay stubs, according to Freddie Mac. 

    Any money that you earn that isn’t tied to a form like a W-2 or 1099 can make it difficult for a lender to verify your annual income, said Jacob Channel, an economist at LendingTree. 
    For instance, income you earn from a rental property you own may be tricky for a mortgage lender to verify, he said. The same can be said for things like gifted cash for a down payment or side hustle earnings.
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    It’s a more common problem than you might expect.
    About 12% of recent prospective homebuyers were denied a mortgage because a lender could not verify their income, according to the 2024 Profile of Homebuyers and Sellers report by the National Association of Realtors.

    The NAR polled 5,390 buyers who purchased a primary residence between July 2023 and June 2024.
    In such instances where you have different forms of income or are self-employed, it may be worth looking into non-conventional mortgage options, said Melissa Cohn, regional vice president of William Raveis Mortgage in New York. 
    “The good news is that there are programs available for people who don’t qualify conventionally,” she said. “But it is a little bit more expensive.”
    For example, you may have to sustain higher-than-usual mortgage rates.
    Here’s what you need to know.

    How a non-qualified mortgage works

    Some homebuyers who need more flexibility when applying for mortgages could benefit from a non-qualified mortgage, or a Non-QM loan, Cohn said.
    Such loans verify income differently. If you’re self-employed, a non-QM lender can use bank statements to calculate the income that may qualify for the loan instead of a pay stub, tax return or W-2, she said.
    “They might also look at what kind of assets you have,” Channel said.
    Other banks and lenders will accept the most recent 1099 and do not rely upon tax returns if you’re self-employed in a business you own, Cohn said.

    But, be careful. While it may be easier to qualify through income, such loans can be more costly, said Brian Nevins, a sales manager at Bay Equity, a Redfin-owned mortgage lender. 
    “You may have to jump through more hoops in order to get those mortgages,” Channel said.
    For example, you may need a higher credit score or be required to provide a bigger down payment.
    The loan may also come with a rate higher than that of a conventional loan. That’s because non-QM loans do not follow the criteria of qualified mortgages set by the Consumer Financial Protection Bureau.
    In the first half of 2024, the average initial 30-year interest rate for non-QM loans was 6.7%, compared to 6.4% for a qualified loan, according to data from CoreLogic.

    A ‘stepping stone’ for unverified income

    Non-QM loans are often better suited for those who invest in real estate or wealthy individuals with a number of assets, Channel said.
    “In those instances, you can kind of substitute assets for active income,” he said.

    Even if you suspect your income will be hard to verify, it’s smart to start with traditional loan options.
    If your application for a conventional mortgage is rejected, reach out to your lender and ask why it was denied, he explained.
    “Maybe you submitted the wrong year’s W-2 form. Mistakes do happen” Channel said.
    But if you’re going through a transition from being employed to self-employed, or starting a new job with a new company, a non-QM loan could be a “stepping stone,” Cohn said.
    Once you start to show sufficient income on your returns, you can always apply for a refinance in the future, experts say.
    “Just because you take out a non-QM loan doesn’t mean you’re stuck,” Cohn said. More

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    College closures expected to spike amid ‘unprecedented fiscal challenges,’ Fed research finds

    With college enrollment falling, a growing number of institutions are in financial jeopardy.
    As many as 80 colleges and universities may close over the next five years, according to new research by the Federal Reserve Bank of Philadelphia.

    Andersen Ross Photography Inc | Digitalvision | Getty Images

    Most people believe in the value of college and, for the most part, institutions of higher education have been able to weather significant financial challenges throughout history.  
    But now, the number of colleges set to close in the next five years is expected to spike, a new study found.

    Higher education, as a whole, is “facing serious financial headwinds, both due to long-term trends and to the post-pandemic recovery,” according to a working paper by the Federal Reserve Bank of Philadelphia.
    “Colleges and universities are facing unprecedented fiscal challenges in today’s economic climate,” the Fed researchers wrote.
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    At least 20 colleges closed in 2024, and another nine schools announced they will close in 2025, according to the latest tally by Implan, an economic software and analysis company.
    In the worst-case scenario, as many as 80 additional colleges would shut from 2025 to 2029, the Fed analysis found.

    College enrollment is down

    Not only are fewer high schoolers enrolling in college immediately after graduation but the overall population of college-age students is also shrinking, a trend experts refer to as the “enrollment cliff.”
    “One key challenge is declines in enrollment, as the number of students enrolled in degree-granting colleges and universities fell by 15% from 2010 to 2021,” the Fed researchers said.
    These days, only about 62% of high school seniors in the U.S. immediately go on to college, down from 68% in 2010, government data shows. Those that opt out are often low-income students, who increasingly feel priced out of a postsecondary education.

    As the sticker price at some private colleges nears six figures a year, students have increasingly sought alternatives to a four-year degree, such as joining the workforce or completing certificate programs or apprenticeships.
    Ballooning costs have played a large role in a changing mindset, according to Candi Clouse, a vice president at Implan.
    “They don’t want to have the student loan debt,” she said.
    Experts had also warned that problems with the rollout of last year’s Free Application for Federal Student Aid form would result in fewer students applying for financial aid, which could contribute to declining enrollment.

    A wave of colleges in financial crisis

    Growing competition for fewer students, higher operating costs and state-imposed restrictions on tuition increases for public colleges have limited institutions’ ability to increase tuition revenue, the Fed report found.
    That has left some colleges and universities in a severe financial distress, according Implan’s Clouse.
    “We see the decline in national birthrates, rising cost of education and rising cost of operations,” she said. “We see colleges being right-sized.”

    At a local level, these closures can be devastating, Clouse added.
    “When a school closes, many people are left scrambling,” she said.
    On average, each college or university that shuts down affects 265 jobs and $14 million in labor income, according to Implan’s calculations.
    “It can be huge for these small cities when they are reliant on an institution that has likely been there for generations,” Clouse said.
    During the pandemic, federal funding provided a temporary stopgap for cash-strapped colleges. In the years since, there has been a wave of schools declaring “financial exigency,” according to the Fed.
    To stay afloat, some colleges have cut faculty and slashed areas of academic study, including programs in sociology, creative writing, music and religion.
    Not all schools are struggling, however. In fact, the country’s most elite institutions are faring better than ever.

    College applications are up

    Overall, total application volume through Nov. 1 rose 10% for the 2024-25 application season, compared to a year earlier, according to the latest data from the Common Application, although a growing share of applicants only applied to public schools.
    Private college is becoming a path for only those with the means to pay for it, other reports show. 

    Children from families in the top 1% are more than twice as likely to attend highly selective private colleges, according to the National Bureau of Economic Research, which continues to “amplify the persistence of privilege across generations,” the report found.
    Meanwhile costs are still rising, tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier. At four-year, in-state public colleges, it was $24,920, up from $24,080, according to the College Board, which tracks trends in college pricing and student aid.
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    Economists have ‘really had it wrong’ about recession, market strategist says

    David Zervos, Jefferies’ chief market strategist, and Barbara Doran, CEO of BD8 Capital Partners, weigh in on the likelihood of more rate cuts to come at CNBC’s Financial Advisor Summit.
    If the first Trump administration is a guide, inflation is likely to be low. “Take the tape, rewind it, put it back to 2019 and let’s go from there,” Zervos said.

    David Zervos, Jefferies
    Scott Mlyn | CNBC

    The Federal Reserve is expected to cut interest rates by another quarter point at the conclusion of its two-day meeting next week.
    “Two years ago … 3 out of 4 economists were saying we’re going into a recession,” David Zervos, chief market strategist for Jefferies LLC, said during CNBC’s Financial Advisor Summit on Tuesday. “They’ve really had it wrong.”

    The economy is still growing and inflation has come down, he said.
    The Fed’s preferred measure of inflation stood at 2.3% in October, or 2.8% when excluding food and energy prices, according to the latest reading. Meanwhile, the fourth quarter is on track to post a 3.3% annualized growth rate for gross domestic product, the Atlanta Fed found.
    “I think the market is spending way too much time focused on the inflationary consequences of either immigration or trade policies,” Zervos said.

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    Last week, Fed Chair Jerome Powell praised the U.S. economy and said it provided cushion for policymakers to move slowly as they recalibrate policy.
    By most indicators, 2025 is going to continue in a positive direction, Barbara Doran, CEO of BD8 Capital Partners, said during the CNBC Financial Advisor Summit.

    “Economic growth is going to be healthy next year,” Doran said. “The prognosis is good.”

    Meanwhile, there is still the issue of President-elect Donald Trump’s fiscal policy when he begins his second term.
    On one hand, “we’ve got a lot of deregulation coming,” Zervos said, which he called a “huge disinflationary tailwind.”  
    “Take the tape, rewind it, put it back to 2019 and let’s go from there,” Zervos said.
    In part because of such policies, during the last Trump administration “we saw very little inflation,” he said. “We never really bounced out of that 2% range … so I am really optimistic on the inflation side.”
    However, questions remain on Trump’s plans to issue punitive tariffs and whether that could stoke inflation once again. In November, Goldman’s chief economist, Jan Hatzius, said in a note that the proposed tariffs would boost consumer prices by nearly 1%.
    “It’s still a big wildcard that we have to see,” Doran said. “It would be inflationary ultimately, but it would hurt the lowest income consumer, who is already hurting.”
    If inflation does creep up as a result, that may delay more rate cuts after December’s meeting, she added. Other experts also expect the Fed to slow down its pace of rate cuts in 2025. More

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    ‘Friendlier climate toward new technology’ expected under Trump, venture capitalist says. What that means for AI, crypto

    Continued interest rate cuts and more friendly regulation are contributing to a positive outlook heading into 2025, venture capitalist Bradley Tusk said Tuesday at CNBC’s Financial Advisor Summit.
    The friendlier environment should help new technologies, he said, with two areas — generative AI and cryptocurrency — poised for new developments in the new year.

    An exterior view of the New York Stock Exchange on September 18, 2024 in New York City. 
    Stephanie Keith | Getty Images

    As the calendar turns to a New Year and a new presidential administration, many investors are wondering where they can earn above-average returns.
    The current outlook is positive, with continued interest rate cuts and incoming regulators in President-elect Donald Trump’s administration who are expected to be more friendly to markets, business and technology, venture capitalist Bradley Tusk, co-founder and managing partner of Tusk Venture Partners, said Tuesday at CNBC’s Financial Advisor Summit.

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    “We’ll see a friendlier climate toward new technology in fintech, in health-care tech, in energy,” Tusk said.
    Two areas — generative AI and cryptocurrency — may be poised for new developments next year, he said.

    AI still a world of ‘unfulfilled potential’

    Amid the stock runup of 2024, many investment professionals have been bullish on companies that have adopted generative artificial intelligence.
    But 2025 could mark the start of a turning point, Tusk said.
    “AI is still a world right now of unfulfilled potential,” he said.

    Companies that are heavily invested in this area will likely keep investing. Despite the exciting talk of the technology’s use for everything from creating new drugs to teaching children or discovering minerals, it still has to show the economics work, too, Tusk said.
    “At some point it has to go from a cool search engine and some really exciting potential ideas to actual revenue or actual saving,” Tusk said.
    When it comes to regulation of generative AI, “we really could use some real leadership on the federal level,” Tusk said.

    Crypto may be ‘traded more freely’

    Current regulators — specifically Securities and Exchange Commission Chair Gary Gensler — have not looked favorably on cryptocurrencies and therefore not provided meaningful guidance, Tusk said.
    The new administration may usher in a different tone toward cryptocurrencies, he said.
    “I do think that whoever we’re going to see at the SEC, CFTC [Commodity Futures Trading Commission], Treasury, all the various agencies are going to be a lot friendlier to crypto and just a lot more reasonable,” Tusk said.

    Congress may also help, he said. In May, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act, also known as FIT21. Its goal is to help digital asset innovation to grow with consumer protection and regulatory certainty.
    The bill has a “pretty good chance of passing the Senate now,” Tusk said, especially with 53 Republican senators.
    “I think that will further allow for crypto to be traded more freely and for more innovation in this space,” Tusk said of the prospective legislation. More

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    This is the best time of year to buy a used car — wait for Memorial Day, and you’ll miss it

    New Year’s Eve through New Year’s Day is the best time of year to buy a used car, because deals are up 47.9%, according to a new analysis by iSeeCars.
    “It’s just easier for car dealers to sell in warmer months and harder to sell in colder months,” said Karl Brauer, executive analyst at iSeeCars.

    Ljubaphoto | E+ | Getty Images

    If you’re in the market for a used car, the best time of the year to buy one is fast approaching.
    New Year’s Eve and New Year’s Day are the best days of the year to buy a used car, because there are 47.9% more deals than average, according to a new analysis by iSeeCars, a search engine for used cars. To determine the best and worst times of the year to buy a used car, the site examined 39 million used car sales from 2023 and 2024.

    Those dates won out because “you have two forces coming together,” said Karl Brauer, executive analyst at iSeeCars.
    Not only are dealers trying to meet their sales goals by the end of the year, but they are also trying to boost transactions as the winter season kicks in. 
    “It’s just easier for car dealers to sell in warmer months and harder to sell in colder months,” Brauer said.
    Dealership foot traffic declines when temperatures drop, he said. “They have to counter that by offering better deals.” 
    To that point, the months with the most deals available for used cars are January, December, February, November and March, iSeeCars found.

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    Finding an affordable used car became a challenge in recent years after demand spiked during the pandemic. 
    While prices are up 31.4% from $20,683 in the third quarter of 2019, according to Edmunds data, the typical asking price is normalizing as more sellers tack on incentives. 
    The growing inventory and the proliferation of incentives among new cars is “trickling down” to the used vehicle market, said Ivan Drury, director of Insights at Edmunds.
    In the third quarter of 2024, used vehicle prices dropped to an average $27,177, down 6.2% from $28,960 a year prior, the car shopping site found.
    Here’s what you need to know if you’re in the market for a used car, according to experts. 

    The best and worst times to buy a used car

    Both dealers and car companies are trying to hit sales goals toward the end of December, said Brauer. 
    In order to meet those target figures, sellers will “put out extra good deals right at the end of the year on New Year’s Eve,” he said.
    But if you can’t fit in a car purchase during the next three weeks, among other year-end tasks and holiday celebrations, mark this date on your calendar: Martin Luther King Jr. Day. This holiday, which falls on Jan. 20 in 2025, is the second-best time of year to buy a used car, with 43.3% more deals than usual, according to iSeeCars. 

    Market conditions begin to favor car sellers as the temperature outside heats up — so much so that there are fewer deals available even on key annual holidays.
    Mother’s Day sees 27.4% fewer deals than average, followed by Memorial Day at 28%; Juneteenth, 30%, and Fourth of July, 31.1%, per iSeeCars. Father’s Day is the worst day to buy a used car, with 33.1% fewer deals than average.

    ‘Now there are deals out there’

    Unlike a year ago, “now there are deals out there” for used cars, from low interest rate offers on financing to really low sticker prices, said Brauer. 
    If you are in the market for a used car, there are three things you need to cross off your to-do list before making a purchase, experts say.
    1. Research for sales, discounts and offers
    While there are deals out there, they are not across the board, said Drury.
    “When it comes to looking for deals, it’s going to vary wildly between make, model and the segment,” he said. 
    Shop around at different car sellers and dealers to get a better sense of prices for vehicles in your area. That research can help you negotiate in the transaction, especially at a time when the seller is focused on meeting year-end sales goals.
    “You want to make them have to work for your business by potentially beating other dealers,” Brauer said.
    2. Ask for the car’s VIN and request an inspection
    The vehicle identification number, or VIN, will tell you the car’s history, such as how many owners the vehicle has had over time, its maintenance record and whether it’s been in accidents or had flood damage. 

    “You should always get the vehicle history report on a car before you ever buy one,” said Brauer.
    Additionally, ask for a pre-purchase inspection, or PPI, from an independent mechanic, he said.
    “If the seller won’t let you, that should be pretty telling right there,” he said.
    3. Seek financing options
    Try to get preapproved for different car loans and financing options from your bank and other lending institutions before visiting dealerships, experts say. This will help you get a better sense of what terms you qualify for. 
    Doing so will put you in a position where a dealer may be incentivized to either match the offer or give you a better deal. If not, you can go with the financing from your bank or another lender. More

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    That Roth IRA conversion comes with a tax bill — here’s how to pay for it

    FA Playbook

    If you’re eyeing a year-end Roth individual retirement account conversion, you’ll need to plan for the upfront tax bill.
    When you complete a Roth conversion, you’ll owe regular income taxes on the converted balance, based on your current-year taxable income. 
    Typically, it’s better to cover taxes with funds outside the conversion, experts say.

    Srdjanpav | E+ | Getty Images

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    When a Roth conversion is completed, you’ll owe regular income taxes on the converted balance, based on your current-year taxable income. 
    Ideally, you’re “managing the tax bracket,” said CFP Jim Guarino, managing director at Baker Newman Noyes in Woburn, Massachusetts. He is also a certified public accountant. 
    That could involve partial conversions by incurring only enough income to stay within a specific tier. For 2024, there’s a small increase from 10% to 12% or 22% to 24%, but a larger jump from 24% to 32%, Guarino explained.

    Ideally, you will want a conversion that keeps you comfortably within a tax bracket, meaning you can afford the upfront bill, Guarino said.

    Of course, Roth conversion strategies depend on clients’ long-term goals, including estate planning, experts say. 

    How to pay for taxes on your Roth conversion

    Typically, it’s better to cover the upfront taxes with other assets, rather than using part of the converted balance to cover the bill, Berkemeyer said.
    The more funds you get into the Roth, the higher your starting balance for future compound growth to “get the maximum benefit out of the conversion,” he said.
    Cash from a savings account is one of the best options to pay for taxes, Berkemeyer said. However, you can also weigh selling assets from a brokerage account.

    Something to consider if you’re selling brokerage assets to pay Roth conversion taxes: If it’s a lower-income year, you could qualify for the 0% long-term capital gains bracket, assuming you’ve owned the investments for more than one year, he said.
    For 2024, you may qualify for the 0% capital gains rate with a taxable income of up to $47,025 if you’re a single filer or up to $94,050 for married couples filing jointly.
    However, you’d need to run a projection since the Roth conversion adds to your taxable income. More