Please be patient with my lengthy consideration here. I'm trying to import some of the strategies used by the FI/RE folks, which are largely stymied by US/PR differences.
First, I understand that IRA/401k distributions are considered taxable income in both US mainland and PR (at same time); and, also that Roth IRA distributions are still taxable income in PR (somewhat defeating its point); and, lastly, that neither 401k nor a US IRA can be rolled over to PR IRAs.
That said, I still have these accounts and I'm still looking for tax minimization strategies. I'm assuming I'll be a PR resident for 10-15 years under Act 60 [Act 20/22 replacement] and then move back or abroad. (I'm 40 now and want to assume I'll have little to no active income.)
My main question here is whether some limited capacity of the "Roth Conversion Ladder" can work -
specifically,
1. Will re-balancing funds inside a 401k or Roth IRA be taxed in PR? (some have claimed it's "passthrough", and a sale to rebalance doesn't get shielded, so it's taxed not just on on distributions).
2. Will Roth IRA contribution withdrawals still be untaxed by PR and US? (i.e., it's not a distribution)
3. And, while on an Act 20/22/60 decree, can a US-based 401k still be converted to a US-based Roth IRA? (which would be taxed at US income rates, and thus simultaneously taxed as Puerto Rican income at time of conversion)
Now, I understand that in the long run converting to a Roth IRA offers no benefit to Puerto Ricans (i.e., me), but AFAICT that is WRT gains that are realized during a distribution. However, a staple of mainland FIRE tactics is to escape the 10% early withdrawal penalty from 401k by converting it to a Roth IRA and waiting 5 years to withdraw it as a contribution. I.e., as I understand it, that conversion is treated as a contribution and as long as 5 years are met, its subsequent withdrawal has no taxes/penalties due (avoiding the 59.5 rule on gains/distributions). Is it still true in PR?
4. So, the crux of the matter here is -- on small conversions, shouldn't it still be possible to pay little or no tax to either US or PR for a Roth Conversion ladder? (e.g., 0% for 9,000 each year)
5. The next question would be if it's 20k converted, what's the total tax bill? I.e., the calculations get hard to follow
Thanks for any help! This is very tricky to navigate