Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 10-29-2013, 09:05 PM   #21
Thinks s/he gets paid by the post
walkinwood's Avatar
 
Join Date: Jul 2006
Location: Denver
Posts: 2,676
Oh boy! Forgot about the 0% cap gains bracket.

Here's my thinking - please flag if I've made a mistake.

Max long term cap gains are 15%. So, by taking an additional $1000 in LT Cap gains in the 0% CG tax bracket, you potentially save a max of $150

Here are the annual subsidies for different income levels for a family of 2 (From the Kaiser Foundation calculator): The third column shows how much subsidy you lose for every $1000 in AGI gain.
AGISubsidyDecrease
$28,000$7,483 
$29,000$7,343$140.00
$30,000$7,197$146.00
$31,000$7,045$152.00
$32,000$6,909$136.00
$33,000$6,770$139.00
$34,000$6,626$144.00
$35,000$6,477$149.00
$36,000$6,324$153.00
$37,000$6,166$158.00
$38,000$6,004$162.00
$39,000$5,840$164.00
$40,000$5,685$155.00
$41,000$5,525$160.00
$42,000$5,362$163.00
$43,000$5,195$167.00
$44,000$5,024$171.00
$45,000$4,850$174.00

So, depending on your family size & AGI, for every $1 increase, you could be losing more in subsidies than the max cap gains tax.

There probably are other tax related cliffs that come into play here, but that's beyond my ability to figure out.
__________________

__________________
walkinwood is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-29-2013, 10:15 PM   #22
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
Quote:
Originally Posted by pb4uski View Post
Not yet. As a result of some rebalancing that I did on Dec 12, 2012 I have a lot of gains that are currently short-term and all my taxable holdings will be long-term on Dec 13, 2013. It's a bit of a long story but to crystalize some gains at 0% last year I sold some Total Stock and simultaneously bought proportions of S&P 500, Mid-Cap Index and Small-Cap Index that together are the same as Total Stock. It was a way of getting around Vanguard's frequent trading restrictions while not missing a day of market performance. I didn't want to be out of the market a day and have it happen go up 1% that day.

Contributions to retirement accounts wouldn't have an effect since all my retirement account withdrawals will be ordinary income since the contributions were all pre-tax money or deductible contributions.
Thanks for the clarification. I'll be doing something similar because next year (last year before FIRE) I have some rather screwy financial movements I have to accomplish. After that, year 2016 will be all LTCG's for me.
__________________

__________________
Options is offline   Reply With Quote
Old 10-29-2013, 10:33 PM   #23
Recycles dryer sheets
 
Join Date: Jan 2005
Posts: 486
What's considered last minute for a Roth conversion? I'm assuming Dec.31 for the tax year?

Last year for me ended with a $5,000 special dividend in December. I know the special dividends were because of the potential change in the tax code and not typical, but they did come to mind, and could potentially throw a single person head first over a cliff forcing them to recharacterize a Roth conversion if done too early.
__________________
tinlizzy is offline   Reply With Quote
Old 10-30-2013, 02:44 PM   #24
Thinks s/he gets paid by the post
Live And Learn's Avatar
 
Join Date: Feb 2012
Location: Tampa Bay Area
Posts: 1,689
How do we know what RMD laws will look like when we're 70 ? My vote is to go for the 'known' and go for the subsidies until those laws change.
__________________
"For the time being no discipline brings joy, but seems grievous and painful; but afterwards it yields a peaceable fruit of righteousness to those who have been trained by it." ~
Hebrews 12:11

ER'd in June 2015 at age 52. Initial WR 3%. 50/40/10 (Equity/Bond/Short Term) AA.
Live And Learn is offline   Reply With Quote
Old 10-30-2013, 03:16 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Quote:
Originally Posted by tinlizzy View Post
What's considered last minute for a Roth conversion? I'm assuming Dec.31 for the tax year?

Last year for me ended with a $5,000 special dividend in December. I know the special dividends were because of the potential change in the tax code and not typical, but they did come to mind, and could potentially throw a single person head first over a cliff forcing them to recharacterize a Roth conversion if done too early.
Last minute is Dec. 31, but with the possibility to recharacterize until after Apr 15th the following year there is no need to Roth convert that late. You should most likely convert early (and as needed thereafter) and into multiple accounts. The goal is to convert the target shares at the lowest price of the year. Then when you do your taxes and determine exactly how much you can safely convert, select your most beneficial conversion accounts (worth much more than you converted at would be nice) that fit within that total conversion amount and recharacterize the rest. Just be sure to read the rules. You can recharacterize a portion of one Roth account, but with multiple accounts you will know exactly what you are getting and have your choice of which accounts to recharacterize. There have been one or two threads discussing Roth conversion strategies.
__________________
Animorph is offline   Reply With Quote
Old 10-31-2013, 10:30 AM   #26
Recycles dryer sheets
 
Join Date: Oct 2013
Location: SF Bay Area
Posts: 85
Quote:
Originally Posted by Animorph View Post
Last minute is Dec. 31, but with the possibility to recharacterize until after Apr 15th the following year there is no need to Roth convert that late. You should most likely convert early (and as needed thereafter) and into multiple accounts. The goal is to convert the target shares at the lowest price of the year. Then when you do your taxes and determine exactly how much you can safely convert, select your most beneficial conversion accounts (worth much more than you converted at would be nice) that fit within that total conversion amount and recharacterize the rest. Just be sure to read the rules. You can recharacterize a portion of one Roth account, but with multiple accounts you will know exactly what you are getting and have your choice of which accounts to recharacterize. There have been one or two threads discussing Roth conversion strategies.


Last minute for funding is technically Dec 31st. But If you are not able to do it all online you may want to give yourself at least 5 working days depending on the bank/brokerage. The account needs to opened and funded by Dec 31st. If you are planning to do it on the 11th hour, better do a dry run to make sure your brokerage allows this.

Recharacterizarion is allowed until the extension date -- which is +- Oct 15th.
That is a pretty long leash. You should wait as much as possible to recharacterize. If the investments have lost value it may make sense to do so. If they have appreciated a lot, It may be worth it to leave it in ROTH. This is one of the few hind-sight optimizations that are allowed in the tax code.

In years that I don't know the exact amount I would want to recharacterize, I would open/convert multiple ROTHS in amounts of $5K, $10K, 20K, $40K etc. and re-characterize the ones I want. That way, the calculations become simpler. Otherwise they will consider the gains/losses on the entire account and try to peel it back.
__________________
47 is offline   Reply With Quote
Old 10-31-2013, 10:36 AM   #27
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
I did a lot of work with this concept early in the year, figuring I might want to have more Roth assets to tap in order to keep our MAGI low in future years. The "problem" (not that it was a bad problem to have) is that the combination of severance and unemployment have put us well into the 25% bracket for 2013 and I don't see us above 15% for the foreseeable future even though I had a decent-paying j*b only three months out of the year.

Just the same, in our situation it's very important to stay below 300% of MAGI (there is a huge cliff for us there). It would almost be worth paying 25% on a Roth conversion now to make sure we can do that for many years. Not quite, IMO, but almost.
__________________

__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 03:54 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.