LTCG Harvesting

[Sandy & Shirley]

Our mortgage was paid off in 2023. My partner will switch from 70% Survivor benefits to 130% maximum personal benefits in 2026. We are currently 68.8% Roth converted, 52% myself and almost 90% partner.

Plan A is to complete our Roth conversions and to open a pair of standard brokerage account that will eventually be used for LTCG Harvesting.

Looking back about 15 years, I remember a few websites that offered individual stock future recommendations / predictions. They offered short term and long term estimates and listed how many of their analysts agreed and disagreed with each prediction.

We are not looking for stock that will double in value in the next six months. We are more interested in the stock symbols that will probably grow by 8 to 12 percent over the next 12 months and a majority of our analysts agree with that estimate.

Can anyone recommend a few URLs where this type of market analysis is provided?

 

[Al18]

Stock prices are too volatile over such a short time frame. I would stick with stock index funds. Even a stock index fund could drop 25% over the next 12 months. FYI the SP500 dropped about 20% by the end of October, 2023.

 

[Whisper66]

To illustrate Al18's comment about stock volatility, see Table B1 of the following link... https://irp.cdn-website.com/6b78c19...Fine Tuning Tables (50-50) - 2023 Returns.pdf If you look at the history of the S&P 500 (right most column), it has dropped as much as 43.3% in a 12 month period. Individual stocks can be even more volatile. My rule of thumb is if I only invest assets in equities that I don't need within 5 yrs. Shorter investments are bonds, CD or other low risk investments. But everyone has their own risk tolerance to drive their own decisions. Good luck with whatever you decide.

 

[TheWizard]

You can't explicitly plan for LTCGs in advance, Shirley.
But you can deal with them if they happen.
Same thing for Tax LOSS Harvesting.

So plan for a more reasonable approach to taxable investing, please.
And, if at all possible, find a way to get 85% of your SS taxable so you can quit worrying about those tax humps...

 

[TheWizard]

...and the more reasonable way to approach investing in your taxable account is to use stock index funds, since they are much less likely to have Capital Gains Distributions.
I recommend some combination of VOO, QQQ, and VGT.
Possibly a bit of VXF as well...

 

[frayne]

I'm kind of curious as to what your analysts recommended?

 

[Kings over Queens]

Plan A is to complete our Roth conversions and to open a pair of standard brokerage account that will eventually be used for LTCG Harvesting.

I can't help with any websites you seek, but do have a question on this comment.

what are you going to use to fund the standard accounts? I ask because (as I understand) all income from roth's is tax free, and wouldn't that negate any tax loss gains harvesting?

 

[Sandy & Shirley]

As stated above, our mortgage was paid off in 2023. That gives us an extra $18,000 a year of possible income that will not be taxed at the 40.7% tax hump. Our combined IRAs are currently 70% Roth, so that will be our primary target. My partner is 90% Roth, so that will be our first target for a LTCG Harvesting account.

As for financing the accounts, we still have 2 smaller annuities that we have not started yet.

 

[Dash man]

I don’t understand. Why would a Roth be a target for LTCG harvesting? A Roth account is completely tax free.

 

[Sandy & Shirley]

No, it is not the target for the LTCGs. It is the initial target for any extra cash we might have to be used for Roth Conversions. Our combined IRAs are currently 70% Roth. Targets 1 and 2 are 100% Roth for each of our accounts!

 

[Sandy & Shirley]

Let me give you a picture of what our Target 3 will eventually be:

We will have reasonable middle income money available that will not push us into the 40.7% marginal tax hump. If we can create some LTCG Harvesting, that income will only be taxed at 10.2%, but it will also create the 49.95% tax hump which we will have to be very aware of so we can avoid it.

 

[Dash man]

Just a thought. If you are planning any charitable giving, it’s best to leave some in IRAs and use Qualified Charitable Distributions. That way you don’t have to pay any tax on the distributions and they count for RMDs up to $100k/year.

 

[Al18]

The solution seems simple - just withdraw an extra $11,000 per year from your IRA bumping your taxable income from $72,064 to $83,040 and getting you over the tax hump.

 

[engineernerd]

Our mortgage was paid off in 2023. My partner will switch from 70% Survivor benefits to 130% maximum personal benefits in 2026. We are currently 68.8% Roth converted, 52% myself and almost 90% partner.

Plan A is to complete our Roth conversions and to open a pair of standard brokerage account that will eventually be used for LTCG Harvesting.

Looking back about 15 years, I remember a few websites that offered individual stock future recommendations / predictions. They offered short term and long term estimates and listed how many of their analysts agreed and disagreed with each prediction.

We are not looking for stock that will double in value in the next six months. We are more interested in the stock symbols that will probably grow by 8 to 12 percent over the next 12 months and a majority of our analysts agree with that estimate.

Can anyone recommend a few URLs where this type of market analysis is provided?

Can you clarify what you mean by "eventually" in your second paragraph? If you expect your window of opportunity to close in 2026 when your partner starts the age-70 SS benefits, and you don't already have LTCGs, then this should be more of a "if it happens, great" thing than a plan per se. There is no stock in the world that can be counted on to go up in the next year.

BTW, I cannot provide you with the URLs you requested, since I believe that stock analysts' opinions are basically worthless. Especially the short-term predictions. That's always been true but it's getting worse as the world gets less and less stable...

 

[Sandy & Shirley]

The solution seems simple - just withdraw an extra $11,000 per year from your IRA bumping your taxable income from $72,064 to $83,040 and getting you over the tax hump.

LOL: That is exactly what I am trying to avoid!

Do a google search for “IF11397” then follow the crsreports.congress.gov link for “Social Security Benefit Taxation Highlights”. The In Focus congressional report clears says that the 1983 and 1993 congressional laws were designed to reduce our Social Security Benefits by taxing the benefits then crediting the extra taxes back into the Social Security and Medicare trust funds.

Increasing my income by $11,000 which will increase my Federal Taxes by $4,629, a marginal 42.08% tax rate, is absolutely the last thing that I want to do!

Congress totally misused the Trust Fund to get re-elected every two years. Then they passed the legislation to cut our benefits. My primary retirement lifestyle is based on living within my “Sweet Spot” to avoid the 49.95% and 40.7% marginal tax rates they created to take back my benefits!

 

[bingybear]

The only way I could use your approach is if I took most of my money and put it on sidelines I think I would rather just pay the taxes

 

[Sandy & Shirley]

Median annual wage in the US was $46,310 in 2022, with median household income at $74,580.

My image was for a 2024 individual with $72,500 of gross retirement yearly income, well above the $46,310 2022 average.

I am very happy for those with considerably higher than average incomes, but I try to aim my posts at those with middle to upper middle incomes. That is the income level where the super tax rates, the Tax Hump, happens.

I personally have a friend who was going to get a large pension. We worked it out so that he could trade 25% of his annual pension for 14 times that amount placed in his 401k. He was able to use that extra 401k cash to delay his Social Security 3 years which raised the start of his tax hump enough that he could comfortably retire on the smaller pension with a larger SSB and more 401K /Roth conversion savings; and still remain within his Tax Hump!

Saving huge taxes during retirement takes a lot of planning!

 

[Al18]

High taxes are relative. When my wife and I were both working two middle class jobs, we were paying 3X the taxes we are paying in retirement.

While you can dislike 85% of SS benefits being taxed, that is the typical taxation rate for most developed countries that offer a retirement benefit. Most countries do NOT offer a break for low income retirees.

 

[TheWizard]

There's a saying about letting the Tax Tail Wag the Dog.
I'm afraid that's what we're dealing with here...

 

[pb4uski]

LOL: That is exactly what I am trying to avoid!

Do a google search for “IF11397” then follow the crsreports.congress.gov link for “Social Security Benefit Taxation Highlights”. The In Focus congressional report clears says that the 1983 and 1993 congressional laws were designed to reduce our Social Security Benefits by taxing the benefits then crediting the extra taxes back into the Social Security and Medicare trust funds.

Increasing my income by $11,000 which will increase my Federal Taxes by $4,629, a marginal 42.08% tax rate, is absolutely the last thing that I want to do!

Congress totally misused the Trust Fund to get re-elected every two years. Then they passed the legislation to cut our benefits. My primary retirement lifestyle is based on living within my “Sweet Spot” to avoid the 49.95% and 40.7% marginal tax rates they created to take back my benefits!

You mistate what the report says. It does say that taxes collected on Social Security do go back into the Social Security trust funds but NOWHERE does it say that the changes were intended to reduce Social Security benefits as you claim... so either provide the quote from the document where it says that or retract your erroneous and misleading statement.

If you read through the background documents to the legislation that started to tax Social Security benefits, taxing Social Security retirement benefits was to put the taxation of Social Security benefits on par with other contributory retirement benefits like contributory defined benefit pension plan benefits, contributory defined contribution plan benefits, non-deductible traditional IRA withdrawals, etc. in all cases return of contributions are not taxed but growth is taxed. SSA actuaries indicated that about 17% of benefits were return of contributions and the rest was from growth so that is where the 15% came from. The politics were such that they couldn't do it all at once so they did 50% and then later increased it to 85% for those with higher income, but the intent was to broadly approximate the amount that would be income if SS was taxed similar to other contributory pension benefits with a concession of relief to lower income taxpayers.

Why do you have to be so obscure about the source rather than just post a link directly to the document?
https://crsreports.congress.gov/product/pdf/IF/IF11397

Is it to obscure your mistatement of what the report really says by making it more difficult for people to fact-check you?

See below from https://www.ssa.gov/history/taxationofbenefits.html

..."The present tax treatment of social security was established at a time when both social security benefits and income tax rates were low. In 1941 the Bureau of Internal Revenue ruled that social security benefits were not taxable, most probably because they were viewed as a form of income similar to a gift or gratuity.

The council believes that this ruling was wrong when made and is wrong today. The right to social security benefits is derived from earnings in covered employment just as is the case with private pensions.

The council believes that the current tax treatment of private pensions is a more appropriate model for the tax treatment of social security, Pension benefits from contributory private pension plans (including those for government employees) are now taxed to the extent that the benefits exceed the employee's accumulated contributions to the plan. Cumulative retirement benefits up to the employee's own total contributions are not taxed because the income from which the contributions were paid was taxable. That part of the benefit representing the employer's contribution and interest income on both the employee's and the employer's contributions is taxed when received.

Estimates by the Office of the Actuary of the Social Security Administration indicate that workers now entering covered employment in aggregate will make payroll tax payments totaling no more than 17 percent of the benefits that they can expect to receive. The self-employed will pay no more than 26 percent on average. Therefore, if social security benefits were accorded the same tax treatment as private pensions, only 17 percent of the benefit would be exempt from tax when received, and 83 percent would be taxable. . . Rough Justice would be done, however, if half the benefit (the part commonly if somewhat inaccurately attributed to the employer contribution) were made taxable." ...

I agree with the council's conclusion... not taxing SS benefits was a mistake but it didn't matter much since tax rates were very low and they later corrected their mistake by taxing SS benefits similar to other contributory pension benefit arrangements.

 

[pb4uski]

There's a saying about letting the Tax Tail Wag the Dog.
I'm afraid that's what we're dealing with here...

We can agree to disagree with Shirley, but WADR I think s/he gets too wrapped up in their underwear on marginal rates and the hump.

In 2024, if a single person over 65 had $35k of SS and $46,250 of other ordinary income then 85% of their Social Security would be taxed, but their tax rate would be a modest 10.4%.

Paying $8,154 (10.4%) in tax on income of $81,250 doesn't seem to be a high price to pay to live in our great country even with 85% of SS being taxed and even considering that the last bit is taxed at 40.7%.

 

[TheWizard]

We can agree to disagree with Shirley, but WADR I think s/he gets too wrapped up in their underwear on marginal rates and the hump.

In 2024, if a single person over 65 had $35k of SS and $46,250 of other ordinary income then 85% of their Social Security would be taxed, but their tax rate would be a modest 10.4%.

Paying $8,154 (10.4%) in tax on income of $81,250 doesn't seem to be a high price to pay to live in our great country even with 85% of SS being taxed and even considering that the last bit is taxed at 40.7%.

Correct, as usual.
The so-called hump isn't all that wide and not inflation indexed, so most people will be over it at some point.

Sidenote: I'm driving up I-89 to northern Vermont early next Monday morning. See you then...

 

[RetiredHappy]

If I have to manage my taxes like OP, I would rather go back to work to make more money. It is too much work to squeak out every last cent out of my money to avoid paying taxes. We are in pretty high income bracket as retirees and we are happy to pay our taxes. It is a privilege to pay our fair share of taxes. Don't forget that US has high deficit and it will get us someday. In the meantime, we do our bit to be good citizens.

 

[Sandy & Shirley]

I made taxed contributions to my Social Security Trust Fund for 49 years. If you are saying that my Social Security should be taxed income, why aren’t you also saying that everything taken out of a Roth IRA should be taxable income! Also, why did the government only consider 35 years of my contributions while they are giving me back zero for the other 14 years of contributions?

 

[youbet]

We are in pretty high income bracket as retirees and we are happy to pay our taxes. It is a privilege to pay our fair share of taxes.

So step up and pay your fair share! Blabbing is cheap. Actually paying is the real deal! You'll feel better about yourself and your contribution to society.