ERD50
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Here's my situation with taxes, LTCG and ROTH conversions - I'll try to keep this general enough so that it might help others, and also get feedback if my thinking is wrong.
I'm 64 this year, so 7 tax years before RMDs, and I plan to delay SS (and maybe pension) to age 70. Our income for the next 7 years will be low enough to leave some room in the now 12% income bracket, and 0% LTCG bracket. With RMDs and SS/pension @ 70 we will be solidly in the (current) 22% bracket.
I struggled with the idea of ROTH conversions versus LTCG harvesting. I had decided to prioritize LTCG 0% gains, as that will likely be a 15% delta, versus an ~ 10% delta on ROTH conversions. I think that was the right calculation.
Also, I will need to sell some of those equities in my taxable account for income to bridge between now and age 70. So that seemed to clinch it! Capture all that 0% LTCG! Ahhh, not so simple...
The next factor is that RMD/SS/pension at 70 is well beyond what we expect to spend. So we very likely will not need to sell from our taxable after age 70. That makes it likely that our taxable account will go to our heirs. So now that tells me, I should only sell enough equities to fund our expenses between now and 70, and prioritize the funds with the lowest unrealized LTCGs. That would provide the most free cash, and leave room for some ROTH conversions in later years. As an example, I have three taxable funds with unrealized gains of 58%, 28%, and 6%. I can fund about half our projected expenses to age 70 with selling the fund at 6% and about half the funds that are at 28%. I'll do that up to the 0% LTGC bracket first, then do ROTH conversions in following years.
Since there is no 'wash sale' on gains, I'll probably just re-invest all but a few years worth for cash flow, and sell as needed until age 70.
Plus, we have a significant amount in ROTHs now, so if we do have a large expense in some years, we can tap from those ROTHs rather than sell any taxable equities.
That will leave the remaining unrealized LTGC to be stepped up to our heirs, so I figure there is no reason to capture 0% LTGC beyond what we need to sell for cash flow.
Maybe a simple summary of that is: the priority if you expect to leave an inheritance is equities that will be stepped up are good for heirs, ROTH accounts are good for heirs, Trad IRA less good - heirs will need to pay taxes on inherited IRAs (likely at least as much as our 12% conversion cost), so try to minimize trad IRAs for heirs. Make sense? Am I overlooking something, or have something wrong?
TIA -ERD50
I'm 64 this year, so 7 tax years before RMDs, and I plan to delay SS (and maybe pension) to age 70. Our income for the next 7 years will be low enough to leave some room in the now 12% income bracket, and 0% LTCG bracket. With RMDs and SS/pension @ 70 we will be solidly in the (current) 22% bracket.
I struggled with the idea of ROTH conversions versus LTCG harvesting. I had decided to prioritize LTCG 0% gains, as that will likely be a 15% delta, versus an ~ 10% delta on ROTH conversions. I think that was the right calculation.
Also, I will need to sell some of those equities in my taxable account for income to bridge between now and age 70. So that seemed to clinch it! Capture all that 0% LTCG! Ahhh, not so simple...
The next factor is that RMD/SS/pension at 70 is well beyond what we expect to spend. So we very likely will not need to sell from our taxable after age 70. That makes it likely that our taxable account will go to our heirs. So now that tells me, I should only sell enough equities to fund our expenses between now and 70, and prioritize the funds with the lowest unrealized LTCGs. That would provide the most free cash, and leave room for some ROTH conversions in later years. As an example, I have three taxable funds with unrealized gains of 58%, 28%, and 6%. I can fund about half our projected expenses to age 70 with selling the fund at 6% and about half the funds that are at 28%. I'll do that up to the 0% LTGC bracket first, then do ROTH conversions in following years.
Since there is no 'wash sale' on gains, I'll probably just re-invest all but a few years worth for cash flow, and sell as needed until age 70.
Plus, we have a significant amount in ROTHs now, so if we do have a large expense in some years, we can tap from those ROTHs rather than sell any taxable equities.
That will leave the remaining unrealized LTGC to be stepped up to our heirs, so I figure there is no reason to capture 0% LTGC beyond what we need to sell for cash flow.
Maybe a simple summary of that is: the priority if you expect to leave an inheritance is equities that will be stepped up are good for heirs, ROTH accounts are good for heirs, Trad IRA less good - heirs will need to pay taxes on inherited IRAs (likely at least as much as our 12% conversion cost), so try to minimize trad IRAs for heirs. Make sense? Am I overlooking something, or have something wrong?
TIA -ERD50
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