Investment Options - Retirement "Bridge"

[madatrub]

Quote:

Originally Posted by SevenUp The article titled Roth Conversion and Capital Gains On ACA Health Insurance might have been written just for you. One thing that may not be mentioned there is how to account for long term capital loss carryovers in the suggested tool: they go in cell M57.

Its an awesome tool. I also used Turbo Tax with some mock up numbers to verify how this type of plan would work out. It checked out.

[pb4uski]

Quote:

Originally Posted by madatrub I understand that part, but in your example, doesnt that generate $58,450 in income that now puts me in a scenario where Im paying $300/mo for ACA and a $18,500 out of pocket max, while then being able to do no Roth conversion. Versus using the capital loss carryforward, reducing my income to zero, and then moving $58,450 in a roth conversion in the same year for the same ACA benefit? In your example, I'd be able to perform no Roth conversion to capture that 0% tax rate (without pushing me into a higher tax bracket and/or minimizing how much roth conversion I could accomplish)

You misunderstand. I wasn't suggesting that you do $58,450 of LTCG but was just using that example to illustrate that the 0% capital gains tax bracket is so large that it is hard to get much benefit from your big tax loss carryforward.

From what you wrote it sounds like just about all your LTCG will be offset by loss carryovers so I don't see much sense of purposely skewing your investments to generate LTCG... whatever LTCG occur will be offset and therefore not taxed.

I don't get your last paragraph. While I'm not recommending that you do $58,450 of LTCG, even if you did it would be offset by $58,450 of loss carryforward and you could still do whatever you want for Roth conversions given your ACA targets.

[madatrub]

Quote:

Originally Posted by pb4uski You misunderstand. I wasn't suggesting that you do $58,450 of LTCG but was just using that example to illustrate that the 0% capital gains tax bracket is so large that it is hard to get much benefit from your big tax loss carryforward. From what you wrote it sounds like just about all your LTCG will be offset by loss carryovers so I don't see much sense of purposely skewing your investments to generate LTCG... whatever LTCG occur will be offset and therefore not taxed. I don't get your last paragraph. While I'm not recommending that you do $58,450 of LTCG, even if you did it would be offset by $58,450 of loss carryforward and you could still do whatever you want for Roth conversions given your ACA targets.

Sorry let me try to explain better, with an example:

If I have 750k after tax income invested in short term treasuries. I earn $37,500 in interest at 5% in a year. With a carryloss my AGI is $34,500. In this example, I convert $15,500 Roth. That puts me at $50k AGI, which qualifies me for a ACA plan in my state costing $205/mo with a $18,200 out of pocket max. In this scenario I pay $2,236 in federal tax.

Now assume If I have 750k after tax income invested in the market, lets assume I need to withdraw 75k to live in that year, and $37,500 of that is LTCG. I then convert $33,000 Roth. That puts me at $30k AGI, which qualifies me for an ACA plan in my state costing $14/mo with a $6,000 out of pocket max. In this scenario I pay $230 in federal taxes.

Scenario A = $4,696 cost (Tax + Medical), $18,200 OOPM, $15,500 roth conversion

Scenario B = $398 cost (Tax + Medical), $6,000 OOPM, $33,000 roth conversion

Does that make more sense?

[orbops]

Quote:

Originally Posted by madatrub My plan requires a bridge from Retirement to 65 that minimizes MAGI for max ACA subsidies. I have a significant capital loss carryforward that will likely reduce my capital gains to $0 MAGI across much of that bridge. My intention is to use ROTH conversions as the lever to maintain income for ACA purposes. In order to do that successfully, I need to minimize Interest and Dividend income during that bridge such that my income sources are predominantly after tax capital gains. Looking for some suggestions on investments that meet this criteria. I'm fairly risk adverse, and want to maintain some capital preservation in the event of a down market during the "bridge".

I retired at 50 (currently 56) and also try to keep my MAGI low for ACA purposes. I also am using the Roth conversions to set my MAGI. You need to keep your MAGI above around $25-$27K, otherwise you fall into the Medicaid range. This year I signed up my wife and I for an HSA Bronze plan, which can deduct $9,750 for both of us.

I also had a capital loss of $-19K to help offset my AGI. I used the overall money from that capital loss transaction, and just let it sit in the Vanguard Money Market Fund - which is currently offering an annualized rate of 5.03%. This is the primary money source that I access to minimize dividends.

Remember that the standard deduction for married is $27,700, so really you can have a MAGI just above $35,450 and you won't owe any federal taxes. By using CDs, you can get a 5% return right now, and many CDs that I've seen on Vanguard and Fidelity don't pay any interest until they mature.

My wife wanted to have a more conservative portfolio mix, so we've moved from 85%/15% down to 70%/30% by using T-bills, I-bonds, and CDs to make our portfolio more conservative.

[yclipse]

In your shoes I would put a good amount into Berkshire Hathaway B. It is likely to grow over the next five years, and it pays no dividend.