Roth Contribution or LTCG - no brainer, right?

[sakowitzm]

Generic question.
Married filing jointly; $19,051 of taxable income for 2018.
On top of that, we have a choice of converting $58,349 from TIRA to Roth, or recognizing $58,349 of long-term capital gains.
The IRA money would be taxed at 12%, the LTCG at 0%. So this is a no-brainer, right?
Am I missing anything? Any reason to do the IRA instead of the LTCG?

Thanks.

 

[pb4uski]

Is the $19,051 taxable income (after $24,000 of standard deductions)?

In any event, for us we'll have a certain amount of LTCG naturally as we sell equities for living expenses so I just replenish cash back to target and then Roth convert the rest.

 

[RunningBum]

What do you see your tax rate at when you have to take MRDs from the TIRA? And how will that affect taxation on your SS benefits? Will you hit the tax torpedo at that time? Would it affect your medicare payments? You could be paying a lot more than an additional 15% on your MRDs later.

Might you never have to sell those equities out of taxable? If you donate equities directly, or through a DAF, you can donate the full market value without having to take a gain. Or when you die, your heirs will get a step up basis on the equities. In either of those cases, you might be wasting space you could be doing Roth conversions in.

Unfortunately this kind of situation is rarely a no-brainer.

 

[sakowitzm]

Good points to consider. Thanks.

 

[Sunset]

It is not simple as RunningBum has pointed out.

If OP had a small IRA of say $500K and no pensions, then I'd go with the LTCG.

But if it was a larger IRA of $2M and maybe some pensions, then I'd go with conversions to the top of the 12%.

One other thing, just to explore more complexity, is your estimated lifespan, as when one of you dies, the other will be filing single so gross income of $50,700 is the top of the 12% for a single after the standard deduction. Then it's on to the 22% bracket.
Which lends argument to conversions at 12%.

 

[Huston55]

OP-

Here’s a link to a previous thread on this subject. You may find this useful.

http://www.early-retirement.org/for...-instead-of-doing-roth-conversions-90648.html

Note that this example is based on a prototypical EROrg member, whom we call The “Yorgs”, and your situation may be very different.

 

[RunningBum]

It is not simple as RunningBum has pointed out.

If OP had a small IRA of say $500K and no pensions, then I'd go with the LTCG.

But if it was a larger IRA of $2M and maybe some pensions, then I'd go with conversions to the top of the 12%.

Well, I never said it was simple, but the reason for your different strategy based on IRA size is based on tax rate at MRD time (right?), which was the first thing I mentioned.

One other thing, just to explore more complexity, is your estimated lifespan, as when one of you dies, the other will be filing single so gross income of $50,700 is the top of the 12% for a single after the standard deduction. Then it's on to the 22% bracket.
Which lends argument to conversions at 12%.

Yes, that's a good additional point. You may think you'll be in 12% filing jointly, only to find you're in 22% filing single. I didn't figure I covered all the factors.

 

[Montecfo]

It seems dubious to assume the Roth strategy will save more than 12 pct. And given Roth strategy requires placing that bet now I would tend to gravitate toward LTCG as less risky. Having said that there are several issues at play and can't see the whole picture.

 

[Sunset]

Well, I never said it was simple, ....

I was agreeing with your statement , that is is NOT simple.

My wording was a little odd, and I see how my sentence is almost like the opposite meaning one.

It is not simple as RunningBum has pointed out.
almost sounds like:
It is not as simple as RunningBum has pointed out.

What I should have said is: it is complex.

 

[RunningBum]

I was agreeing with your statement , that is is NOT simple.

My wording was a little odd, and I see how my sentence is almost like the opposite meaning one.

It is not simple as RunningBum has pointed out.
almost sounds like:
It is not as simple as RunningBum has pointed out.

What I should have said is: it is complex.

Sorry! I read "as simple", the second way. I see you are in agreement.