Using Capitol Losses

[rayvt]

This calls for some heavy spreadsheet work to figure out the best solution.

Offhand that idea of that SGOV trick sounds like it might work. FLRN probably would work the same. Look at the 1 yr chart, it is a monthly sawtooth.

 

[indiajust]

I'm with Flieger here...

My understanding was that losses inside a tax free account were dead weight. I fear I am missing something here in the discussion. Perhaps some clarification?

 

[Exchme]

I'm with Flieger here...

My understanding was that losses inside a tax free account were dead weight. I fear I am missing something here in the discussion. Perhaps some clarification?

OP's losses are in taxable, but OP has since spent the taxable account down so there's only a small balance left, meaning there can be no capital gains to use the losses. Other than the $3,000 write-off each year against ordinary income, the losses have no value any more.

OP "could" do withdrawals from the IRA into taxable and then use the previous losses to overcome future capital gains on whatever growth subsequently happened in taxable, but withdrawing to taxable can never be better than doing a Roth conversion of the same amount of money and just forgetting about the losses.

 

[TheWizard]

My taxable account was close to zero when I retired in 2013.
But it's up to a few hundred K$ now due to excess income.
Roth account is even higher for same reason.

Perhaps OP can do similar and thus have a place to do tax gain harvesting...

 

[engineernerd]

I believe OP could improve the retirement plan.

OP will be in 22%-24% bracket (25%-28% if TCJA expires) a few years into RMDs, so doing Roth Conversions now in the 12% (15% post TCJA) is a bargain.

Since he just started SS, I would stop SS benefits and return the money. Then spend down taxable and withdraw enough to live on from the 401K and also do Roth Conversions up to the top of the 12% bracket. Meanwhile, SS benefits grow.

OP didn't reveal if the pension had a COLA, but since SS does, this strategy may improve inflation protection too.

This sounds like good advice to me!

 

[imjustawarrior]

Write off $3k/yr

Save remaining losses for when you sell your house. That could eat up the rest of the losses.

Do Roth conversion. Do not move 401k money to taxable just to eat up losses.

 

[Quantum Sufficit]

Hi all,

I'm 62, retired at 55. I have $1,000,000 in my 401k, $350,000 in my roth, $60k in savings and $30K in treasury direct account. I have $600k equity in my house that is paid off and no debts. Started collecting SS for me and my wife this year and have pension for a total monthly income of 6K, so not really using the 401k or Roth to live on now.

I have $500K of capitol losses from when I was actively trading stocks, I paid a lot of taxes on the gains but could not write off the losses as I stopped trading when I retired and used the taxable account to buy my house.

I was looking for a way to use the capitol losses before I'm dead, currently only using 3K of it every year. Does it make sense to transfer some or all of the 401k into a regular brokerage account so it can effectively grow tax free using the capitol losses to offset the gains?

Any thoughts appreciated

Unfortunately, capital losses will not offset ordinary income obtained from taking 401k money out of those accounts to a regular brokerage. Wish is was otherwise. Capital losses only offset capital gains, not retirement plan distributions. Those are taxed at your marginal income rate.

 

[TheWizard]

Unfortunately, capital losses will not offset ordinary income obtained from taking 401k money out of those accounts to a regular brokerage. Wish is was otherwise. Capital losses only offset capital gains, not retirement plan distributions. Those are taxed at your marginal income rate.

This might be incorrect.
All my Ordinary Income sources are combined before the $3k of capital loss is subtracted.
So yes, that $3k can offset retirement plan distributions...

 

[Montecfo]

I think I would work to optimize the tax situation relative to the 401k etc. Let any extra funds accumulate in taxable and put into safe investments. Harvest gains there and use capital losses to offset.

the Hippocratic Oath of investing: first do no financial harm.

Cap losses do not self-generate. The last thing you want to do, I think, is to use heroism in a bid to generate gains.

Just a nickel's worth of free advice.

 

[pb4uski]

Unfortunately, capital losses will not offset ordinary income obtained from taking 401k money out of those accounts to a regular brokerage. Wish is was otherwise. Capital losses only offset capital gains, not retirement plan distributions. Those are taxed at your marginal income rate.

This might be incorrect.
All my Ordinary Income sources are combined before the $3k of capital loss is subtracted.
So yes, that $3k can offset retirement plan distributions...

You're wrong TheWizard, it IS incorrect, no might be about it... and you are correct... capital losses can be used to offet capital gains and up to $3,000 of ordinary income annually.