Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 10-15-2021, 04:27 PM   #61
Dryer sheet aficionado
bevette's Avatar
 
Join Date: Jul 2018
Location: PNW
Posts: 48
What about splitting the difference and doing a smaller amount of both? Harvest a bit of LTCGs, and do a smaller Roth conversion.
bevette is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-15-2021, 04:29 PM   #62
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
Great idea... only 56 posts too late.

[I suggested the same thing in post #5 of this thread]
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-15-2021, 10:05 PM   #63
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by Out-to-Lunch View Post
I suppose it depends on what you are counting as liquid assets? By one definition, once you do the conversion, the full amount of the converted amount becomes liquid.

In my view, doing the conversion has not affected your ability to spend money (from the sum total of your assets).


My thinking is that to really benefit from the up-front tax payment required for a Roth conversion, one has to leave the money in for 10 plus years. We would pay the taxes from our taxable brokerage account we are currently using to fund our lifestyle. Both in terms of liquid assets and total assets, we would see an immediate decrease due to taxes we would not otherwise be paying at this time. The tax free growth of the Roth would eventually make up for the taxes, but it would likely take quite a long time and in the meantime, we’d have lower total assets, as well as less money in a taxable brokerage account and more in an account we shouldn’t touch for a decade or more.
Scuba is offline   Reply With Quote
Old 10-15-2021, 10:06 PM   #64
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by pb4uski View Post
Great idea... only 56 posts too late.

[I suggested the same thing in post #5 of this thread]


But then once I mentioned our tax bracket, it seemed that you backed off the Roth conversion idea for us.
Scuba is offline   Reply With Quote
Old 10-15-2021, 10:11 PM   #65
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
What is your tax bracket before any Roth conversions? If it is 22% or higher before any Roth conversions then itis hard for me to see the value... but if it is below 22% without Roth conversions I would consider filling up to 12% with Roth conversions and then do capital gains on top of that.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-15-2021, 10:12 PM   #66
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by CardsFan View Post
I am not quite sure why you want to increase your taxable income.



Based on the bold above, and the fact that you have 2/3's of you assets pre-tax, if it were me (and it is not) I would not do anything to increase income and taxes.



I am making an assumption that your assets are fairly large.



What I would do is live off the after tax income until RMD's hit. I would then give away a significant amount of the RMD to charity. This comes off the top, and does not create a tax increase. I think the limit is around $100k now, others will correct me if I am wrong.



Am I missing something?


I started thinking about a Roth conversion because so many here advocate it and we don’t have any Roth assets yet. Many here seem to convert up to the top of their tax bracket which means they prepay some taxes but smooth taxes out over their lifetimes rather than be in higher brackets later with RMD’s, SS, and pensions. Conceptually this makes sense to me. Our CPA believes that smoothing out our taxes over time is also a good strategy for us, but suggested that generating LTCG’s would be more advantageous for us than doing a Roth conversion.
Scuba is offline   Reply With Quote
Old 10-15-2021, 10:19 PM   #67
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
When I had a lot of LTCG I favored Roth conversions over LTCG... my thinking was that assuming that stepup in basis doesn't go away that stepup would make all those LTCG go away tax free so why use tax brackets for LTCG.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-16-2021, 09:21 AM   #68
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 2,555
Quote:
Originally Posted by Scuba View Post
My thinking is that to really benefit from the up-front tax payment required for a Roth conversion, one has to leave the money in for 10 plus years. We would pay the taxes from our taxable brokerage account we are currently using to fund our lifestyle. Both in terms of liquid assets and total assets, we would see an immediate decrease due to taxes we would not otherwise be paying at this time. The tax free growth of the Roth would eventually make up for the taxes, but it would likely take quite a long time and in the meantime, we’d have lower total assets, as well as less money in a taxable brokerage account and more in an account we shouldn’t touch for a decade or more. [emphasis added]
You seem to be valuing a dollar in a tax-deferred account the same as a dollar in a Roth. They do not have the same value to you.
__________________
The closing years of life are like the end of a masquerade party, when the masks are dropped. -Arthur Schopenhauer, philosopher (1788-1860)
Out-to-Lunch is online now   Reply With Quote
Old 10-16-2021, 10:27 PM   #69
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by Out-to-Lunch View Post
You seem to be valuing a dollar in a tax-deferred account the same as a dollar in a Roth. They do not have the same value to you.


No, I’m valuing the dollars in a taxable brokerage account similarly to a Roth. Tax deferred is worth less compared to a Roth or a taxable brokerage.
Scuba is offline   Reply With Quote
Old 10-16-2021, 10:29 PM   #70
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by pb4uski View Post
When I had a lot of LTCG I favored Roth conversions over LTCG... my thinking was that assuming that stepup in basis doesn't go away that stepup would make all those LTCG go away tax free so why use tax brackets for LTCG.


You commented that if you were in a 36% tax bracket, you wouldn’t do Roth conversions. Still feel that way? We can take six figures of LTCG’s at 15%.
Scuba is offline   Reply With Quote
Old 10-17-2021, 08:31 AM   #71
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
Quote:
Originally Posted by Scuba View Post
You commented that if you were in a 36% tax bracket, you wouldn’t do Roth conversions. Still feel that way? We can take six figures of LTCG’s at 15%.
Well, you need to clarify or remind me in case I missed it... is the 36% if you do no Roth conversions? IOW, the tax cost of any Roth conversions 36% or more? And what is the estimated tax cost on your RMD (difference in tax with and without RMD divided by RMD) once SS and RMDs start... 36% or 38% or some other number?

Also, will your heirs be charities or individuals and if the individuals, what is their tax rate (I presume less than 36%).

If your tax cost on Roth conversions is 36% and your tax cost of RMDs once you are collecting SS and subject to RMDs is even 38%, I wouldn't get very excited about Roth conversions for a 2% difference.

Now on the other hand, if there is a big difference between the tax cost of Roth conversions today vs what you will pay at RMD time then I think Roth conversions make sense. In our case, the first $100 is 0% and then more at 10% and 12% for a net of about 11% of the conversion....and I'm pretty sure that we'll be paying ~17% (a combination of 12% and 22% assuming that rates do not revert but more if rates do revert or increase)... so for us the 6% or better difference make it worthwhile.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-17-2021, 09:37 AM   #72
Thinks s/he gets paid by the post
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 4,839
Quote:
Originally Posted by pb4uski View Post

Now on the other hand, if there is a big difference between the tax cost of Roth conversions today vs what you will pay at RMD time then I think Roth conversions make sense.
This I think is the bottom line. It is an investment decision- investing in prepaid taxes. As a value investor, I like a margin of safety. A large tax rate differential provides that.
Montecfo is offline   Reply With Quote
Old 10-17-2021, 02:00 PM   #73
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 2,555
Quote:
Originally Posted by Scuba View Post
No, I’m valuing the dollars in a taxable brokerage account similarly to a Roth. Tax deferred is worth less compared to a Roth or a taxable brokerage.
Well, I am not following your math then, but that is okay. I don't need to know. I was just trying to help the discussion.
__________________
The closing years of life are like the end of a masquerade party, when the masks are dropped. -Arthur Schopenhauer, philosopher (1788-1860)
Out-to-Lunch is online now   Reply With Quote
Old 10-18-2021, 12:13 PM   #74
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by pb4uski View Post
When I had a lot of LTCG I favored Roth conversions over LTCG... my thinking was that assuming that stepup in basis doesn't go away that stepup would make all those LTCG go away tax free so why use tax brackets for LTCG.
I can see this logic for the LTCG still left for the surviving spouse, but we are using our taxable portfolio to fund our lifestyle now. Because the market has performed so well, virtually every equity position in it has a sizable LTCG. So I thought it could make sense to recognize some LTCG's so that as we sell positions over the next 5+ years to rebalance and fund our lifestyle, we could do so without paying what may be a higher LTCG rate then.

I will ask our CPA about how much of a Roth conversion we could do and stay in the 12% bracket. I am not sure if he's looked at the combination of Roth conversion up to 12% and then LTCG's. Thanks for the idea.
Scuba is offline   Reply With Quote
Old 10-18-2021, 12:54 PM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
Assuming that you are MFJ over 65 and had no other ordinary income, you could have as much as $107,450 of Roth conversions and pay $9,328 in tax (8.68%).... then any preferenced income (qualified dividends and LTCG) on top of the $107,450 of ordinary income would be taxed at 15%.

So your savings would be what you would pay on that amount at RMD time vs the 8.68%... so if you expect RMDs to be taxed at 22% then you would save $14,312 [$107,450 * (22% -8.68%)].

You can use https://www.irscalculators.com/tax-calculator to test different scenarios.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-18-2021, 02:39 PM   #76
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 32,250
Forgot to attach the screen shot:
Attached Images
File Type: jpg Capture.jpg (266.0 KB, 22 views)
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 10-18-2021, 09:29 PM   #77
Recycles dryer sheets
 
Join Date: Feb 2021
Location: ST GEORGE
Posts: 95
Playing into the LTCG angle, a huge portion of our taxable account gains are from an S&P mutual fund. So I am just starting to research using specific ID’s rather than average cost to maximize the gains on this year’s sales, then repurchase the same fund with what we won’t need in the next year since wash-sale rules only apply on losses.

This is all so new to me, I’m sure if this makes sense. My thought is I could sell the most recent purchases via specific ID’s should we want to get cash for an unplanned expense and don’t want to tap our ROTH yet.

Best regards,
Chris
BubbaChris is offline   Reply With Quote
Old 10-19-2021, 12:39 AM   #78
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by pb4uski View Post
Assuming that you are MFJ over 65 and had no other ordinary income, you could have as much as $107,450 of Roth conversions and pay $9,328 in tax (8.68%).... then any preferenced income (qualified dividends and LTCG) on top of the $107,450 of ordinary income would be taxed at 15%.

So your savings would be what you would pay on that amount at RMD time vs the 8.68%... so if you expect RMDs to be taxed at 22% then you would save $14,312 [$107,450 * (22% -8.68%)].

You can use https://www.irscalculators.com/tax-calculator to test different scenarios.


Thank you!
Scuba is offline   Reply With Quote
Old 10-19-2021, 12:41 AM   #79
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 4,182
Quote:
Originally Posted by BubbaChris View Post
Playing into the LTCG angle, a huge portion of our taxable account gains are from an S&P mutual fund. So I am just starting to research using specific ID’s rather than average cost to maximize the gains on this year’s sales, then repurchase the same fund with what we won’t need in the next year since wash-sale rules only apply on losses.

This is all so new to me, I’m sure if this makes sense. My thought is I could sell the most recent purchases via specific ID’s should we want to get cash for an unplanned expense and don’t want to tap our ROTH yet.

Best regards,
Chris


This makes sense to me. We have done this before and it worked well for us.
Scuba is offline   Reply With Quote
Old 10-19-2021, 06:33 AM   #80
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 12,382
Quote:
Originally Posted by BubbaChris View Post
Playing into the LTCG angle, a huge portion of our taxable account gains are from an S&P mutual fund. So I am just starting to research using specific ID’s rather than average cost to maximize the gains on this year’s sales, then repurchase the same fund with what we won’t need in the next year since wash-sale rules only apply on losses.

This is all so new to me, I’m sure if this makes sense. My thought is I could sell the most recent purchases via specific ID’s should we want to get cash for an unplanned expense and don’t want to tap our ROTH yet.

Best regards,
Chris
Yes, as long as you haven't sold from that fund using average cost already. Once you've used average cost, you have to stick with it, because you've essentially sold a portion of each share.

If you have both covered and non-covered shares those are treated separately. So if you've sold non-covered shares with avg cost but not covered shares, you can use SpecID for the covered shares.
RunningBum is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
The important "trigger" income levels 2021 Gumby FIRE and Money 50 11-24-2021 07:13 AM
Next Year's (2021) Income Dilemma? ShokWaveRider FIRE and Money 69 09-11-2020 02:30 PM
Your Input on Teenager/Money Issue TromboneAl Other topics 84 11-01-2006 02:21 PM

» Quick Links

 
All times are GMT -6. The time now is 03:43 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.