Looking for LTCGs

[Sandy & Shirley]

Looking for my best shot for some LTCGs over the next 2 years. Our mortgage was completed in 2023, so we have some investment opportunities moving forward.


I still have about 40% of my savings in standard IRA, so I will be doing maximum 12% bracket Roth conversions.


My partner is more than 90% Roth and will be switching from 70% PIA Survivor benefits to 130% personal benefits in 2 years, so we are looking for some good shots at LTCGs for “other investments.


We already have a comfortable level in NVDA which is already up 20% in less than 2 months, but we don’t want to place all of our investments in one basket.


So, what is a good place on the web to look for potential LTCG investments?

 

[Sunset]

Put it all on RED

I simply have no predicting abilities.

Are you trying to avoid dividends and just get LTCGs or are ok with both.

 

[Route246]

Loaded question. Much is going to depend on risk tolerance. I follow my own advice and any new LTCG money goes into 12-month DCA into SPY-like low expense ratio fund/ETF.

Too many acronyms, for those who don't know them:

LTCG - long term capital gain
DCA - dollar cost average
SPY - S and P 500 metaphor

 

[TheWizard]

I would recommend QQQ, VGT, and good ole VOO, perhaps equal amounts in each.

But most of us invest in our taxable accounts for an indefinite duration.
What does the next two years have to do with it?

 

[Sandy & Shirley]

Our retirement goals are to live just below what we call our Federal Tax Sweet Spot, where the 85 cent per dollar taxation of our Social Security benefits increase the 12% Federal Tax Bracket to a 22.2% Federal Tax Rate, then increase the 22% Federal Tax Bracket to a 40.7% Federal Tax Rate until 85% of our benefits have become taxable income. We are used to 22% and 24%. 22.2% is acceptable, but 40.7% is just pure Government overreach!

We are working hard to convert the remainder of our IRA savings to Roth, and once there, LTCGs will only result in a 10.2% Tax Rate while we stay in the 12% Bracket.

That is why we are looking for possible investments that can be cashed in each year as LTCGs.

 

[bloom2708]

Any gains can be paired with losses. Nobody knows.

You could create a short term Treasury ladder and roll them over and get currently about 5.3%. Get all your principle back if you hold each to maturity.

2 years isn't "investing", so results could vary wildly. Wildly I say.

 

[target2019]

Growth ETF, such as SCHG.

 

[TheWizard]

Let's say you put $100k into a growth ETF over the next six months.
Two years from now you could easily have an overall capital LOSS in that taxable account, not a capital GAIN.

How would that impact your questionable financial strategy?

 

[pb4uski]

UPRO, 3x leveraged ETF, but not for the faint of heart.

 

[Sandy & Shirley]

Sounds like it is time for a picture to be worth a thousand words!

This is what my income needs looked like when I was faced with a relatively large monthly RV mortgage payment. My primary concern was to keep my taxable income below the point where the 85 cent per dollar taxation of my Social Security Benefits would push me into the 22% tax bracket, the 40.7% Federal Tax Rate.

Now that the mortgage is paid off, and I no longer need the extra cash each month, my new concern is to complete my Roth conversions and also to open a standard brokerage account and possibly create some LTCGs. My old viewpoint was to include the initially tax free LTCGs with my initially tax free Social Security. This is the picture of that view point!

But now that I am thinking more seriously about how to manage a standard brokerage account, a more realistic view for any LTCGs has become visible in my mind!

There is a certain amount of my income that will be mandatory each year; my SSB, Pension, Annuity, and required minimum distributions from my remaining IRA. My new target will be manage the investments in a standard brokerage account and constantly convert some of the LTCGs and STCGs into taxable income, but definitely limited to the top of the 12% tax bracket! Looking at the LTCGs from this viewpoint, they are actually taxable at 10.2%, the 85 cents per dollar taxation of my SSB, while they also create the 49.95% tax bracket if I do cross over into my Tax Hump!

Bottom line, $10,000 of LTCGs instead of STCGs will save $1,200 in Federal Tax! That is why I am interested in them!

This just looks like a fun way to manage money going forward, I can keep any dividend producing investment in my Roth account while playing with Long and Short Term Gains in my new standard brokerage account!

 

[TheWizard]

It seems clear that Shirley doesn't quite understand how investing in a taxable account works.

Let's say you invested $10,000 into VOO (S&P 500) back in early January, 2023. That fund had approximately 25% gain last year, so that single purchase lot is now worth around $12,500.
If you then sell that entire lot, then you have $12,500 additional in your settlement fund and a Realized LTCG of $2500.
If you don't need that $12,500 for spending, you can invest it back into VOO at the new higher price.
This is called Tax Gain Harvesting and , generally, it only makes sense to do this if you're in the in the 0% LTCG bracket.

So, are you aware of all these things?

 

[TheWizard]

Another misconception that Shirley has involves dividends.
You will generally have dividends issued by any ETF or MF that you are likely to hold in your investment accounts whether Roth or taxable...

 

[Sandy & Shirley]

My understanding of the Tax Gain Harvesting is that the $2,500 LTCG will be taxed at 0%, but it will also be counted in the basis for the taxation of your Social Security Benefit which will make an additional $2,125 of your Social Security taxable at 12%. My chart illustrates this as 12% of 85% equals 10.2% Federal Tax Rate on Tax Free LTCGs.

 

[VanWinkle]

My understanding of the Tax Gain Harvesting is that the $2,500 LTCG will be taxed at 0%, but it will also be counted in the basis for the taxation of your Social Security Benefit which will make an additional $2,125 of your Social Security taxable at 12%. My chart illustrates this as 12% of 85% equals 10.2% Federal Tax Rate on Tax Free LTCGs.

+1

That's the kind of thinking that saves on taxes. You are correct that the increases LTCG will increase the amount of SS that is taxable up to 85% of your SS amount.

 

[pb4uski]

+2 but it is easy to lose sight of the his nuance if your circumstances are such that 85% of SS will be taxed no matter what you do.

 

[Sandy & Shirley]

That is why we always start doing our taxes in January! . . . and no, we are not like everyone else! Almost everyone started their 2023 taxes in January of 2024. We started our 2024 taxes in January. We already know how much we will get from Social Security, Pensions, Annuities, and yearly required IRA distributions. We can calculate how much additional income we can create BEFORE crossing into the 22% tax bracket. The income level we call our Sweet Spot!


Our Christmas weekend job is to determine what we will do the following week, a Roth Conversion or some Gain or Loss harvesting!


That is also why we are looking for stocks to hold in our standard brokerage account. We want to leave the mutual funds with their year end dividends in the IRA/Roth accounts.