haha
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Current tax law gives ERs a chance at a bargain rate of 0% on long term capital gains and qualified dividends, within the 15% bracket for ordinary income. For a single person in 2013 that is roughly a taxable income of <$36,250.
It appears to me that although this may be possible, for a single person it is not going to be easy. In my case, 70% or more of my assets are taxable. I am 71. When I add my modest SS and RMDs to income from a royalty trust, REIT, and several MLPs, some interest from old CDs that still have a return, and expected qualified divs, I am going to be pretty much out of 15% bracket. This means I will do only strategic stock sales- ie. if I think the gain may not last. In this case, the tax on the sale is merely a cost of saving the gain. Doesn’t seem that a planned program of taking gains to reduce the potential tax is going to happen. I think it might work fine for someone who can get a much earlier start, or who does not have some legacy taxable investments that would be very taxspensive to sell.
Also, the mlps and royalty trusts shelter more of their income when new in the portfolio, but as the assets get depreciated down, more income starts falling into various taxable categories, much of it ordinary income. Most of mine are getting some age on them, and I never will know until it is too late to sell other appreciated stock if I have any room (in the 15% bracket) or not. My guess is that in a year or so, no more room will even be possible.
I am not good at the search function here- I think RE Wahoo can find anything that has ever been posted- but not me. Anyway, I think there was a very helpful discussion a few years ago about how if you have long term capital gains, and you get ordinary income or do a Roth conversion that produces enough ordinary income to push capital gains or qual divs out the top of that 15% bracket, in effect those capital gains that now fall in the 25% bracket are going to be taxed at not 0%, not at 15%, but at 30%.
I am afraid I had only a dim understanding, but it was enough to convince me. I think the key is that where previously you had ltcg in the 15% bracket being taxed at 0%, now that space is occupied by ord income being taxed at 15%, and the ltcgs that formerly occupied that space in the 15% bracket are now pushed into the 25% bracket, also being taxed at 15%. So you have some amount x of ordinary income (say from a conversion) costing .15x in tax, and amount x of ltcg displaced by the conversion, also being taxed at 15%. So that conversion x is costing 30% in tax.
Is this crazy?
So based on this understanding, it looks like I will not have any more Roth conversions, even though I had planned over time to convert every last penny. And no programmed capital gain harvesting, unless the business seems seriosly broken.
Can people please comment? Have I misunderstood something?
(Reposted from SS thread where I think it did not belong.)
Ha
It appears to me that although this may be possible, for a single person it is not going to be easy. In my case, 70% or more of my assets are taxable. I am 71. When I add my modest SS and RMDs to income from a royalty trust, REIT, and several MLPs, some interest from old CDs that still have a return, and expected qualified divs, I am going to be pretty much out of 15% bracket. This means I will do only strategic stock sales- ie. if I think the gain may not last. In this case, the tax on the sale is merely a cost of saving the gain. Doesn’t seem that a planned program of taking gains to reduce the potential tax is going to happen. I think it might work fine for someone who can get a much earlier start, or who does not have some legacy taxable investments that would be very taxspensive to sell.
Also, the mlps and royalty trusts shelter more of their income when new in the portfolio, but as the assets get depreciated down, more income starts falling into various taxable categories, much of it ordinary income. Most of mine are getting some age on them, and I never will know until it is too late to sell other appreciated stock if I have any room (in the 15% bracket) or not. My guess is that in a year or so, no more room will even be possible.
I am not good at the search function here- I think RE Wahoo can find anything that has ever been posted- but not me. Anyway, I think there was a very helpful discussion a few years ago about how if you have long term capital gains, and you get ordinary income or do a Roth conversion that produces enough ordinary income to push capital gains or qual divs out the top of that 15% bracket, in effect those capital gains that now fall in the 25% bracket are going to be taxed at not 0%, not at 15%, but at 30%.
I am afraid I had only a dim understanding, but it was enough to convince me. I think the key is that where previously you had ltcg in the 15% bracket being taxed at 0%, now that space is occupied by ord income being taxed at 15%, and the ltcgs that formerly occupied that space in the 15% bracket are now pushed into the 25% bracket, also being taxed at 15%. So you have some amount x of ordinary income (say from a conversion) costing .15x in tax, and amount x of ltcg displaced by the conversion, also being taxed at 15%. So that conversion x is costing 30% in tax.
Is this crazy?
So based on this understanding, it looks like I will not have any more Roth conversions, even though I had planned over time to convert every last penny. And no programmed capital gain harvesting, unless the business seems seriosly broken.
Can people please comment? Have I misunderstood something?
(Reposted from SS thread where I think it did not belong.)
Ha
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