Opps, Margined my LTCGs, now what?

[Time2]

Just now starting to do tax planning. I generate my income for next year at the end of this year.
I margined my LTCGs to buy a house. (long story short) Before that I would have sold LTCGs for income plus do some Roth conversions.
I need about $70k of income.

So far I see $10k of Dividends and $5k of LTC Losses, So, unless I can find a better plan I'm looking at withdrawing $190k from IRA's (top of 22% bracket) using $70k as income $25k to pay the taxes and have $95k to put into my Roth.
This will be my first year going into the 22% bracket, I probably would not do it, but the $70k includes a $30k tuition payment so I need to go a little higher this year.
Any ideas?

 

[RunningBum]

What does it mean to "margin my LTCGs"? You can take a margin loan against your investments in a taxable account. Is this what you mean? Margin loans are taken against holdings, not gains.

You also can't sell LTCGs. You sell holdings which may have gains. I assume this is what you mean.

I doubt $25K is enough in taxes on a $190K withdrawal + conversion.

Hard to have any ideas even if you did clearly state what you are doing because we know so little of your situation.

 

[PaunchyPirate]

Never mind what I wrote here first.

 

[Time2]

What does it mean to "margin my LTCGs"? You can take a margin loan against your investments in a taxable account. Is this what you mean? Margin loans are taken against holdings, not gains.

You also can't sell LTCGs. You sell holdings which may have gains. I assume this is what you mean.

I doubt $25K is enough in taxes on a $190K withdrawal + conversion.

Hard to have any ideas even if you did clearly state what you are doing because we know so little of your situation.

I have one account that is taxable, I borrowed against that account on margin, I can't really sell any of the funds in that account to get income with paying off some of the margin.
The tax is about $30k , but I have about $5k paid in quarterlies.

 

[Time2]

Never mind what I wrote here first.

I was about to respond and it disappeared, I don't know what you ask.

 

[RunningBum]

I still don't know how you expect us to come up with other ideas with so little info. OK, I have one. Take out a mortgage or HELOC on that house. I would've done that before the margin loan unless you have another house that you are hoping to sell soon.

I would also be planning on how I'm covering my living expenses for the next 5 years rather than reacting to any OOPS (not "OPPS") situations.

 

[Time2]

I still don't know how you expect us to come up with other ideas with so little info. OK, I have one. Take out a mortgage or HELOC on that house. I would've done that before the margin loan unless you have another house that you are hoping to sell soon.

I would also be planning on how I'm covering my living expenses for the next 5 years rather than reacting to any OOPS (not "OPPS") situations.

You seem a little angry. I withdraw my question.

 

[RunningBum]

Maybe annoyed, but I thought I still gave a valid answer in my last post. I'll put this thread on ignore and you can see if you get any other answers.

 

[ivinsfan]

You don't know RB if you think he's angry..anyhow I agree about the mortgage. It's sounds like you did something without thinking it all the way through and now you aren't happy with your lack of options .

 

[Texas Proud]

So, if I understand what you are saying....


You have a taxable account with securities that have gains that you do NOT want to claim on your taxes....



So, to get money to live you took out cash on margin and now owe your broker money...


But if you sold your shares your gain would what? Not be enough to pay your bills and the margin? This is where I am lost.


Do you have a ROTH? If so, take money out of that.



But from what you write you have two choices, your taxable account and your regular IRA.



BTW, I would never take out a margin loan to live off... the interest rate is more than likely high and there is always the possibility of stocks dropping a bunch and you losing most of that account as securities are sold to make your margin call.

 

[Montecfo]

My thoughts would be:
1.Draw on your HELOC
2. Draw from your HSA using unused medical bills from prior years.
3. Draw on Roth

The loan tactic might allow you to do your draws over two years to minimize taxes.

These are the things I would consider.

 

[ivinsfan]

The OP wrote a mortgage for his son and that's the margin loan. If I'm understanding correctly the 70K is needed for next year living expenses.

 

[Sunset]

OP - You maybe should not do the $95K roth conversion. That way you won't jump into the 22% bracket.

Also the $70K income needed for next year spending does not have to be withdrawn all at once.

Surely not ALL of your stocks are bound to the margin amount , Possibly you can sell a chunk of them to get spending money while keeping the margin loan happy.

Seems you provided a mortgage to your son, and it was a stretch for you to do that, as you think it has locked up all your taxable stock account. Again maybe it has not.

 

[ejman]

I assume LTCG means "Little Tree Climbing Goats" I have no idea how you would margin Little Tree Climbing Goats but I'm willing to learn. We have had several different breeds of goats at our ranch, Nubians, Boers, Kinders but I've never seen them climbing a tree although they do exist from pictures I've seen.

 

[Time2]

So, if I understand what you are saying....


You have a taxable account with securities that have gains that you do NOT want to claim on your taxes....

I have borrowed on margin against the securities. I can't sell and remove the money otherwise I'm getting close to the 50% margin requirement where the company could call/sell my securities to protect their interest. (I'm really not that close, 600k/150k) But I don't want to get close in case we have large pullback.

So, to get money to live you took out cash on margin and now owe your broker money...

Yes.

But if you sold your shares your gain would what? Not be enough to pay your bills and the margin? This is where I am lost.[quote/]


If I sold my gain, I would owe taxes on it. Want to avoid those for now

Do you have a ROTH? If so, take money out of that.

I do, but it makes no sense to take money from a Roth and do a Roth conversion.

But from what you write you have two choices, your taxable account and your regular IRA.

yes, or SEP/IRA, and Roth.




BTW, I would never take out a margin loan to live off... the interest rate is more than likely high and there is always the possibility of stocks dropping a bunch and you losing most of that account as securities are sold to make your margin call.

Yes, as in the OP, long story short, looks like I will get into details in a later post.
Margin rate is 1.06%,

 

[Time2]

The OP wrote a mortgage for his son and that's the margin loan. If I'm understanding correctly the 70K is needed for next year living expenses.

Yes, that's close enough.

 

[Time2]

OP - You maybe should not do the $95K roth conversion. That way you won't jump into the 22% bracket.

Yes, I don't need to, I probably could stay in the 12% bracket, problem is I can't predict tax rates in the future. What I can predict is I could have almost a double in my tax deferred accounts by the time the wife and I are 72. That puts our RMDs over $100,000 add $50k for two SS checks and dividends on the taxable accounts, and our tax bracket is high? So, maybe 22% isn't so bad.

Also the $70K income needed for next year spending does not have to be withdrawn all at once.

If I don't do it before December, it will be taxed next year, making tax planning for next year have that extra income. Yes doable, but spoils my plan of generating income the previous year when you can actually plan

Surely not ALL of your stocks are bound to the margin amount , Possibly you can sell a chunk of them to get spending money while keeping the margin loan happy.

I could sell some, but I want to stay away from the 50% callable number. I do have some room to play, but I don't want to.

Seems you provided a mortgage to your son, and it was a stretch for you to do that, as you think it has locked up all your taxable stock account. Again maybe it has not.

Ya, actually my daughter. As I said, it is not that tight, but I don't want to tempt the 50% margin call number, even though it is around 30%.

 

[Time2]

My thoughts would be:
1.Draw on your HELOC
2. Draw from your HSA using unused medical bills from prior years.
3. Draw on Roth

The loan tactic might allow you to do your draws over two years to minimize taxes.

These are the things I would consider.

OH ya, I do have about $10k of HSA receipts I have been saving, maybe this is the year to use them!
I already deposited the HELOC into the margin account just to get farther from the 50%.
Not much sense in a Roth withdrawal and a Roth conversion. OR is there?
It would be reducing RMDs.

 

[Time2]

I assume LTCG means "Little Tree Climbing Goats" I have no idea how you would margin Little Tree Climbing Goats but I'm willing to learn. We have had several different breeds of goats at our ranch, Nubians, Boers, Kinders but I've never seen them climbing a tree although they do exist from pictures I've seen.

Sorry LTCG, stands for Long Term Capital Gain.

 

[ejman]

Sorry LTCG, stands for Long Term Capital Gain.

Ah, yes. Sometimes I forget that this financial stuff is very, very serious business and feeble attempts at levity are not usually welcome in these here parts.

 

[GTFan]

BTW, I would never take out a margin loan to live off... the interest rate is more than likely high and there is always the possibility of stocks dropping a bunch and you losing most of that account as securities are sold to make your margin call.

If by high you mean 1.5% or so, sure. This the current blended margin rate at Interactive Brokers, which is cheaper by far than any other loan to buy a house. If you keep your margin loan at 25% or less of total holdings it would take a major market meltdown (2008 levels) to come close to being an issue.

The real risk is rising interest rates, but that's a slow process and only if you don't pay off the loan (it's not intended to be long-term anyway). Otherwise you avoid cap gains and your holdings make more money (over time) than you're paying out for interest.

 

[Time2]

BTW, I would never take out a margin loan to live off... the interest rate is more than likely high and there is always the possibility of stocks dropping a bunch and you losing most of that account as securities are sold to make your margin call.

Since GTFan responded, I feel I need to address it.
I didn't take out a margin loan to live on. I should have $13k left over from last years tax planned income. I took out a margin loan to buy a house and give a mortgage to my daughter and son-in-law. I borrowed at 1.06% and loaned at 4%. The loan is for two years, the second year is at 6%. The house is a fixer upper, I expect them to fixer upper it, in one year and get a new mortgage. The second year interest at 6% is just more incentive to get that done. Right now they earn $80k to $100k, in 8 months my daughter will graduate and start at about $125k, so together they will have a $200k income paying on a $240k loan. (marvelous) The margin call is why I have the reduced the margin loan to $143k vs $606k of securities.
I don't know why I feel I need to defend myself, I have plenty of reserves, at more than 55 times my spend rate and we haven't started SS yet. The reason I ask the question was because I was looking for ways to avoid paying additional taxes. I did get one tip, Re the HSA, thanks Montecfo.
And maybe withdrawing from a Roth while doing a Roth conversion. I never liked that idea, but it does get money out of tax deferred accounts, thus reducing RMDs, so I'm warming to that. Any comments about that?
I ask questions to get others input and to stimulate my thinking, the thread has certainly done that!
Back to DinkyTown to run another scenario.

 

[Sunset]

......
And maybe withdrawing from a Roth while doing a Roth conversion. I never liked that idea, but it does get money out of tax deferred accounts, thus reducing RMDs, so I'm warming to that. Any comments about that?
....

I see no advantage to doing a roth conversion, vs simply taking money out of an IRA to spend. Just more complexity.

1. Take $70K out of IRA to spend = $X in taxes.
2. Take $70K out of ROTH to spend = 0 in taxes + Convert $70K out of IRA to Roth = $X in taxes.

 

[ivinsfan]

Since GTFan responded, I feel I need to address it.
I didn't take out a margin loan to live on. I should have $13k left over from last years tax planned income. I took out a margin loan to buy a house and give a mortgage to my daughter and son-in-law. I borrowed at 1.06% and loaned at 4%. The loan is for two years, the second year is at 6%. The house is a fixer upper, I expect them to fixer upper it, in one year and get a new mortgage. The second year interest at 6% is just more incentive to get that done. Right now they earn $80k to $100k, in 8 months my daughter will graduate and start at about $125k, so together they will have a $200k income paying on a $240k loan. (marvelous) The margin call is why I have the reduced the margin loan to $143k vs $606k of securities.
I don't know why I feel I need to defend myself, I have plenty of reserves, at more than 55 times my spend rate and we haven't started SS yet. The reason I ask the question was because I was looking for ways to avoid paying additional taxes. I did get one tip, Re the HSA, thanks Montecfo.
And maybe withdrawing from a Roth while doing a Roth conversion. I never liked that idea, but it does get money out of tax deferred accounts, thus reducing RMDs, so I'm warming to that. Any comments about that?
I ask questions to get others input and to stimulate my thinking, the thread has certainly done that!
Back to DinkyTown to run another scenario.

Do you have ACA concerns? AT 55 times spend rate once you add SS and RMD's your taxes will be going up anyway. You have a lot of moving parts. I'd be loath to deplete the Roth for living expenses in your shoes. Can you do some long term tax modeling? Have you a guesstimate on the amount of your SS and RMD's..Pulling from the IRA might be a wash as far as taxes are concerned. I'm with Sunset on that point.


You do have options.

 

[Time2]

I see no advantage to doing a roth conversion, vs simply taking money out of an IRA to spend. Just more complexity.

1. Take $70K out of IRA to spend = $X in taxes.
2. Take $70K out of ROTH to spend = 0 in taxes + Convert $70K out of IRA to Roth = $X in taxes.

Agreed, but, I also have $70k less in my IRA that I later have to pay RMDs on. I see this as a way to reduce my tax deferred accounts.
I'm not sure it is a great idea, but I like the idea of lowering my RMDs, I see them as being a first world problem later.

I have an friend that is 12 years older, every year his complaint is how much his RMDs are and then resolves to be happy that he gets to keep almost 75% of his money.