Forego ACA Subsidy Until Next Year?

[Texas Proud]

My impression about a managed fund like Primecap is that, in a downturn, they might make more investment changes, and realize a lot of those gains. It's not just redemptions that cause gains to be taken, it's selling off a stock they feel has run it's course and buying the next favorite. I wonder how big Magellan distributions were when the guy who followed Lynch guessed the market peak too early and sold off a lot of winners. Late 90s, I believe.

Funds like Magellan had huge distributions each year IIRC... he had a 200% or so turnover...

The history of Primecap disproves your theory... here are the LT cap gain distributions... I excluded income and ST as ST is not much...


07 $4.28
08 $3.80
09 zero
10 $0.63
11 $2.12
12 $0.75
13 $3.89


I would bet that most of that gain in 08 was prior to the market crash... you would think that 09 would be the most if people are taking money out... and since this was the second worst market in 100 years I think it is what would happen in a smaller downturn....

 

[RunningBum]

One minor thing I noticed, state income tax refunds show up on 1040 line 10, so they are part of MAGI. Best to get state estimated payments correct or a little under.

 

[RunningBum]

Update: I modeled my situation with 2017 TurboTax. I can sell all of my Primecap with expected tax implications, but if I convert more than 35K of my tIRA to Roth, I start hitting the extra 3.8% Net Investment Income Tax, and if I convert over $45K I hit AMT. This was from a quick run, so over the weekend I'll recheck my input and everything else, but I'll probably sell the Primecap, and keep my conversion horserace winner (which happened to be invested in Primecap in my Roth, gaining ~20% this year), and that's it. The horserace loser (~2% in bond fund) would be taxed at 30% (15% rate + 15% CGs pushed into taxable), and as much as I'd like to get more converted, there's no advantage at that rate, so I'll probably recharacterize it. Certainly no advantage to convert into the NIIT and AMT add-ons on top of 30%, or even beyond where it drops to 25% or 28%, since NIIT and AMT would still put that over 30%.

 

[SecondCor521]

Are you reconverting before the end of the year?

If not, are you confident that the ability to recharacterize will be available after 1/1/18 given the new legislation?

 

[RunningBum]

I haven't decided yet. The big LTCG mean any conversions I do are being taxed at 30% (or more), and I'm over the ACA subsidy cliff, so I don't need to be precise with my conversion, and if it turns out I'm unable to recharacterize, it's not a big deal. I could give it until April to make sure the horserace winner stays in the lead.


On the other hand, it looks pretty clear that converting the current loser will be at 30% or more, so there's almost no chance I should keep it. And if the market tanks and the current winner falls back, I could just recharacterize that (at least to the top of 10%) if I can, and if not, live with it.


So yes, I'll most likely recharacterize the loser by the end of the year unless it's certain I could do it after the 1st.