How to take advantage of 15% tax bracket?

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catdude
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How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 1:41 pm

Hi Bogleheads,

Last night I was hanging out here on Bogleheads, and I read in a thread that the long-term capital gains tax rate for folks in the 15% federal tax bracket is 0%. I did not know that. Amazing the things you learn hanging out on the Bogleheads forum!

As it happens, I'm in the 15% bracket. My income (from a pension) is quite predictable. The difference between my taxable income and the top of the 15% bracket is about 10K. I'd been planning on doing a Roth conversion for that amount -- taking the $$$ from my Fidelity tax-deferred money. But this news about the LT cap gains rate has me wondering if there's a better option. I checked my Vanguard taxable account this morning, and I've got about $31K in LT capital gains just sitting there. Would it be better to take money from my taxable account, enough to realize a $10K LT capital gain, and put the $$$ into a Fidelity taxable account (so as to not run afoul of wash rules)? This would have the advantage of bumping up my cost basis. What's better -- a Roth conversion at 15%, or a cap gains rate = 0%?
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Re: How to take advantage of 15% tax bracket?

Post by riptide » Fri Nov 06, 2015 1:46 pm

Thanks for the topic! I am also in the 15% bracket , mostly from be able to claim many things at tax time (landlord) and two children credits.
I will listen in to your thread for answers. Sorry , I have no answers for you now.
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Re: How to take advantage of 15% tax bracket?

Post by dsmil » Fri Nov 06, 2015 1:50 pm

I'm interested in this as well as I'll be a new member to the 15% club in 2016. My only plan of action so far is to convert everything in my traditional IRA to my Roth. I've been tempted to stay away from 529 plans but my guess is that we'll only be in the 15% bracket for a handful of years so I think the 529 could be a good idea in those years.
Last edited by dsmil on Fri Nov 06, 2015 2:07 pm, edited 1 time in total.

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BL
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Re: How to take advantage of 15% tax bracket?

Post by BL » Fri Nov 06, 2015 1:57 pm

There are no wash rules for CG so you can buy back immediately, as far as IRS rules apply. Any losses would use up the gains, so you don't want to do both in a single tax year in the 15% tax bracket.

There is not enough information to know which is best.
You could do some of each if you like.
Your heirs get a step-up in basis anyway.
You would have less Capital Gains when you sell, and perhaps would have tax loss harvesting available in future.

Will your RMDs put you into a higher bracket? Brackets also shrink in half when there is only the surviving spouse if that applies. RMDs start near 4% of your IRA and slowly increase over the years.

Converting to Roth could save you in future taxes.

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 2:10 pm

BL wrote:There are no wash rules for CG so you can buy back immediately, as far as IRS rules apply.
There is not enough information to know which is best.
You could do some of each if you like.
Your heirs get a step-up in basis anyway.
You would have less Capital Gains when you sell, and perhaps would have tax loss harvesting available in future.

Will your RMDs put you into a higher bracket? Brackets also shrink in half when there is only the surviving spouse if that applies. RMDs start near 4% of your IRA and slowly increase over the years.

Converting to Roth could save you in future taxes.
Thanks BL for your response. Yes, my RMD's will push me into a higher bracket. I'm 60 so I've got about 10 years to go before I have to take distributions.

My plan in general is to not touch my nest egg at all, if possible... certainly not for many years. If I do have to tap it, I think I'll be more likely to take $$$ from my taxable account than from my Roth IRA. I want to leave my Roth to my nieces, so that they can draw it down, tax-free, over their lifetimes.

I'm not married so there's no surviving spouse issue here. I'm in the 15% individual bracket.
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BL
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Re: How to take advantage of 15% tax bracket?

Post by BL » Fri Nov 06, 2015 2:47 pm

I am not an expert, but would lean toward Roth conversion since you will be in a higher bracket at age 70.
There is no harm in doing just a bit of CG harvesting if you think you might need to spend some of that. Do you need to limit current AGI for any other reason?

I would mentally consider what you are converting as excess tax-free spending money for yourself when you need it as opposed to selling and paying tax elsewhere (taxable or IRA).

In later life, there may be medical expenses such as nursing home, some assisted living that would be tax deductible after exceeding about 10% of AGI. This could mean that taxes on IRA withdrawals might be offset by deductions. It is possible that QCDs may still exist for charitable giving of RMDs when you reach 70 1/2.

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Re: How to take advantage of 15% tax bracket?

Post by TheGreyingDuke » Fri Nov 06, 2015 3:43 pm

Here is my simple take on it, but I haven't done too much modeling.

The capital gains will be taxed lower than regular income, at least under current laws. IRA distributions, on the other hand, will be taxed at your regular rate and RMDs will force you to take them. Capital gains you can take when you want, assuming you have the financial wherewithal.

I have been doing Roth conversions since I retired at 59, holding off SS until 70 gives me room to do this and stay in the 15% bracket.

A lot depends on future tax laws, something we cannot predict.
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Re: How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 4:02 pm

BL wrote:I am not an expert, but would lean toward Roth conversion since you will be in a higher bracket at age 70.
There is no harm in doing just a bit of CG harvesting if you think you might need to spend some of that. Do you need to limit current AGI for any other reason?

I would mentally consider what you are converting as excess tax-free spending money for yourself when you need it as opposed to selling and paying tax elsewhere (taxable or IRA).
No, there's no need to limit current AGI. As far as giving myself some tax-free spending money, I have to admit to being just a wee bit tempted to buy a new car. But that wouldn't be very Bogleheadish of me. My nine-year-old Camry runs just fine, and since I'm retired I don't do a whole lot of driving. I've only got about 54K miles on that car...
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Re: How to take advantage of 15% tax bracket?

Post by Peter Foley » Fri Nov 06, 2015 4:25 pm

I would lean toward doing some capital gain harvesting IF you do not have a cash reserve bucket of a least a couple years of expenses. Beyond that I think it is a toss up between Roth conversion and taxable capital gains unless you have a very large percentage of your assets in a tax deferred account. You have lots of years to be able to do Roth conversions if you delay SS benefits until full retirement age or age 70.

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 5:05 pm

Peter Foley wrote:I would lean toward doing some capital gain harvesting IF you do not have a cash reserve bucket of a least a couple years of expenses. Beyond that I think it is a toss up between Roth conversion and taxable capital gains unless you have a very large percentage of your assets in a tax deferred account. You have lots of years to be able to do Roth conversions if you delay SS benefits until full retirement age or age 70.
I do in fact have enough cash on hand to fund a couple years' expenses. And about 63 percent of my nest egg (taxable, tax-deferred, and savings accounts) is in tax-deferred accounts. If I include my home equity in my total assets, then tax-deferred money as a percentage of my total assets drops to 46 percent. I take it that your advice then would be for me to do Roth conversions?
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Re: How to take advantage of 15% tax bracket?

Post by talltodd » Fri Nov 06, 2015 5:38 pm

One of the more detailed articles on tax gain harvesting.
https://www.kitces.com/blog/understandi ... -in-basis/

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Re: How to take advantage of 15% tax bracket?

Post by zzcooper123 » Fri Nov 06, 2015 5:44 pm

It is hard to beat a 0% tax rate.
Why not take all your cap gains now and worry about Roth conversions later?
Remember the brackets go up a little every year.

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Re: How to take advantage of 15% tax bracket?

Post by BL » Fri Nov 06, 2015 6:00 pm

I forgot to mention that some states tax CG at the ordinary rates. I think mine would then tax it at over 7%, so you should check the rates for your state.

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Re: How to take advantage of 15% tax bracket?

Post by Watty » Fri Nov 06, 2015 6:16 pm

No good answer but a few more things to consider;

1) If your pension is not adjusted for inflation then you may have more space in the 15% tax bracket as the value of your pension becomes less. (Assuming that the tax brackets are adjusted for inflation.)

2) If you are married and in the 15% tax bracket then you may be in a higher tax bracket if one of you survives the other and then files tax returns in the higher single tax brackets.

3) Once you start Social Security then you may have a higher effective tax bracket even if you are in the 15% tax bracket.

https://www.bogleheads.org/wiki/Taxatio ... y_benefits

This is because for certain income ranges each extra dollar of income may cause $.50 to $.85 of your social security to become taxable too. I am not 100% sure but I think that capital gains in the 15% tax bracket which are taxed at 0%, might still cause more of your Social Security to be taxed.

4) Remember to look at your state taxes too.

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Re: How to take advantage of 15% tax bracket?

Post by talltodd » Fri Nov 06, 2015 6:39 pm

Unless you live in an income tax free state there will still be some tax. It can be tricky to manage tax gain harvesting, Roth conversion, and Premium Tax Credit/Cost Sharing Reduction subsidies for ACA health insurance all at once.
http://www.gocurrycracker.com/obamacare ... #more-5063

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Re: How to take advantage of 15% tax bracket?

Post by dratkinson » Fri Nov 06, 2015 6:45 pm

Roth conversions are taxed as ordinary income, so 0% LTCG federal benefit in <=15% fed bracket, does not apply.

If you could do some TLHing, that would directly offset your Roth conversion. In current year, TLHing (ST loss, taxed at ordinary income rate) offsets Roth conversion dollar-for-dollar. Only excess TLH is carried over. Loss carryover consumed as $3K LT loss/yr afterwards.


Harvesting 0% LTCG in 15% tax bracket is not completely tax free. Why? Because federal 0% tax benefit does not apply to states, so you will owe income tax at state tax rate.

Can harvest LTCG to either Fidelity or Vanguard. Example: Sell Vanguard TSM, buy Fidelity TSM. Or sell Vanguard TSM, buy Vanguard equivalent: S&P500/80% + extended market index/20%. Fund selection depends upon what you are selling. Your choice.


Do not mix TLHing, or loss carryover from previous years, with harvesting LTCGs. Why? The TLH/loss carryover first offsets LTCG (taxed at 0% in 15% bracket), and not your ordinary income (taxed at 15%), so is wasted. As you want the loss to offset ordinary income, this means minimizing LTCGs in the same year. See Sch D.


Roth conversion (taxed as ordinary income) vs. raising cost basis (taxed 0% fed + state tax rate). If you are not yet taking SS, and don't need the RMDs and don't want to be forced to take them, then this lower-income time is probably better used for the Roth conversion. Will have less headroom to convert after SS starts.
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Re: How to take advantage of 15% tax bracket?

Post by Timoneer » Fri Nov 06, 2015 8:00 pm

johnny wrote:Hi Bogleheads,

Last night I was hanging out here on Bogleheads, and I read in a thread that the long-term capital gains tax rate for folks in the 15% federal tax bracket is 0%. I did not know that. Amazing the things you learn hanging out on the Bogleheads forum!

As it happens, I'm in the 15% bracket. My income (from a pension) is quite predictable. The difference between my taxable income and the top of the 15% bracket is about 10K. I'd been planning on doing a Roth conversion for that amount -- taking the $$$ from my Fidelity tax-deferred money. But this news about the LT cap gains rate has me wondering if there's a better option. I checked my Vanguard taxable account this morning, and I've got about $31K in LT capital gains just sitting there. Would it be better to take money from my taxable account, enough to realize a $10K LT capital gain, and put the $$$ into a Fidelity taxable account (so as to not run afoul of wash rules)? This would have the advantage of bumping up my cost basis. What's better -- a Roth conversion at 15%, or a cap gains rate = 0%?
I am also currently in the 15% bracket, expecting it to rise to 25% when I hit 70 with delayed SS and RMD's. Up until this year, I have been using my 'ceiling space' for Roth conversions. But lately I have reconsidered, and have been taking some LT cap gains.

If I were to use $10K of bracket ceiling space for Roth conversions, I would pay $1500 in tax now, to save $2500 in the future, a net $1000 less long term.

But if I realize $10K of LTCG instead, I pay zero in tax now, instead of $1500 in the future when my bracket is higher. I end up $500 ahead of the previous strategy. Additionally, by getting rid of my unrealized CG, I am better able to take advantage of tax loss harvesting if the opportunity arises.

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Re: How to take advantage of 15% tax bracket?

Post by Watty » Fri Nov 06, 2015 8:06 pm

One other thing to keep in mind is that if you married and are in the 15% tax bracket now and don't expect your earnings to increase a lot then you may be in a very low tax or even zero tax bracket by the time you are getting Social Security.

Unless you expect to be in a higher tax bracket in retirement then doing the Roth conversion in the 15% tax bracket would have limited value.

It really depends on the details of your situation.

For example in TaxCaster if you enter;
1) a 67 year old couple.
2) $25,000 in taxable income
3) $35,000 in Social Security

That would only result in having to pay $718 in federal income taxes.

Even though there will be new retirement expenses with a paid off house, no more child raising expenses, no more retirement savings, no more FICA taxes, etc that might leave you with more disposable income than you have now.

A Roth could still be useful for years when you have unusually high expenses and if you are expecting to have a lot of your social security taxes but I would cautious about assuming that you will be in a real high retirement tax bracket if you are in the 15% tax bracket now.

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 8:32 pm

talltodd wrote:One of the more detailed articles on tax gain harvesting.
https://www.kitces.com/blog/understandi ... -in-basis/
Thanks for the link... really a good article.
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Re: How to take advantage of 15% tax bracket?

Post by catdude » Fri Nov 06, 2015 8:47 pm

Thank you all for your input. A couple of you recommended that I check my state tax rate. I did check... Oregon taxes capital gains as ordinary income, and my marginal state rate is 9 percent. (There's no sales tax here, so the state is heavily dependent on its income tax). I'm now a little less keen on doing tax gain harvesting... Of course, if I do the Roth conversion, I'll owe 24 percent (15 percent federal + 9 percent state). I guess there's no such thing as a free lunch.

Regarding Social Security... My pension plan is an "integrated" plan, i.e., it's integrated with social security. Once I start collecting SS, my pension will drop by a roughly equivalent amount. When that happens, my tax planning probably won't be all that neat & tidy, but I'll probably be in the same tax bracket.
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Re: How to take advantage of 15% tax bracket?

Post by David Jay » Sat Nov 07, 2015 1:37 am

Johnny:

I put together a planning spreadsheet because I suspected that my RMDs would take me into the 25% tax bracket in retirement (and they would have). I am making Roth conversions every year - as close to the top of the 15% tax bracket as I can reliably guess - and the result should be that my RMDs should not take me out of the 15% bracket.

So I would look at this and see if you can minimize RMD taxes later by doing Roth conversions up to the top of the 15% tax bracket.
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Re: How to take advantage of 15% tax bracket?

Post by tbradnc » Sat Nov 07, 2015 8:41 am

Am I understanding this correctly?

Assume married filing jointly with a taxable income for 2015 of $16,000. Standard deduction and personal exemption adds up to $20,600. Automatic given is a Roth conversion of $4600 to fill up the tax free space.

Could I then realize $28,224 in LTCG and owe no tax on that as well? ($28,224 is the difference between the top of the 10% bracket and top of the 15% bracket)

If so, I'm happy to do it!

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Re: How to take advantage of 15% tax bracket?

Post by happymob » Sat Nov 07, 2015 8:45 am

We still have ~$30K of carryover capital losses, so tax-gain harvesting isn't ideal at this time.

What we currently are doing is rolling over traditional IRAs to Roth IRAs. Once that is finished, we will shift some money currently going into a traditional 403b plan into a Roth 403b plan. If we can manage it, we will try to stay at the top of the 15% tax bracket indefinitely.

We expect to be in a higher tax bracket in retirement (pension + inheritance will likely push income up rather than down), so the conversions make a lot of sense right now.

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Re: How to take advantage of 15% tax bracket?

Post by Watty » Sat Nov 07, 2015 10:31 am

tbradnc wrote:Am I understanding this correctly?

Assume married filing jointly with a taxable income for 2015 of $16,000. Standard deduction and personal exemption adds up to $20,600. Automatic given is a Roth conversion of $4600 to fill up the tax free space.

Could I then realize $28,224 in LTCG and owe no tax on that as well? ($28,224 is the difference between the top of the 10% bracket and top of the 15% bracket)

If so, I'm happy to do it!

Double check which tax table you got the $28,224 from. For a joint return it should be a lot more. You may have used the single return numbers. The LTCG in the 10% tax bracket would also be in that figure. Other than that it sounds right.

You can check your numbers by using TaxCaster.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/


A problem though is that you could still own state income taxes. It would not be exact but you can use last years tax software to make up a dummy tax return to get a general idea of how much state income tax you would owe on the Roth conversion and capital gains.

If you are getting a healthcare subsidy from the affordable care act the Roth conversion and capital gains could cause you to lose it.

If you are already getting Social Security then that might also cause more of your Social Security to be taxed.

It would not be common but there could also be some other income based tax credits or benefits that the capital gains could also impact you would need to watch out for that.

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Re: How to take advantage of 15% tax bracket?

Post by tbradnc » Sat Nov 07, 2015 12:11 pm

Watty wrote:
Double check which tax table you got the $28,224 from. For a joint return it should be a lot more. You may have used the single return numbers. The LTCG in the 10% tax bracket would also be in that figure. Other than that it sounds right.

You can check your numbers by using TaxCaster.

https://turbotax.intuit.com/tax-tools/c ... taxcaster/


A problem though is that you could still own state income taxes. It would not be exact but you can use last years tax software to make up a dummy tax return to get a general idea of how much state income tax you would owe on the Roth conversion and capital gains.

If you are getting a healthcare subsidy from the affordable care act the Roth conversion and capital gains could cause you to lose it.

If you are already getting Social Security then that might also cause more of your Social Security to be taxed.

It would not be common but there could also be some other income based tax credits or benefits that the capital gains could also impact you would need to watch out for that.
Thanks you.

Not to co-op the post from the OP but.. we live in TN so no state income tax. For the 2016 subsidy I added $10,000 to what I expect our 2016 MAGI to be so I have some room to play.

Now for the dumb question I'm afraid to ask because it's so dumb.... To realize $x of LTCG do you just sell the same $x amount of the fund with the LTCG. For ex - to realized $25,000 in LTCG from Total Stock Market I'd just have to sell $25,000 worth of Total Stock Market?

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Sat Nov 07, 2015 12:15 pm

Let me be a little more specific about my situation -- maybe that will clarify things a bit.

One thing that seems pretty firm is that over the next 10 years I should have around $10K on available "space" in the 15% bracket every year... space available for Roth conversions. My pension is indexed for inflation; I think it's pretty safe to assume that it will increase at more or less the same rate as the federal tax brackets.

I've currently got $400K in IRA's. My current mix in these IRA's is roughly 70% bonds / 30% stocks. (I'm more aggressive with my Roth IRA). If I leave this money alone for ten years, I figure if I get 3.0 - 3.5% return the balance should be around $550K when I'm 70.5. My initial RMD will be about 4% of the balance, right? So I project that I'll have an RMD of about $22,000. It seems pretty certain to me that if I do nothing I'll wind up at 70.5 in the 25% fed tax bracket.
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Re: How to take advantage of 15% tax bracket?

Post by House Blend » Sat Nov 07, 2015 1:24 pm

johnny wrote:Regarding Social Security... My pension plan is an "integrated" plan, i.e., it's integrated with social security. Once I start collecting SS, my pension will drop by a roughly equivalent amount. When that happens, my tax planning probably won't be all that neat & tidy, but I'll probably be in the same tax bracket.
Same bracket, yes. But unfortunately, that does not mean the same marginal tax rate, and that's what matters.

If you are in the 15% bracket when you start receiving SS, you marginal rate could turn out to be 27.75%, and if you are in the 25% bracket, it could be 46.25%.

This makes Roth conversions in the 15% bracket now even more compelling.

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Re: How to take advantage of 15% tax bracket?

Post by House Blend » Sat Nov 07, 2015 1:27 pm

tbradnc wrote:Now for the dumb question I'm afraid to ask because it's so dumb.... To realize $x of LTCG do you just sell the same $x amount of the fund with the LTCG. For ex - to realized $25,000 in LTCG from Total Stock Market I'd just have to sell $25,000 worth of Total Stock Market?
No. The G stands for Gains.

If you sell $25,000 worth of TSM, and you paid $15,000 for those shares, then you report only $10,000 in capital gains. (And you must have bought them > 1 year ago for them to count as long term.)

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Sat Nov 07, 2015 1:36 pm

House Blend wrote:
johnny wrote:Regarding Social Security... My pension plan is an "integrated" plan, i.e., it's integrated with social security. Once I start collecting SS, my pension will drop by a roughly equivalent amount. When that happens, my tax planning probably won't be all that neat & tidy, but I'll probably be in the same tax bracket.
Same bracket, yes. But unfortunately, that does not mean the same marginal tax rate, and that's what matters.

If you are in the 15% bracket when you start receiving SS, you marginal rate could turn out to be 27.75%, and if you are in the 25% bracket, it could be 46.25%.

This makes Roth conversions in the 15% bracket now even more compelling.
Oh what fun this is! :shock:

85% of SS income is subject to fed tax, right? I assume that's how you arrived at these potential marginal rates.

Anyway, thanks HB for pointing this out.

Just to make things a bit stickier.... I had an e-mail exchange with my brother last night & this morning. He told me he'd heard somewhere that the state of Oregon doesn't tax social security benefits. I checked, and he's right. No state tax on SS...
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Re: How to take advantage of 15% tax bracket?

Post by House Blend » Sat Nov 07, 2015 1:40 pm

^Sort of, yes. The skinny is here in the wiki:
https://www.bogleheads.org/wiki/Taxatio ... y_benefits

Credit to Watty for mentioning this first upthread.

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Re: How to take advantage of 15% tax bracket?

Post by tbradnc » Sat Nov 07, 2015 1:40 pm

I'm missing something simple, I know.

RIght now the total cost of my Total Stock Market shares are $243,172.55 with a current market value of $412,206.73. Of that, $1,013.51 is STCG and $168,020.68 is LTCG.

If I wanted to realize $25,000 of LTCG here would I just sell $25,000 worth of TSM, correct?

(I'm not on a mission to do this, just wondering if I understand correctly)

p.s. Sorry Johnny, for mixing it up in your thread.

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Re: How to take advantage of 15% tax bracket?

Post by catdude » Sat Nov 07, 2015 2:05 pm

House Blend wrote:^Sort of, yes. The skinny is here in the wiki:
https://www.bogleheads.org/wiki/Taxatio ... y_benefits

Credit to Watty for mentioning this first upthread.
OK thanks for the link HB. If I read this correctly, it looks like there's a fairly good chance my marginal fed rate could be 46.25% once I start taking SS. Like you say, the case for doing Roth conversions is looking stronger.
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Re: How to take advantage of 15% tax bracket?

Post by catdude » Sat Nov 07, 2015 2:08 pm

tbradnc wrote:p.s. Sorry Johnny, for mixing it up in your thread.
No problem, dude (or dude-ette, as the case may be). The more the merrier. :)
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Re: How to take advantage of 15% tax bracket?

Post by triceratop » Sat Nov 07, 2015 2:19 pm

tbradnc wrote:I'm missing something simple, I know.

RIght now the total cost of my Total Stock Market shares are $243,172.55 with a current market value of $412,206.73. Of that, $1,013.51 is STCG and $168,020.68 is LTCG.

If I wanted to realize $25,000 of LTCG here would I just sell $25,000 worth of TSM, correct?

(I'm not on a mission to do this, just wondering if I understand correctly)

p.s. Sorry Johnny, for mixing it up in your thread.
Incorrect; you would sell enough shares so that your long term gain was $25k. The "SpecID" method for basis accounting can help very much here since you want to sell specific lots with long term gains only.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Peter Foley
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Re: How to take advantage of 15% tax bracket?

Post by Peter Foley » Sun Nov 08, 2015 12:02 am

I'm not sure there is a right answer here except in hindsight. I'll throw in another wrinkle. If you do not think you will need all your money to fund your retirement, or if you do a fair amount of charitable contributions every year, I would let the taxable account sit and concentrate on Roth conversions.

My reasoning is that you can donate appreciated shares in your taxable account to a donor advised fund and then use that fund to support your favorite charities. Or, if you wish, don't spend your taxable account and leave it to your heirs where it will be adjusted for basis upon your death (in 30 or 40 years) and no taxes on the gains will ever be paid.

I know just a couple people who have the pension linked to the SS. The linkage required them to take SS at full retirement age. I'm not sure if that is your case or not. Oregon's non taxation of SS is certainly an additional factor to consider. I honestly don't know how to factor that in so I will stay silent on that matter.

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catdude
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Re: How to take advantage of 15% tax bracket?

Post by catdude » Sun Nov 08, 2015 3:37 pm

Peter Foley wrote:I'm not sure there is a right answer here except in hindsight. I'll throw in another wrinkle. If you do not think you will need all your money to fund your retirement, or if you do a fair amount of charitable contributions every year, I would let the taxable account sit and concentrate on Roth conversions.

My reasoning is that you can donate appreciated shares in your taxable account to a donor advised fund and then use that fund to support your favorite charities. Or, if you wish, don't spend your taxable account and leave it to your heirs where it will be adjusted for basis upon your death (in 30 or 40 years) and no taxes on the gains will ever be paid.

I know just a couple people who have the pension linked to the SS. The linkage required them to take SS at full retirement age. I'm not sure if that is your case or not. Oregon's non taxation of SS is certainly an additional factor to consider. I honestly don't know how to factor that in so I will stay silent on that matter.
At this point my inclination is to do the Roth conversions. It is indeed the case that I don't think I'll need all my money to fund my retirement. My plan is to just live off my pension and let my nest egg just sit there. I hope to have a nice long retirement (don't we all?) and ya never know what can happen. My ex-employer could say that they can't afford to pay my full pension anymore; they could take away or curtail my health insurance; I may need assisted living or nursing home care down the road. Hopefully none of this will come to pass... If things go relatively well for me, then I'll be leaving my nest egg to my heirs and/or to charity. Regarding my taxable account, I'd say there's a 70-75% chance that I won't touch this money, and as you say Peter I can either leave it to my heirs (with stepped-up basis), or donate appreciated shares to favorite charities.

Another reason for doing the Roth conversions is that, as Watty and House Blend have pointed out, I could possibly have a marginal federal tax rate of 46.25% once I start taking Social Security. I don't pretend to have a handle on this whole business of taxation of social security, but that high potential rate certainly makes the case stronger for doing Roth conversions.

I don't know for sure, but I'm guessing that my ex-employer will require me to starting take SS at full retirement age -- which, if I recall correctly, in my case is 66 years and 2 months old.

Thank you all for helping me to work thru this business!
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samtex
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Re: How to take advantage of 15% tax bracket?

Post by samtex » Sun Nov 15, 2015 12:21 am

As stated earlier on this thread, capital gains aren't taxed in the 15% tax bracket but can capital losses be deducted in either the 15 or 0% bracket? Part of the question has to do with the ACA calculations.

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Re: How to take advantage of 15% tax bracket?

Post by triceratop » Sun Nov 15, 2015 3:31 am

samtex wrote:As stated earlier on this thread, capital gains aren't taxed in the 15% tax bracket but can capital losses be deducted in either the 15 or 0% bracket? Part of the question has to do with the ACA calculations.
To your question concerning whether capital losses count as deductions: yes. You win on the deductions (loss) side and win on the gains side. Naturally, you would need to be strategic here, to avoid tax gain harvesting in the same tax year as you plan to deduct losses off of income (up to $3000).

I'll defer to someone more experienced with the ACA to answer that part.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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