Tax Gain Harvest, Roth Conversion or do nothing?

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mike2468
Posts: 13
Joined: Wed Jan 30, 2019 7:55 am

Tax Gain Harvest, Roth Conversion or do nothing?

Post by mike2468 » Fri Nov 15, 2019 9:14 am

Hello, I'm just an average investor trying to make sense of all this.

My fiance's single taxable income now is $28K. If I understand correctly that leaves around $12K that can be taxed gained with no tax liability as long as it is a long term gain. If this is true, I'm not sure if we should go through with it, do a Roth conversion or do nothing.

65% of her portfolio is in a Traditional IRA. We plan on retiring in 3 years and pulling $40K each year from our portfolio. If we take the MFJ standard deduction which is around $25K 3 years from now, then our taxable income should be around $15K which is in the 10% tax bracket if all stays the same.

Seems to me it makes sense to wait until we retire before we start any conversions and maybe just do a TGH of $12K instead.

Any thoughts would be appreciated.
Mike

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: Tax Gain Harvest, Roth Conversion or do nothing?

Post by Silk McCue » Fri Nov 15, 2019 9:40 am

Assuming your tax analysis is correct I would take 0% tax on the capital gain over 12% tax on a Roth Conversion in this scenario.

Cheers

Topic Author
mike2468
Posts: 13
Joined: Wed Jan 30, 2019 7:55 am

Re: Tax Gain Harvest, Roth Conversion or do nothing?

Post by mike2468 » Fri Nov 15, 2019 2:28 pm

Thanks Silk McCue. I appreciate your thoughts.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Tax Gain Harvest, Roth Conversion or do nothing?

Post by FiveK » Fri Nov 15, 2019 2:45 pm

Silk McCue wrote:
Fri Nov 15, 2019 9:40 am
Assuming your tax analysis is correct I would take 0% tax on the capital gain over 12% tax on a Roth Conversion in this scenario.
+1

The Roth conversion can be advantageous when one expects a higher marginal rate (e.g., due to RMDs) later. But if the expectation is for lower marginal rates later, take the 0% capital gains now and wait until later for the Roth conversion (or traditional withdrawal to satisfy RMDs or spending).

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