Capturing the loss plus tax-free gain in Roth?

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Topic Author
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by 02nz »

OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
Last edited by 02nz on Sun Aug 02, 2020 6:26 pm, edited 1 time in total.
kaneohe
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Re: Capturing the loss plus tax-free gain in Roth?

Post by kaneohe »

wash sale?
02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by 02nz »

I notice you wrote this just now in another thread, about using the Wellington Fund in your Roth IRA: "The reason why I do that because I have no idea when I need to access the money in the Roth IRA. And, I may need to use the money in a recession/market downturn."

Assuming you have a tax-deferred account (IRA/401k) as well, then no reason why you have to have a more conservative AA in your Roth IRA just because you might need to draw on it. With bonds in tax-deferred and stocks-only in Roth IRA, if you needed to draw from the Roth IRA, even in a down market, you just sell bonds and buy stocks in tax-deferred to adjust. No tax implications, of course.
Topic Author
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

02nz wrote: Sun Aug 02, 2020 6:25 pm OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
02nz,

1) In my real portfolio, the reason is I need to use all the tax-advantaged space for my Wellington fund and the bond.

2) I am not buying a substantially identical fund. Hence, the wash sale does not apply.

KlangFool
02nz
Posts: 5553
Joined: Wed Feb 21, 2018 3:17 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by 02nz »

KlangFool wrote: Sun Aug 02, 2020 6:30 pm
02nz wrote: Sun Aug 02, 2020 6:25 pm OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
02nz,

1) In my real portfolio, the reason is I need to use all the tax-advantaged space for my Wellington fund and the bond.

2) I am not buying a substantially identical fund. Hence, the wash sale does not apply.

KlangFool
OK, maybe I'm being dense, but can you ask your question using your real portfolio?
Topic Author
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

02nz wrote: Sun Aug 02, 2020 6:32 pm
KlangFool wrote: Sun Aug 02, 2020 6:30 pm
02nz wrote: Sun Aug 02, 2020 6:25 pm OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
02nz,

1) In my real portfolio, the reason is I need to use all the tax-advantaged space for my Wellington fund and the bond.

2) I am not buying a substantially identical fund. Hence, the wash sale does not apply.

KlangFool
OK, maybe I'm being dense, but can you ask your question using your real portfolio?
02nz,

Tax-deferred Accounts -> Wellington Fund (65/35), VBTLX (Total Bond Index), VFIUX (Inter-mediate Term Treasury)

Roth IRA, Roth 401K -> Wellington Fund (65/35), VTWAX (Total World Index Fund)

Taxable account -> VTSAX (Total Stock Market Index Fund), VTIAX (International Index Fund)

If the stock market drop 50%, I can sell the Wellington fund in the Roth IRA to buy the Total World Index fund for rebalancing.

KlangFool
02nz
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Joined: Wed Feb 21, 2018 3:17 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by 02nz »

KlangFool wrote: Sun Aug 02, 2020 6:41 pm
02nz wrote: Sun Aug 02, 2020 6:32 pm
KlangFool wrote: Sun Aug 02, 2020 6:30 pm
02nz wrote: Sun Aug 02, 2020 6:25 pm OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
02nz,

1) In my real portfolio, the reason is I need to use all the tax-advantaged space for my Wellington fund and the bond.

2) I am not buying a substantially identical fund. Hence, the wash sale does not apply.

KlangFool
OK, maybe I'm being dense, but can you ask your question using your real portfolio?
02nz,

Tax-deferred Accounts -> Wellington Fund (65/35), VBTLX (Total Bond Index), VFIUX (Inter-mediate Term Treasury)

Roth IRA, Roth 401K -> Wellington Fund (65/35), VTWAX (Total World Index Fund)

Taxable account -> VTSAX (Total Stock Market Index Fund), VTIAX (International Index Fund)

If the stock market drop 50%, I can sell the Wellington fund in the Roth IRA to buy the Total World Index fund for rebalancing.

KlangFool
If you want to TLH because the market dropped, it seems easiest to sell VTSAX and VTIAX in taxable, and buy VTWAX in taxable.
TravelforFun
Posts: 2185
Joined: Tue Dec 04, 2012 11:05 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by TravelforFun »

KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
1) You don't have a loss until you sell the stocks. So if the value of your stocks in the taxable account goes from $100k to $50k, you just have a paper loss. Assuming you sell all and suffer a loss of $50k and you don't have other capital gains, only up to $3,000 of the loss can be used to offset your income a year and the rest can be carried forward.

2) If you decide to sell your stocks in your taxable account and still want to maintain a 50-50 AA, you should: a) take the $50k you have in the taxable and buy bonds, and b) sell $75k of bonds in your Roth and buy stocks; then you would have $50k in bonds in taxable, and $25k in bonds and $75k in stocks in your Roth; a 50-50 AA.

Roth is the account you want to leave alone the longest and hence, needs to be as heavily in stocks as your AA allows. All my Roth accounts are 100% stocks, and the bonds are located in the traditional IRAs.

TravelforFun
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

02nz wrote: Sun Aug 02, 2020 6:47 pm
KlangFool wrote: Sun Aug 02, 2020 6:41 pm
02nz wrote: Sun Aug 02, 2020 6:32 pm
KlangFool wrote: Sun Aug 02, 2020 6:30 pm
02nz wrote: Sun Aug 02, 2020 6:25 pm OK, but my question is why you have 100% bonds in your Roth IRA to begin with?

Also, you'd have to watch out for a wash sale, obviously, so you cannot buy a substantially identical security in the Roth IRA.
02nz,

1) In my real portfolio, the reason is I need to use all the tax-advantaged space for my Wellington fund and the bond.

2) I am not buying a substantially identical fund. Hence, the wash sale does not apply.

KlangFool
OK, maybe I'm being dense, but can you ask your question using your real portfolio?
02nz,

Tax-deferred Accounts -> Wellington Fund (65/35), VBTLX (Total Bond Index), VFIUX (Inter-mediate Term Treasury)

Roth IRA, Roth 401K -> Wellington Fund (65/35), VTWAX (Total World Index Fund)

Taxable account -> VTSAX (Total Stock Market Index Fund), VTIAX (International Index Fund)

If the stock market drop 50%, I can sell the Wellington fund in the Roth IRA to buy the Total World Index fund for rebalancing.

KlangFool
If you want to TLH because the market dropped, it seems easiest to sell VTSAX and VTIAX in taxable, and buy VTWAX in taxable.
I can tax loss harvest in the taxable account without buying vtwax in the taxable account.

KlangFool
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

TravelforFun wrote: Sun Aug 02, 2020 6:54 pm
KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
1) You don't have a loss until you sell the stocks. So if the value of your stocks in the taxable account goes from $100k to $50k, you just have a paper loss. Assuming you sell all and suffer a loss of $50k and you don't have other capital gains, only up to $3,000 of the loss can be used to offset your income a year and the rest can be carried forward.

2) If you decide to sell your stocks in your taxable account and still want to maintain a 50-50 AA, you should: a) take the $50k you have in the taxable and buy bonds, and b) sell $75k of bonds in your Roth and buy stocks; then you would have $50k in bonds in taxable, and $25k in bonds and $75k in stocks in your Roth; a 50-50 AA.

Roth is the account you want to leave alone the longest and hence, needs to be as heavily in stocks as your AA allows. All my Roth accounts are 100% stocks, and the bonds are located in the traditional IRAs.

TravelforFun
I don't want bond in my taxable account.

KlangFool
earlyout
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Re: Capturing the loss plus tax-free gain in Roth?

Post by earlyout »

There are certainly many ways to rebalance but given your constraint of no bonds in taxable this seems like a reasonable way to rebalance back to 50:50 and increase the stock allocation in the Roth. It also has the advantage that in the future you can rebalance within the Roth w/o incurring tax on capital gains.
Topic Author
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

earlyout wrote: Sun Aug 02, 2020 7:52 pm There are certainly many ways to rebalance but given your constraint of no bonds in taxable this seems like a reasonable way to rebalance back to 50:50 and increase the stock allocation in the Roth. It also has the advantage that in the future you can rebalance within the Roth w/o incurring tax on capital gains.
Correct. It looks like a way to increase the Roth space during a market downturn.

KlangFool
000
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Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

The analysis is missing the opportunity cost of bonds in Roth for all the years before the crash.
Topic Author
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

000 wrote: Sun Aug 02, 2020 8:38 pm The analysis is missing the opportunity cost of bonds in Roth for all the years before the crash.
000,

1) At my income/tax bracket level, the long-term capital gain tax rate is 0%. Meanwhile, I have to pay a marginal income tax rate for the bond's interest income.

2) It does not make sense to put bonds in the taxable account.

KlangFool
NYCguy
Posts: 346
Joined: Sun Nov 13, 2016 12:42 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by NYCguy »

KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
Yes your strategy works, but I think it is a form of market timing.

You assume the market goes down and then recovers. IF that occurs you will get the benefits you describe while maintaining your asset allocation. IF equities rise 100%, you will pay long term cap gains instead of having tax free gains in the Roth.

For me the sequence of analysis is:

1. What is my correct AA?
2. Given my AA, what is the best place to hold those assets (Roth, tax deferred or taxable)?
3. What are my TLH opportunities during a downturn?

I think you are deciding 2 based upon maximizing TLH opportunities given your AA. However, there is no free lunch in investing and you are giving up potential tax free Roth gains depending upon sequence of returns.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

KlangFool wrote: Sun Aug 02, 2020 8:49 pm
000 wrote: Sun Aug 02, 2020 8:38 pm The analysis is missing the opportunity cost of bonds in Roth for all the years before the crash.
000,

1) At my income/tax bracket level, the long-term capital gain tax rate is 0%. Meanwhile, I have to pay a marginal income tax rate for the bond's interest income.

2) It does not make sense to put bonds in the taxable account.

KlangFool
If that is true, tax loss harvesting will result in paying more taxes if the LTCG rate is ever higher than the current ordinary income rate because it lowers the basis.
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

More things to consider:
1. Selling the stock could turn qualified dividends into non-qualified.
2. It's possible the next crash will be in bonds, not stocks.
3. Yields may (have already) become low enough that the current tax cost is less than the risk of increased taxes in the future.
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

NYCguy wrote: Sun Aug 02, 2020 8:59 pm
KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
Yes your strategy works, but I think it is a form of market timing.

You assume the market goes down and then recovers. IF that occurs you will get the benefits you describe while maintaining your asset allocation. IF equities rise 100%, you will pay long term cap gains instead of having tax free gains in the Roth.

For me the sequence of analysis is:

1. What is my correct AA?
2. Given my AA, what is the best place to hold those assets (Roth, tax deferred or taxable)?
3. What are my TLH opportunities during a downturn?

I think you are deciding 2 based upon maximizing TLH opportunities given your AA. However, there is no free lunch in investing and you are giving up potential tax free Roth gains depending upon sequence of returns.
NYCguy,

<<Yes your strategy works, but I think it is a form of market timing.>>

I am rebalancing to maintain my fixed AA. It is not market timing.

<<IF equities rise 100%, you will pay long term cap gains instead of having tax free gains in the Roth.>>

Then, the rebalancing of selling the bond to buy the stock does not happen. But, my long-term capital gain tax rate is 0%.

<<there is no free lunch in investing >>

Yes, there is free lunch in this case.


<<For me the sequence of analysis is:

1. What is my correct AA?
2. Given my AA, what is the best place to hold those assets (Roth, tax deferred or taxable)?
3. What are my TLH opportunities during a downturn?>>

I had made the same decision. It turns out that in a market down turn, I could TLH and potentially increase my Roth space at the same time.

KlangFool
Last edited by KlangFool on Sun Aug 02, 2020 9:57 pm, edited 1 time in total.
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

000 wrote: Sun Aug 02, 2020 9:14 pm More things to consider:
1. Selling the stock could turn qualified dividends into non-qualified.
2. It's possible the next crash will be in bonds, not stocks.
3. Yields may (have already) become low enough that the current tax cost is less than the risk of increased taxes in the future.
1) That get wash out with the TLH.

2) The crash in the bond would not be big enough to trigger rebalancing.

3) It does not change the fact that 0% LTCG tax rate is smaller than my marginal tax rate.

KlangFool
000
Posts: 2680
Joined: Thu Jul 23, 2020 12:04 am

Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

KlangFool wrote: Sun Aug 02, 2020 9:56 pm
000 wrote: Sun Aug 02, 2020 9:14 pm More things to consider:
1. Selling the stock could turn qualified dividends into non-qualified.
2. It's possible the next crash will be in bonds, not stocks.
3. Yields may (have already) become low enough that the current tax cost is less than the risk of increased taxes in the future.
1) That get wash out with the TLH.

2) The crash in the bond would not be big enough to trigger rebalancing.

3) It does not change the fact that 0% LTCG tax rate is smaller than my marginal tax rate.

KlangFool
1. Sorry, I don't follow. Wouldn't one owe taxes on the non-qualified dividends now?
2. You don't know that. Also, what if gains in stocks trigger the rebalancing?
3. TLH only defers taxes (unless one dies without selling and gets the step-up). So if one's future LTCG rate is higher than marginal ordinary, it does matter.
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

000 wrote: Sun Aug 02, 2020 9:59 pm
KlangFool wrote: Sun Aug 02, 2020 9:56 pm
000 wrote: Sun Aug 02, 2020 9:14 pm More things to consider:
1. Selling the stock could turn qualified dividends into non-qualified.
2. It's possible the next crash will be in bonds, not stocks.
3. Yields may (have already) become low enough that the current tax cost is less than the risk of increased taxes in the future.
1) That get wash out with the TLH.

2) The crash in the bond would not be big enough to trigger rebalancing.

3) It does not change the fact that 0% LTCG tax rate is smaller than my marginal tax rate.

KlangFool
1. Sorry, I don't follow. Wouldn't one owe taxes on the non-qualified dividends now?
2. You don't know that. Also, what if gains in stocks trigger the rebalancing?
3. TLH only defers taxes (unless one dies without selling and gets the step-up). So if one's future LTCG rate is higher than marginal ordinary, it does matter. Portfolio
1) Not if the loss in the TLH is bigger.

2) I know that. The gain or loss in stock/bond need to exceed 30% in order to trigger rebalancing in my portfolio.

3) Not if someone tax gain harvest at 0%

KlangFool
NYCguy
Posts: 346
Joined: Sun Nov 13, 2016 12:42 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by NYCguy »

KlangFool wrote: Sun Aug 02, 2020 9:53 pm
NYCguy wrote: Sun Aug 02, 2020 8:59 pm
KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
Yes your strategy works, but I think it is a form of market timing.

You assume the market goes down and then recovers. IF that occurs you will get the benefits you describe while maintaining your asset allocation. IF equities rise 100%, you will pay long term cap gains instead of having tax free gains in the Roth.

For me the sequence of analysis is:

1. What is my correct AA?
2. Given my AA, what is the best place to hold those assets (Roth, tax deferred or taxable)?
3. What are my TLH opportunities during a downturn?

I think you are deciding 2 based upon maximizing TLH opportunities given your AA. However, there is no free lunch in investing and you are giving up potential tax free Roth gains depending upon sequence of returns.
NYCguy,

<<Yes your strategy works, but I think it is a form of market timing.>>

I am rebalancing to maintain my fixed AA. It is not market timing.

<<IF equities rise 100%, you will pay long term cap gains instead of having tax free gains in the Roth.>>

Then, the rebalancing of selling the bond to buy the stock does not happen. But, my long-term capital gain tax rate is 0%.

<<there is no free lunch in investing >>

Yes, there is free lunch in this case.


<<For me the sequence of analysis is:

1. What is my correct AA?
2. Given my AA, what is the best place to hold those assets (Roth, tax deferred or taxable)?
3. What are my TLH opportunities during a downturn?>>

I had made the same decision. It turns out that in a market down turn, I could TLH and potentially increase my Roth space at the same time.

KlangFool
A lot of problems go away if your LTCG rate is forever zero. If that is the case, you should TLH in the taxable account but not rebalance inside the Roth. Let the Roth bond income grow tax free and you will never pay tax on the taxable stocks if you assume zero LTCG. Your estate also should get stepped up basis at death.
If your out-go is greater than your income, your upkeep will be your DOWNFALL.
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

NYCguy wrote: Mon Aug 03, 2020 9:17 am
A lot of problems go away if your LTCG rate is forever zero. If that is the case, you should TLH in the taxable account but not rebalance inside the Roth. Let the Roth bond income grow tax free and you will never pay tax on the taxable stocks if you assume zero LTCG. Your estate also should get stepped up basis at death.
NYCguy,

<<but not rebalance inside the Roth. Let the Roth bond income grow tax free and you will never pay tax on the taxable stocks>>

This is part of the overall tax diversification strategy. The Roth IRA space increases my ability to TGH at 0% LTCG.

I could spend from

A) Roth IRA and CASH -> Tax-Free.

B) Roth conversion of tax-deferred account to take advantage of the standard deduction

C) Tax Gain Harvest up to LTCG of 0%.

KlangFool
rossington
Posts: 769
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Capturing the loss plus tax-free gain in Roth?

Post by rossington »

KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
You can't TLH unless you actually sell the stock so if the value is now 50k because of a market drop and you sell say, 25k to TLH you would need to sell 37.5k in bonds to maintain 50/50AA correct?
The premise makes sense but how much does TLH actually benefit you assuming you are in 12% marginal and the standard deduction applies?
TGH at 0% is good.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Topic Author
KlangFool
Posts: 17633
Joined: Sat Oct 11, 2008 12:35 pm

Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

rossington wrote: Mon Aug 03, 2020 1:23 pm
KlangFool wrote: Sun Aug 02, 2020 6:21 pm Hi,

I am looking at a variation of this. Let me simplify the question and situation.

Let's assume that my AA is 50/50 and my portfolio is 200K. 100K of bond in the Roth IRA and 100K of stock in the taxable account.

A) Let's assume that we have a market crash and the stock drop 50% and the bond stays at no loss.

B) So, I have 50K of stock and 100K of the bond.


1) I could tax loss harvest at my taxable account and generate a capital loss.

2) In order to maintain AA of 50/50, I sell 25K of the bond and buy 25K of the stock in my Roth IRA account. So, my future gain from the stock will be tax-free.

In summary, I get both the benefits of tax loss from my taxable account and tax-free growth from my Roth IRA in a market downturn. Am I correct in my thinking?

Thanks in advance.

KlangFool
You can't TLH unless you actually sell the stock so if the value is now 50k because of a market drop and you sell say, 25k to TLH you would need to sell 37.5k in bonds to maintain 50/50AA correct?
The premise makes sense but how much does TLH actually benefit you assuming you are in 12% marginal and the standard deduction applies?
TGH at 0% is good.
rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

KlangFool wrote: Mon Aug 03, 2020 1:34 pm rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
On your (2), isn't it ironic that, if you have a future capital gain that is ANYWAY going to be tax-free, you are using up the carry-over losses -- in essence, losing the benefit?

IRS rules dictate that before you can apply capital losses against ordinary income, you MUST offset them against short-term gains or long-term gains; I think you are already aware of it.

To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.

If that's your cup of tea, enjoy!

Edited to add: If you actually find yourself in a situation where you have both losses (perhaps from previous year) and gains in a given year, you can execute Roth conversions up to the top of the 12% bracket; the capital gains then will attract 15% tax which can then be offset with losses -- so you can salvage something. Without the Roth conversions or other income pushing you to the top of the 12% bracket, such a scenario will result in your capital losses essentially going waste.
Last edited by lakpr on Mon Aug 03, 2020 6:39 pm, edited 1 time in total.
000
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Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

lakpr wrote: Mon Aug 03, 2020 6:36 pm
KlangFool wrote: Mon Aug 03, 2020 1:34 pm rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
On your (2), isn't it ironic that, if you have a future capital gain that is ANYWAY going to be tax-free, you are using up the carry-over losses -- in essence, losing the benefit?

IRS rules dictate that before you can apply capital losses against ordinary income, you MUST offset them against short-term gains or long-term gains; I think you are already aware of it.

To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.

If that's your cup of tea, enjoy!
Indeed, under the assumption of perpetual 0% LTCG rates, the "yield" of this strategy seems extremely small.
Topic Author
KlangFool
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Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

lakpr wrote: Mon Aug 03, 2020 6:36 pm
KlangFool wrote: Mon Aug 03, 2020 1:34 pm rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
On your (2), isn't it ironic that, if you have a future capital gain that is ANYWAY going to be tax-free, you are using up the carry-over losses -- in essence, losing the benefit?

IRS rules dictate that before you can apply capital losses against ordinary income, you MUST offset them against short-term gains or long-term gains; I think you are already aware of it.

To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.

If that's your cup of tea, enjoy!

Edited to add: If you actually find yourself in a situation where you have both losses (perhaps from previous year) and gains in a given year, you can execute Roth conversions up to the top of the 12% bracket; the capital gains then will attract 15% tax which can then be offset with losses -- so you can salvage something. Without the Roth conversions or other income pushing you to the top of the 12% bracket, such a scenario will result in your capital losses essentially going waste.
lakpr,

If the stock market goes up big time, I can TGH.

If the stock market goes down big time, I can TLH.

Please note that I only this for big losses and gain.

<<To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.>>

Or, I can use the losses to offset against the gain and do more TGH.

KlangFool
Topic Author
KlangFool
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Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

000 wrote: Mon Aug 03, 2020 6:38 pm
lakpr wrote: Mon Aug 03, 2020 6:36 pm
KlangFool wrote: Mon Aug 03, 2020 1:34 pm rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
On your (2), isn't it ironic that, if you have a future capital gain that is ANYWAY going to be tax-free, you are using up the carry-over losses -- in essence, losing the benefit?

IRS rules dictate that before you can apply capital losses against ordinary income, you MUST offset them against short-term gains or long-term gains; I think you are already aware of it.

To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.

If that's your cup of tea, enjoy!
Indeed, under the assumption of perpetual 0% LTCG rates, the "yield" of this strategy seems extremely small.
That was your assumption. It is not my assumption.

KlangFool
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

KlangFool wrote: Mon Aug 03, 2020 6:48 pm lakpr,

If the stock market goes up big time, I can TGH.

If the stock market goes down big time, I can TLH.

Please note that I only this for big losses and gain.

<<To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.>>

Or, I can use the losses to offset against the gain and do more TGH.

KlangFool
I am not certain I follow. Can you put some numbers?
Say you have $100k in a taxable account (as you stated in the original post), and you lost 50% of it. Your taxable account is worth $50k.
Of this $50k, you sell $25k to realize a loss. (I may have missed it, I am not sure why not sell everything and realize $50k loss?)

$25k loss takes 9 years to fully offset your ordinary income (IRS limits offsetting to only $3k per year, and this amount is NOT INDEXED for inflation).

Now, say it is year 4. The stock market rocketed 40% up in a single year. What used to be $50k in your taxable account, is now worth $70k.

If you want to do tax-gain-harvesting, you must use up the $20k gain against the $25k-3*$3k = $16k. You have a gain of only $4k on which you escape taxes.

You could have escaped taxes on the full $20k gain! You essentially lost 5 to 6 years worth of losses that you could have offset against ordinary income
Topic Author
KlangFool
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Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

lakpr wrote: Mon Aug 03, 2020 6:57 pm
KlangFool wrote: Mon Aug 03, 2020 6:48 pm lakpr,

If the stock market goes up big time, I can TGH.

If the stock market goes down big time, I can TLH.

Please note that I only this for big losses and gain.

<<To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.>>

Or, I can use the losses to offset against the gain and do more TGH.

KlangFool
I am not certain I follow. Can you put some numbers?
Say you have $100k in a taxable account (as you stated in the original post), and you lost 50% of it. Your taxable account is worth $50k.
Of this $50k, you sell $25k to realize a loss. (I may have missed it, I am not sure why not sell everything and realize $50k loss?)

$25k loss takes 9 years to fully offset your ordinary income (IRS limits offsetting to only $3k per year, and this amount is NOT INDEXED for inflation).

Now, say it is year 4. The stock market rocketed 40% up in a single year. What used to be $50k in your taxable account, is now worth $70k.

If you want to do tax-gain-harvesting, you must use up the $20k gain against the $25k-3*$3k = $16k. You have a gain of only $4k on which you escape taxes.

You could have escaped taxes on the full $20k gain! You essentially lost 5 to 6 years worth of losses that you could have offset against ordinary income
lakpr,

You asked me to use my real portfolio

1) My taxable account is about 500K of 100% stock.

2) I have about 120K of CASH.

3) I have about 250K in the Roth IRA

4) I have about 800K in my tax-deferred account.

Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
000
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Re: Capturing the loss plus tax-free gain in Roth?

Post by 000 »

KlangFool wrote: Mon Aug 03, 2020 6:50 pm
000 wrote: Mon Aug 03, 2020 6:38 pm
lakpr wrote: Mon Aug 03, 2020 6:36 pm
KlangFool wrote: Mon Aug 03, 2020 1:34 pm rossington.

I can sell 50K of VTSAX (Total Stock Market Index) to buy 50K of VFIAX (S&P 500 Index) in my taxable account to TLH.

<<The premise makes sense but how much does TLH actually benefit you assuming you are in 12% >>

1) I can deduct $3,000 of my ordinary income from the 12% tax.

2) I can use the capital loss to deduct the future capital gain.

KlangFool
On your (2), isn't it ironic that, if you have a future capital gain that is ANYWAY going to be tax-free, you are using up the carry-over losses -- in essence, losing the benefit?

IRS rules dictate that before you can apply capital losses against ordinary income, you MUST offset them against short-term gains or long-term gains; I think you are already aware of it.

To truly take full advantage of the "losses" in taxable, you must forever apply them against ordinary income, meaning you may be looking at multiple years before you will exhaust all your losses and NOT apply them against gains.

If that's your cup of tea, enjoy!
Indeed, under the assumption of perpetual 0% LTCG rates, the "yield" of this strategy seems extremely small.
That was your assumption. It is not my assumption.

KlangFool
TLH lowers your basis, meaning when you sell in the future you will have more gains.
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
That red quote is the one that makes sense, it was missing in the original post (and if it did appear in subsequent responses my apologies, I didn't read all of it). You were only talking about matching up the gains against losses so far.

By doing Roth conversion, you will be deliberately putting yourself in a zone where the capital gains become taxable, no longer 0% but 15%, and thus offset losses.

That's exactly my point too ... the so-called tax-loss-harvesting and tax-gain-harvesting, as long as you are IN the 12% bracket, amounts to pretty much peanuts. The real value of tax-loss-harvesting is only realized if you deliberately skip the 12% bracket and be in the 22% bracket or higher. During working years you will most likely be in the 22% bracket anyway; and in retirement, you need to make an effort to push yourself into the 22% bracket by converting up to the top of 12% bracket.
TravelforFun
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Re: Capturing the loss plus tax-free gain in Roth?

Post by TravelforFun »

KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
Capital losses can offset Roth conversion only up to $3,000 a year. It would take a long time to use up $100K loss.

TravelforFun
TravelforFun
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Re: Capturing the loss plus tax-free gain in Roth?

Post by TravelforFun »

KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
Capital losses can offset Roth conversion only up to $3,000 a year. It would take a long time to use up $100K loss.

TravelforFun
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

TravelforFun wrote: Mon Aug 03, 2020 8:11 pm
KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
Capital losses can offset Roth conversion only up to $3,000 a year. It would take a long time to use up $100K loss.

TravelforFun
Perhaps KlangFool can start his own thread on "How to pay zero taxes in retirement" :D
Topic Author
KlangFool
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Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

TravelforFun wrote: Mon Aug 03, 2020 8:11 pm
KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
Capital losses can offset Roth conversion only up to $3,000 a year. It would take a long time to use up $100K loss.

TravelforFun
TravelforFun,

Okay. I made a mistake. But, why is that a problem? I could use the loss to offset my 2% annual dividend and distribution too. That is about 10K per year.

KlangFool
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

KlangFool wrote: Mon Aug 03, 2020 9:12 pm Okay. I made a mistake. But, why is that a problem? I could use the loss to offset my 2% annual dividend and distribution too. That is about 10K per year.

KlangFool
If you are in the 12% bracket, those annual dividends and cap gain distributions would cost you $0 in taxes anyway, so you are burning losses for zero benefit.

If you want a benefit out of those losses, as I mentioned in a previous post in this thread, you need to raise income deliberately beyond 12% bracket into 22% bracket. Roth conversions.
Topic Author
KlangFool
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Re: Capturing the loss plus tax-free gain in Roth?

Post by KlangFool »

lakpr wrote: Mon Aug 03, 2020 9:28 pm
KlangFool wrote: Mon Aug 03, 2020 9:12 pm Okay. I made a mistake. But, why is that a problem? I could use the loss to offset my 2% annual dividend and distribution too. That is about 10K per year.

KlangFool
If you are in the 12% bracket, those annual dividends and cap gain distributions would cost you $0 in taxes anyway, so you are burning losses for zero benefit.

If you want a benefit out of those losses, as I mentioned in a previous post in this thread, you need to raise income deliberately beyond 12% bracket into 22% bracket. Roth conversions.
lakpr,

And, I might do that.

KlangFool
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

KlangFool wrote: Mon Aug 03, 2020 9:34 pm
lakpr wrote: Mon Aug 03, 2020 9:28 pm
KlangFool wrote: Mon Aug 03, 2020 9:12 pm Okay. I made a mistake. But, why is that a problem? I could use the loss to offset my 2% annual dividend and distribution too. That is about 10K per year.

KlangFool
If you are in the 12% bracket, those annual dividends and cap gain distributions would cost you $0 in taxes anyway, so you are burning losses for zero benefit.

If you want a benefit out of those losses, as I mentioned in a previous post in this thread, you need to raise income deliberately beyond 12% bracket into 22% bracket. Roth conversions.
lakpr,

And, I might do that.

KlangFool
Good. Just keep in mind though that once you fill out the 12% bracket and step into 22% bracket with Roth conversions, there is no more tax gain harvesting, only tax loss harvesting.
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Re: Capturing the loss plus tax-free gain in Roth?

Post by arcticpineapplecorp. »

kaneohe wrote: Sun Aug 02, 2020 6:25 pmwash sale?
I felt sorry that this post just got totally blown past. So in case you're still wondering, "Wash sale?":

https://www.bogleheads.org/wiki/Wash_sale

you're welcome.

you didn't think they were referring to an annual towel sale at JC Penney's did you?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

@arcticpineapplecorp.,

In defense of KlangFool, he is aware of the parameters of tax loss harvesting; up thread he talked about selling VTSAX and buying VFIAX in taxable, and selling bonds and buying VTWAX in Roth IRA. Such scenario does not trigger wash sale rules.
rossington
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Re: Capturing the loss plus tax-free gain in Roth?

Post by rossington »

lakpr wrote: Mon Aug 03, 2020 7:51 pm
KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
By doing Roth conversion, you will be deliberately putting yourself in a zone where the capital gains become taxable, no longer 0% but 15%, and thus offset losses.

That's exactly my point too ... the so-called tax-loss-harvesting and tax-gain-harvesting, as long as you are IN the 12% bracket, amounts to pretty much peanuts. The real value of tax-loss-harvesting is only realized if you deliberately skip the 12% bracket and be in the 22% bracket or higher.
That was my point up thread as he mentioned he will be in the 12% marginal and 0% CG brackets.
But...
During working years you will most likely be in the 22% bracket anyway; and in retirement, you need to make an effort to push yourself into the 22% bracket by converting up to the top of 12% bracket.
I am not sure if "pushing yourself" into the 22% bracket makes sense for him, if his income, less the standard deduction (is he married?) keeps him in 12% then just converting up to the 12% top would be more practical ( + factoring in the benefits of 0% CG's in addition)....correct?
.....and tax-gain-harvesting, as long as you are IN the 12% bracket, amounts to pretty much peanuts.
Assuming he has gains in excess of any offsetting losses (by selling VTSAX and buying VFINX) then he gets the benefit of the stepped up basis which may provide the most benefit long term. (More than peanuts).

Or if his losses exceed his gains, or if he has a total loss he can still capture those with his TLH strategy. (3k/year @ 12% = $360 less in taxes ...not really peanuts).

So if it is worth it to him then it makes sense.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
lakpr
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Re: Capturing the loss plus tax-free gain in Roth?

Post by lakpr »

rossington wrote: Tue Aug 04, 2020 4:23 am
lakpr wrote: Mon Aug 03, 2020 7:51 pm
KlangFool wrote: Mon Aug 03, 2020 7:06 pm Let's assume that we have a 50% market drop and I can generate about 100K loss via TLH in my taxable account. I could use that 100K loss for my Roth conversion.

KlangFool
By doing Roth conversion, you will be deliberately putting yourself in a zone where the capital gains become taxable, no longer 0% but 15%, and thus offset losses.

That's exactly my point too ... the so-called tax-loss-harvesting and tax-gain-harvesting, as long as you are IN the 12% bracket, amounts to pretty much peanuts. The real value of tax-loss-harvesting is only realized if you deliberately skip the 12% bracket and be in the 22% bracket or higher.
That was my point up thread as he mentioned he will be in the 12% marginal and 0% CG brackets.
But...
During working years you will most likely be in the 22% bracket anyway; and in retirement, you need to make an effort to push yourself into the 22% bracket by converting up to the top of 12% bracket.
I am not sure if "pushing yourself" into the 22% bracket makes sense for him, if his income, less the standard deduction (is he married?) keeps him in 12% then just converting up to the 12% top would be more practical ( + factoring in the benefits of 0% CG's in addition)....correct?
.....and tax-gain-harvesting, as long as you are IN the 12% bracket, amounts to pretty much peanuts.
Assuming he has gains in excess of any offsetting losses (by selling VTSAX and buying VFINX) then he gets the benefit of the stepped up basis which may provide the most benefit long term. (More than peanuts).

Or if his losses exceed his gains, or if he has a total loss he can still capture those with his TLH strategy. (3k/year @ 12% = $360 less in taxes ...not really peanuts).

So if it is worth it to him then it makes sense.
  • The idea here is to maximize the benefit of capital losses that have already been incurred. Therefore, doing Roth conversions to the top of the 12% bracket, PLUS an additional $3000 to push into the 22% bracket, which can be offset by the losses falling back to the 12% bracket.
  • If in the same year where the losses are realized, if there are some capital gains as well, pushing the income to the top of the 12% bracket + $3000 would ensure that the capital gains will be taxed at 15%, and then offset by capital losses, and additional losses will offset ordinary income -- so AGI will be back to top of 12% bracket again. KlangFool will receive a 15% tax-rate benefit on capital gains and 22% benefit on ordinary income.
In both cases, the "benefit" of capital losses can only be realized if the Roth conversions push the income above the 12% threshold.

I am not sure if you are making the same point, I cannot quite tell

Oh, if KlangFool suffered a $50k loss, $360 is really peanuts anyway.
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