tax gain harvest or roth convert

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Westwing
Posts: 51
Joined: Sun Nov 18, 2018 9:43 pm

tax gain harvest or roth convert

Post by Westwing »

It appears my tax situation this year will allow me to add about 10K of income and still stay in the 12% bracket and maintain tax free capital gains. Is there any notion that a tax gain harvest and then an immediate repurchase to reset cost basis is better than a same amount of roth conversion? Looks like within the next two years I will bump into the next higher bracket. What might be a wise move now?
sureshoe
Posts: 553
Joined: Tue Jan 15, 2019 4:26 pm

Re: tax gain harvest or roth convert

Post by sureshoe »

I'm struggling just a bit with your wording, but in general, I would be getting every penny into a Roth that is possible at your current tax level.
milktoast
Posts: 451
Joined: Wed Jul 10, 2019 8:17 pm

Re: tax gain harvest or roth convert

Post by milktoast »

Is it truly tax gain harvesting? In other words, if you do the Roth conversion will you still sell that stock for living expenses or leave it invested (in which case it is truly TGH)?

If you need to sell stock for living expenses, I'd take the 15% lower LTCG taxes now over future tax advantage from Roth conversion. Most likely that Roth advantage is capped at 10% (22% bracket vs 12% bracket) plus any gains from less tax drag. Which means it will be a while before you break even.

If it is truly TGH, probably better to Roth convert.
VanGar+Goyle
Posts: 124
Joined: Sat May 29, 2021 1:31 pm

Re: tax gain harvest or roth convert

Post by VanGar+Goyle »

Westwing wrote: Wed Oct 13, 2021 11:09 am It appears my tax situation this year will allow me to add about 10K of income and still stay in the 12% bracket and maintain tax free capital gains. Is there any notion that a tax gain harvest and then an immediate repurchase to reset cost basis is better than a same amount of roth conversion? Looks like within the next two years I will bump into the next higher bracket. What might be a wise move now?
Assuming that many things including taxes do not change in the future, then the tax gain harvest may save you 15% * $10K = $1500.
The $10K Roth conversion would cost you $1200 more this year, but you have to guess what your additional tax cost will be in the future
when you would take that $10K distribution. If you would be in 22% tax bracket, then you might eventually net only $1000.
If you would be in the 28% tax bracket, then a Roth conversion now looks better.
So knowing almost nothing about you, I say take the $1500 savings.
Well, you pay a little bit, we're a little bit tough. | You pay very much,very much tough. | You pay a too much, we're too much a tough. | How much you pay? ... Well, then we're plenty tough. - Marx
Post Reply