Strategy for transferring capital gains from taxable to non-taxable account

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spreadsheetguy
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Strategy for transferring capital gains from taxable to non-taxable account

Post by spreadsheetguy »

I have a gain of about $200k in short and long term capital gains in a taxable brokerage account (mostly from investing after the COVID crash). I also recently sold some stock in my Roth so have about $50k in there to play with. I want to minimize my taxes (also lower my AGI to continue to qualify for ACA tax subsidy) and had the idea of selling and buying options to try and "transfer" my gains from the taxable account to my Roth (where I can buy/sell options).

My thought is something like this:
1- sell a call for a stock that is likely to go up in the taxable account
2- buy the same exact call for the stock in the Roth
If the stock goes up, the call gets more valuable, thus generating a "loss" to offset the capital gains in the taxable account and a "gain" in the Roth. If the stock goes down, the opposite is true and I've defeated the purpose of this process.

So my questions are:
Is this a bad idea? What could go wrong?
Any thoughts on what stocks/ETFs might be a good option for this strategy?
Are there any other ideas for accomplishing this same thing?

I looked into the wash sale rule but that doesn't quite seem to apply.
manuvns
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by manuvns »

I am not sure sounds like throwing a dart in dark. I would rather pay tax and continue with my investing.
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eye.surgeon
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by eye.surgeon »

Don't let the tax tail wag the dog.
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dboeger1
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by dboeger1 »

Question:
spreadsheetguy wrote: Wed Apr 07, 2021 3:39 pm What could go wrong?
Answer:
spreadsheetguy wrote: Wed Apr 07, 2021 3:39 pm If the stock goes down, the opposite is true and I've defeated the purpose of this process.
The following would be a wonderful "problem" to have:
spreadsheetguy wrote: Wed Apr 07, 2021 3:39 pm sell a call for a stock that is likely to go up in the taxable account
When you figure out how to pick stocks that go up, would you be so kind as to share your wisdom here? Personally, I would pay the taxes just out of guilt from basically being able to print money while others struggle, lol.
luckyducky99
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by luckyducky99 »

You could just ... not sell anything. What is the purpose of "transfering gains"? Gains are only taxed once realized. Much easier to do nothing and pay no taxes than try to contrive a wash-like sale across multiple accounts...

Edit: Also why do you think what you describe is not a wash sale? Selling something for a loss and simultaneously/immediately buying it back sounds like exactly the definition of a wash sale to me.
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firebirdparts
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by firebirdparts »

If you wind up losing in the Roth and making money in taxable I think you’ll be mad. Otherwise it doesn’t sound too bad.
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abuss368
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by abuss368 »

eye.surgeon wrote: Wed Apr 07, 2021 4:19 pm Don't let the tax tail wag the dog.
In my opinion this is excellent advice. Tax, while important, is only one piece of the investment puzzle.

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grabiner
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by grabiner »

There are also three other tax costs:

If your call is exercised, you have to sell the stock in the taxable account at the strike price, which will result in a capital gain.

If you write a call against stock in the taxable account, you may make the dividends non-qualified. (Any time that you hold a call does not count as part of the 61-day holding period required for a dividend to be qualified.)

If you sell a call in the taxable account and buy a substantially identical call in the Roth, you will not be able to deduct any capital loss on the call because you have a wash sale.
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spreadsheetguy
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by spreadsheetguy »

okay, thanks for all the good advice. It seems like the consensus is that it's not a good idea. I'll just suck it up and pay the taxes this year.
thanks, I really do appreciate it.
magicrat
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by magicrat »

spreadsheetguy wrote: Thu Apr 08, 2021 10:19 am okay, thanks for all the good advice. It seems like the consensus is that it's not a good idea. I'll just suck it up and pay the taxes this year.
thanks, I really do appreciate it.
Did you already realize the gains? If not, you don't have to.
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firebirdparts
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Re: Strategy for transferring capital gains from taxable to non-taxable account

Post by firebirdparts »

grabiner wrote: Wed Apr 07, 2021 8:13 pm If you sell a call in the taxable account and buy a substantially identical call in the Roth, you will not be able to deduct any capital loss on the call because you have a wash sale.
I don't see it. At this point, we haven't lost any money yet, so there's nothing to disallow. The question is how do I create a wash sale from this position. At the point you have to buy to close in taxable, then let's assume you lost money. It seems to me you would be prohibited from selling the long call within the 30 day window. I admit though I never thought of this strategy before, so I might be missing something.
A fool and your money are soon partners
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