For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an index

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rec7
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For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an index

Post by rec7 » Sat Dec 02, 2017 11:31 am

I am moving from an active fund to a three fund portfolio index and don't want to pay to much taxes or lose ACA. These are long term gains. I live in Missouri but I don't know if that makes a difference. This is for the year 2017
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grabiner
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by grabiner » Sat Dec 02, 2017 11:49 am

It's usually worthwhile switching from an active fund to an index fund in a taxable account; you may pay capital-gains tax for switching, but you will pay more in capital-gains tax by waiting, since the active fund will generate taxable gains, and you will pay tax on gains in the active fund even if you sell.

But you do have to check how this will affect income-based limitations, such as the ACA, or the earned income tax credit (which probably doesn't apply to you but has a limit on investment income). You may need to limit your capital gains to stay under a limit, and leave some room in case you incorrectly estimate the distributions on your existing funds or receive some unexpected income. Fill out a tax return with estimates of the money you will already have and things you plan to do (for example, making a traditional IRA contribution for 2017 if you haven't already made one).

You may also decide that it makes more sense to wait until 2018 to take your gains, depending on how this will affect things next year.

The only reason your state matters is if your state also has income-based limitations for its benefits, either tax or non-tax benefits.
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rec7
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by rec7 » Sat Dec 02, 2017 12:42 pm

I am thinking about trying to get to 45k income to leave some extra room.
Last edited by rec7 on Sat Dec 02, 2017 5:28 pm, edited 1 time in total.
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rec7
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by rec7 » Sat Dec 02, 2017 5:28 pm

Anybody else doing this?
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by Nyc10036 » Sat Dec 02, 2017 6:47 pm

rec7 wrote:
Sat Dec 02, 2017 5:28 pm
Anybody else doing this?
If all you need to do is stay below 400% of FPL, I don't see why not?

And yes, I would target $45K just to be safe.

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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by tfb » Sun Dec 03, 2017 2:10 am

rec7 wrote:
Sat Dec 02, 2017 11:31 am
don't want to pay to much taxes or lose ACA
You won't lose the subsidy completely but as your income goes up toward 400% FPL your subsidy will be reduced by 10-15% for each dollar of income.
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legio XX
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by legio XX » Sun Dec 03, 2017 4:12 am

Not an ACA comment, but for taxes in general. I looked this up because I wanted to move a bit from taxable stock index to cash this year rather than next and was wondering about consequences. As a set-it-and-forget-it investor I have a lot of long-term capital gains!

If I read correctly (not always the case :shock: ) I can avoid taxes completely if the taxable income is below $37.5 K. I don't have tax forms in front of me, but I think that's the figure before the standard deductions are taken. I was a bit confused because this figure includes capital gains (?!?). Even if I pass that amount it's 15%, right? [Have survived schedule D before, but never learned to love it.] Amazing how complicated it is at the low end of the scale. Taxes for Dummies was not very helpful for this, and all the sites seem to repeat or paraphrase the IRS site which is no doubt right-on but a bit hard to use for the basic question: How can I get an estimate of what will be the tax bite?

I did my quick-and-dirty estimate, and if the LT CG are part of the income, I will be over the magic figure. Is this correct, or probably?

Vic

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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by grabiner » Sun Dec 03, 2017 10:17 am

legio XX wrote:
Sun Dec 03, 2017 4:12 am
Not an ACA comment, but for taxes in general. I looked this up because I wanted to move a bit from taxable stock index to cash this year rather than next and was wondering about consequences. As a set-it-and-forget-it investor I have a lot of long-term capital gains!

If I read correctly (not always the case :shock: ) I can avoid taxes completely if the taxable income is below $37.5 K. I don't have tax forms in front of me, but I think that's the figure before the standard deductions are taken. I was a bit confused because this figure includes capital gains (?!?). Even if I pass that amount it's 15%, right? ]
This is is correct. What is going on is that capital gains and qualified dividends are taxed at a lower rate; that rate is 0% for income which would normally be taxed at 10% or 15%, and 15% for income which would normally be taxed at 25%-35%.

Thus, if your taxable income is at most $37,950 as a single taxpayer, and your personal exemption and deductions are at least equal to your fully-taxed income (salary, non-qualified dividends, interest, IRA withdrawals, the taxable portion of Social Security, etc.), then you pay no tax. For every additional dollar of capital gains or qualified dividends, you pay 15 cents, so it doesn't hurt too much to go over the limit.
All the sites seem to repeat or paraphrase the IRS site which is no doubt right-on but a bit hard to use for the basic question: How can I get an estimate of what will be the tax bite?
Do a mock tax return; use TurboTax's Taxcaster, or use your tax software and fill in the numbers yourself (using last year's software if necessary). This will also catch situations in which different parts of the tax code interact, and the extra income, while not taxed, affects something else. For example, if you are taking Social Security, it may happen that $1 of capital gains is not itself taxed but causes 85 cents of Social Security to become taxable at 10% or 15%.
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by rec7 » Sun Dec 03, 2017 1:04 pm

If I went over FPL of 400% what would happen? What is the difference between an income of $48240 and $49000
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by tfb » Sun Dec 03, 2017 1:59 pm

rec7 wrote:
Sun Dec 03, 2017 1:04 pm
If I went over FPL of 400% what would happen? What is the difference between an income of $48240 and $49000
Your ACA subsidy falls off a cliff and drops to zero. It slides down a slope as your income goes up toward 400% FPL. Once you go over, it abruptly becomes zero.
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Re: For a single person if I stay under $48,240 or FPL of 400% would it be ok to sell some gains to move them to an inde

Post by legio XX » Sun Dec 03, 2017 2:15 pm

Grabiner,
Thanks! This gives me a clearer picture and -yeh- I did forget about the taxable portion of SS, which is always a PITA; thanks for the reminder! I do my taxes on paper, but maybe it's time to at least get some software to work it all out.

Vic

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