Dilemma: Roth conversions vs. Taxable cap gains from Rebalancing

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heyyou
Posts: 3007
Joined: Tue Feb 20, 2007 4:58 pm

Dilemma: Roth conversions vs. Taxable cap gains from Rebalancing

Post by heyyou » Thu Jun 14, 2018 12:35 am

At age 68, two more Roth conversions look like very good long term investments. Rebalancing soon in the taxable account is both risk and return reduction (fewer shares owned) and with tax costs. Won't the stock market rebalance the equity to bond ratio sometime?

With Social Security and RMDs starting in 20 months, and younger wife's SS 20 months after mine, plus my small current pension, we will have enough steady income, but our medical expenses are rising. We also have 11 multiples of the small pension in bond funds, should the pension fail. Seems to me, that rebalancing is not right for this time, even with those inflated equity share prices.

mhalley
Posts: 5719
Joined: Tue Nov 20, 2007 6:02 am

Re: Dilemma: Roth conversions vs. Taxable cap gains from Rebalancing

Post by mhalley » Thu Jun 14, 2018 12:53 am

Rebalancing should generally be done in tax advantaged accounts. I would not pay taxes to rebalance unless it is impossible to do so otherwise.

Fishing50
Posts: 232
Joined: Tue Sep 27, 2016 1:18 am

Re: Dilemma: Roth conversions vs. Taxable cap gains from Rebalancing

Post by Fishing50 » Thu Jun 14, 2018 2:34 am

Might be a good time to reconsider your target allocation.

Rising equity glidepath in retirement is a reasonable option, especially when pension and SS provide for your needs. https://earlyretirementnow.com/2017/09/ ... lidepaths/

You seem to be on the right path taking maximum advantage of current tax bracket for conversions before SS payments increase income. If you are in the 12% tax bracket, you might consider raising cash in taxable account by tax gain harvesting the taxable account for 0% taxes instead of paying 12% for Roth conversions.

11 multiples of the pension in bonds provides stability for rising medical costs.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

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