Portfolio Check Up: fund placement and tax efficiency

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Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Mon Feb 11, 2019 6:47 am

UPDATE: the end of this thread turned into a discussion of if/how to balance ACA subsidies and ROTH conversions, given a highly appreciated taxable portfolio. I used the advice from posts and follow up PM’s to add a post showing how different options stack up.

Many thanks to Celia, retiredjg and the others posters



Hello Bogleheads!

I first learned about BH 18 months ago, when getting ready to retire early at 57. My portfolio then was about $2 million, with a 90/10 AA and 60% of equity in individual stocks, most in a taxable account. Plus I had a financial advisor with an AUM agreement. Thanks to BH, I created an IPS, got rid of my FA, changed my AA to 60/40, and halved the amount in individual stocks. Now I’m ready for a check up on the details of fixed income, fund placement, and tax efficiency.

Emergency fund: 4 months
Debt: 0
Tax Filing Status: Single, no dependents
Tax Rate: (2016, 2017) 0% Federal, 0% State
State of Residence: TX
Age: 58
Desired Asset allocation: 60/40
Desired International allocation: 20% of stocks
Portfolio total: over $2 million. 68% in taxable. 31% in IRA and 1% in ROTH.
Expected SS: $21,000 per year at age 67, $24,000 at 70. (assumes no more work)

Current retirement assets
TAXABLE
Cash:
5% Schwab Value Advantage Money Funds SWVXX (living expenses 2019, plus money ready to deploy based on BH recommendations. See “questions” below.)

Individual Stocks: (each percentage below is a single stock, so 6 individual stocks are listed)
15%: large cap growth, retail (99.7% long term cap. gains)
9%: large cap growth, hospitality (96% ltcg)
4%: large cap growth, technology (86% ltcg)
2% large cap value, technology (64% ltcg)
1% large cap value, technology (60% ltcg)
1% large cap core, technology (28% ltcg)

ETF’s
6% ​​​​Ishares Core MSCI Total International IXUS ER .10 (4% loss)
4.3% VG Total US Stock Market VTI VTI ER .04 (2% loss)
3.3% VG CR SP US Small Cap Growth Index VBK ER .07 (54% ltcg)

Mutual Funds
5% Dimensional Fund Advisors(DFA) Short term Govt Fund DFFGX ER .19 (4% loss)
3% DFA Intermediate Govt Fixed Income DFIGX ER .12 (2% loss)
1.5% VG Dividend Growth Investor VDIGX ER .03 (35% ltcg)
1% VG Midcap Growth Index Admiral VMVMX ER .07 (52% ltcg)
2.5% VG Total Stock Market Index Admiral VTSAX ER .04 (61% ltcg)

CD’s
4.7% CD @ 2.7% due 2/09/20 (living expenses 2020 and 2021)

IRA
ETF
2.2% Vanguard Intermediate Term Bond BIV ER .07
2.6 Vanguard Total Bond Market BND ER .05
1.7 VXUS ER .11

Mutual Funds
6% VG Wellsley Admiral VWIAX ER .15
3% VG Short Term Corp Bond Index VSCSX ER .04
3% Dimensional Funds Intmed. Govt Fixed Income DFIGX ER .12
1.6% VG Total Stock Market Index Admiral VTSAX ER .04
1.5% Dimensional Funds US Targeted Value DFFVX ER .37

CD'S
4% CD due 4/27/20
5% CD due 3/14/19

ROTH (did my first conversion 2016)
1% Schwab International Index Fund SWISX ER .06

Key Points
* Ideal annual retirement budget: $65,000, as of 2017. Using inflation-adjusted constant dollar withdrawal method. Currently taking this from taxable money market fund. “Comfortable essentials” budget is $48,000.
* Health insurance: Have been buying an individual plan since pre-ACA. Now buying an ACA plan. Budget above includes paying for unsubsidized health insurance prior to Medicare. Though I budget for an unsubsidized plan, my ISP calls for managing income to balance ACA subsidies and Roth conversions prior to Medicare.
* Specific changes to portfolio since 2017 and discovering BH:
Taxable--sold individual stock to purchase IXUS, VTI and CD’s.
IRA--sold all individual stock to purchase VXUS, BIV, BND, CD’s.
ROTH--sold individual stock to purchase SWISX.
* No need to leave an estate.

Questions
1. Fixed income in IRA: After selling all individual stocks in IRA, I split proceeds between BND, BIV and CD’s, and continued reading/researching for a final fixed income plan. But I’m not any clearer now. It seems like some would recommend just BND, while others would suggest fund combinations or a CD ladder. My goal with bonds is to mitigate risk, especially given the risks here of so much in individual stocks. What fixed income strategy would you recommend for this portfolio?

2. Fixed income in taxable: When I sold some of the appreciated individual stock in 2018, I needed to buy fixed income to rebalance to my AA. I bought CD’s to fund living expenses through 2021, and enable ACA subsidies plus ROTH conversions. I left the bond funds in taxable alone. Should I change that? “Swap” IRA stock etf’s and mutual funds for the bonds in taxable,? (I’ll still need to keep about 5% of portfolio in bonds in taxable—because my IRA is only 30% of my portfolio, and I want and AA of 60/40.)

3. Potential TLH. When I made my portfolio changes, I didn’t consider TLH potential. For example, I put Total International etf’s in taxable, IRA and ROTH. Now, I’d like to optimize for potential TLH. My assumption: because the VTI and IXUS in taxable were bought in 2018, they are the likeliest candidates for TLH. What overall changes would you recommend?

4. Dividend reinvestment in taxable account. Currently, I reinvest dividends from mutual funds only. (Not from stocks or etf’s.) After research, am thinking of turning off dividends for everything. Reasons: I am at my correct AA; I am living from the money in taxable,; and turning it off in VTSAX, will prevent a wash sale if I TLH VTI. Is this thinking correct? Is there a better strategy?

5. I have $40,000 in cash in my taxable account to re-deploy into the portfolio. Where should I put it? Bulk up my International holdings? Keep it as is to enlarge the cash reserves?

6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
Last edited by TXJeff on Mon Feb 25, 2019 11:19 am, edited 3 times in total.

aristotelian
Posts: 6488
Joined: Wed Jan 11, 2017 8:05 pm

Re: Portfolio Check Up

Post by aristotelian » Mon Feb 11, 2019 7:42 pm

TXJeff wrote:
Mon Feb 11, 2019 6:47 am
Questions
1. Fixed income in IRA: After selling all individual stocks in IRA, I split proceeds between BND, BIV and CD’s, and continued reading/researching for a final fixed income plan. But I’m not any clearer now. It seems like some would recommend just BND, while others would suggest fund combinations or a CD ladder. My goal with bonds is to mitigate risk, especially given the risks here of so much in individual stocks. What fixed income strategy would you recommend for this portfolio?

2. Fixed income in taxable: When I sold some of the appreciated individual stock in 2018, I needed to buy fixed income to rebalance to my AA. I bought CD’s to fund living expenses through 2021, and enable ACA subsidies plus ROTH conversions. I left the bond funds in taxable alone. Should I change that? “Swap” IRA stock etf’s and mutual funds for the bonds in taxable,? (I’ll still need to keep about 5% of portfolio in bonds in taxable—because my IRA is only 30% of my portfolio, and I want and AA of 60/40.)

3. Potential TLH. When I made my portfolio changes, I didn’t consider TLH potential. For example, I put Total International etf’s in taxable, IRA and ROTH. Now, I’d like to optimize for potential TLH. My assumption: because the VTI and IXUS in taxable were bought in 2018, they are the likeliest candidates for TLH. What overall changes would you recommend?

4. Dividend reinvestment in taxable account. Currently, I reinvest dividends from mutual funds only. (Not from stocks or etf’s.) After research, am thinking of turning off dividends for everything. Reasons: I am at my correct AA; I am living from the money in taxable,; and turning it off in VTSAX, will prevent a wash sale if I TLH VTI. Is this thinking correct? Is there a better strategy?

5. I have $40,000 in cash in my taxable account to re-deploy into the portfolio. Where should I put it? Bulk up my International holdings? Keep it as is to enlarge the cash reserves?

6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
1. BND, BIV, and CD ladders are all fine. They really are a matter of personal preference. I would tend to prefer an index fund as the core holding for ease of rebalancing, but some do not like to see their bond allocation market value fluctuate.

2. I assume the IRA is traditional, in which case I would make it all bonds while selling bonds from taxable.

3. I don't see any reason to change anything now. If this is a Vanguard account, you can easily find TLH partners if/when they show losses, since all ETF's (iShares, Schwab, etc) are commission free.

4. Yes, I turn off dividend reinvesting for that reason. Since you are retired, you can just spend the cash.

5. Invest according to your allocation.

6. My biggest priority would be Roth-converting the IRA. Consider delaying SS to 70 and withdraw as much as you can. You only have 12 years to liquidate $600K. That will be tricky with ACA subsidy in play.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up

Post by TXJeff » Tue Feb 12, 2019 5:51 am

aristotelian wrote:
Mon Feb 11, 2019 7:42 pm
TXJeff wrote:
Mon Feb 11, 2019 6:47 am
Questions
1. Fixed income in IRA: After selling all individual stocks in IRA, I split proceeds between BND, BIV and CD’s, and continued reading/researching for a final fixed income plan. But I’m not any clearer now. It seems like some would recommend just BND, while others would suggest fund combinations or a CD ladder. My goal with bonds is to mitigate risk, especially given the risks here of so much in individual stocks. What fixed income strategy would you recommend for this portfolio?

2. Fixed income in taxable: When I sold some of the appreciated individual stock in 2018, I needed to buy fixed income to rebalance to my AA. I bought CD’s to fund living expenses through 2021, and enable ACA subsidies plus ROTH conversions. I left the bond funds in taxable alone. Should I change that? “Swap” IRA stock etf’s and mutual funds for the bonds in taxable,? (I’ll still need to keep about 5% of portfolio in bonds in taxable—because my IRA is only 30% of my portfolio, and I want and AA of 60/40.)

3. Potential TLH. When I made my portfolio changes, I didn’t consider TLH potential. For example, I put Total International etf’s in taxable, IRA and ROTH. Now, I’d like to optimize for potential TLH. My assumption: because the VTI and IXUS in taxable were bought in 2018, they are the likeliest candidates for TLH. What overall changes would you recommend?

4. Dividend reinvestment in taxable account. Currently, I reinvest dividends from mutual funds only. (Not from stocks or etf’s.) After research, am thinking of turning off dividends for everything. Reasons: I am at my correct AA; I am living from the money in taxable,; and turning it off in VTSAX, will prevent a wash sale if I TLH VTI. Is this thinking correct? Is there a better strategy?

5. I have $40,000 in cash in my taxable account to re-deploy into the portfolio. Where should I put it? Bulk up my International holdings? Keep it as is to enlarge the cash reserves?

6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
1. BND, BIV, and CD ladders are all fine. They really are a matter of personal preference. I would tend to prefer an index fund as the core holding for ease of rebalancing, but some do not like to see their bond allocation market value fluctuate.

2. I assume the IRA is traditional, in which case I would make it all bonds while selling bonds from taxable.

3. I don't see any reason to change anything now. If this is a Vanguard account, you can easily find TLH partners if/when they show losses, since all ETF's (iShares, Schwab, etc) are commission free.

4. Yes, I turn off dividend reinvesting for that reason. Since you are retired, you can just spend the cash.

5. Invest according to your allocation.

6. My biggest priority would be Roth-converting the IRA. Consider delaying SS to 70 and withdraw as much as you can. You only have 12 years to liquidate $600K. That will be tricky with ACA subsidy in play.
Thanks for the answers 1-5 and for flagging Roth conversions as a priority.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 10:24 am

First, congratulations on all the progress you have made!

TXJeff wrote:
Mon Feb 11, 2019 6:47 am
6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
It is unclear to me what type of portfolio you want.

Your first questions are all about the trees, not the forest. Only the last question is about the forest. Which is it you are interested in? It would be pretty easy to have a simpler portfolio, but none of the questions you asked are about that.

Please describe in 1 sentence what kind of portfolio you want.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 10:27 am

How many custodians are involved in this portfolio?

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 10:35 am

I want to be sure I understand what you told us.

I am interpreting 15%: large cap growth, retail (99.7% long term cap. gains) as 1 stock worth about $300k+ and essentially all that $300k+ is long term capital gains.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 11:22 am

retiredjg wrote:
Tue Feb 12, 2019 10:27 am
How many custodians are involved in this portfolio?
I am managing it myself, via one brokerage.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 11:23 am

retiredjg wrote:
Tue Feb 12, 2019 10:35 am
I want to be sure I understand what you told us.

I am interpreting 15%: large cap growth, retail (99.7% long term cap. gains) as 1 stock worth about $300k+ and essentially all that $300k+ is long term capital gains.
Exactly.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 11:30 am

retiredjg wrote:
Tue Feb 12, 2019 10:24 am
First, congratulations on all the progress you have made!

TXJeff wrote:
Mon Feb 11, 2019 6:47 am
6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
It is unclear to me what type of portfolio you want.

Your first questions are all about the trees, not the forest. Only the last question is about the forest. Which is it you are interested in? It would be pretty easy to have a simpler portfolio, but none of the questions you asked are about that.

Please describe in 1 sentence what kind of portfolio you want.
Good point. Here's the one sentence:

I want a portfolio that takes the minimum risks necessary to 1) preserve my lifelong ability to spend $65,000 per year in inflation-adjusted 2017 dollars 2) minimize taxes and 3) simplify my investments so I can self-manage into older age.

And when I say "minimize taxes"--I mean overall taxes, so that can include paying taxes now on Roth conversions to avoid higher taxes later once RMD's and SS kick in.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 11:38 am

TXJeff wrote:
Tue Feb 12, 2019 11:22 am
retiredjg wrote:
Tue Feb 12, 2019 10:27 am
How many custodians are involved in this portfolio?
I am managing it myself, via one brokerage.
I assume that is at Schwab? Are you paying any transaction fees to buy the non-Schwab ETFs?

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 11:41 am

What do you consider the biggest threat or weakness in the portfolio? What makes you most anxious?

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 11:43 am

retiredjg wrote:
Tue Feb 12, 2019 11:38 am
TXJeff wrote:
Tue Feb 12, 2019 11:22 am
retiredjg wrote:
Tue Feb 12, 2019 10:27 am
How many custodians are involved in this portfolio?
I am managing it myself, via one brokerage.
I assume that is at Schwab? Are you paying any transaction fees to buy the non-Schwab ETFs?
Yes, held at Schwab. I have several years of free trades on non-Schwab etf's.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 11:50 am

How important is it to you to stay under a limit to get ACA subsidies? What is the number you need to stay under?

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 12:18 pm

retiredjg wrote:
Tue Feb 12, 2019 11:41 am
What do you consider the biggest threat or weakness in the portfolio? What makes you most anxious?
I think the biggest threat/weakness is my limited knowledge. For example, in late 2017 and early 2018, I followed the BH wiki to place newly purchased Total International index funds in ROTH and in taxable accounts. When the funds went down later in 2018, I couldn’t take the best advantage of tax loss harvesting—because I wasn’t familiar with it, had to learn about it, and implement it. The upshot was that I didn’t benefit nearly as much as I could have in a year when I was taking huge stock gains.

That's why I asked question #6 in addition to the specific questions. I wondered if there were issues with the portfolio that I didn't even know to ask.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 12:25 pm

Ok, same question, but different emphasis - what is the greatest weakness or threat of the portfolio itself? When you look at it, which account or which holding(s) causes you to wince or worry a little bit?

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 12:53 pm

retiredjg wrote:
Tue Feb 12, 2019 12:25 pm
Ok, same question, but different emphasis - what is the greatest weakness or threat of the portfolio itself? When you look at it, which account or which holding(s) causes you to wince or worry a little bit?
For me, I wince a little about fixed income. As I mentioned in my original question 1, the more I read, the more undecided I get about bond funds vs CD’s for example. For all other aspects of my portfolio, I sorted through mountains of info, and was able to settle on what was best for me. Example: my inflation-adjusted constant dollar withdrawal strategy. I read lots of info, including McClung’s book, and wound up completely clear about/comfortable with my strategy. Not sure why, but I don’t have a solid footing with fixed income.

Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 12:57 pm

I'm going to go ahead and get some thoughts written down before I forget them. I'm largely in agreement with aristotelian's thoughts except for one thing. I would not convert all of the IRA to Roth (probably only half) and to me that is a second priority, not the first.


1) Liquidate your entire IRA, other than the CDs, and invest in a broad intermediate term bond preferably index fund. Or maybe two if you want. For example, you might want half TIPS (inflation protected bond fund). When the CD matures next month, put that into the bond fund(s). That all by itself will simplify the portfolio a lot and removes the Total Stock mutual fund that will eventually cause a wash sale with the same fund in taxable.


2) In taxable, check for the date of reinvestment of dividends in the 2.5% VG Total Stock Market Index Admiral VTSAX ER .04 (61% ltcg) . If necessary, turn reinvestment of dividends off. This is so that you can sell the VTI, which is at a loss, without creating a wash sale.

In the future, do not hold an ETF and a mutual fund version of the same thing. Pick one or the other.


3) Sell everything else that is a loss (​​Ishares Core MSCI Total International IXUS, Dimensional Fund Advisors(DFA) Short term Govt Fund DFFGX, DFA Intermediate Govt Fixed Income DFIGX).


4) Use those losses to offset the sale of something else (VG Dividend Growth Investor VDIGX and VG Midcap Growth Index Admiral VMVMX are candidates or something in the individual stock list).

Just doing those 4 steps will eliminate about 13 positions in your portfolio without costing any taxes.

DecumulatorDoc
Posts: 191
Joined: Sun Jan 28, 2018 7:48 am

Re: Portfolio Check Up

Post by DecumulatorDoc » Tue Feb 12, 2019 12:58 pm

aristotelian wrote:
Mon Feb 11, 2019 7:42 pm

6. My biggest priority would be Roth-converting the IRA. Consider delaying SS to 70 and withdraw as much as you can. You only have 12 years to liquidate $600K. That will be tricky with ACA subsidy in play.
Is it a necessary goal to completely convert an IRA to Roth? One of the joys in retirement is having the options to draw from taxable, tax deferred, and tax free in the optimal ratio to minimize taxes. I like to take advantage of the standard deduction and 0% capital gains/qual. dividends tax brackets. With the OP's high percentage in taxable, perhaps it would be OK to try to convert half of the IRA by age 70.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Tue Feb 12, 2019 1:09 pm

TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
For me, I wince a little about fixed income. As I mentioned in my original question 1, the more I read, the more undecided I get about bond funds vs CD’s for example.... Not sure why, but I don’t have a solid footing with fixed income.
Well, you can read some bond books and there is certainly a lot of information in the Wiki. :D

My opinion is that it does not matter much. Anything you do is good enough as long as you stick to basics - broad funds, mostly intermediate term and CDs are all fine. There are times that one thing is a little better than another thing and sometimes people will switch back and forth to be closer to optimal. I"m a very lazy investor and would not bother to do that.
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
To me that 15% holding in the LCG retail stock is your achilles heel. If it falters, that will be a big chunk of your portfolio on the rocks. On the other hand, if you are careful and if the market gods are kind, you could probably lose that 15% and still meet your goals.

Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by MotoTrojan » Tue Feb 12, 2019 1:20 pm

99.7% is gains and it’s a large cap?? Well played.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 2:48 pm

retiredjg wrote:
Tue Feb 12, 2019 11:50 am
How important is it to you to stay under a limit to get ACA subsidies? What is the number you need to stay under?
For 2019, I need to stay under $48,000. Subsidy at that amount is just under $4,000. Note that in the taxable account, some of those individual holdings are non-dividend stocks. Early estimate is that I can prob. do $28,000 in Roth conversion this year.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Tue Feb 12, 2019 3:03 pm

retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Wed Feb 13, 2019 5:33 am

retiredjg wrote:
Tue Feb 12, 2019 12:57 pm
I'm going to go ahead and get some thoughts written down before I forget them. I'm largely in agreement with aristotelian's thoughts except for one thing. I would not convert all of the IRA to Roth (probably only half) and to me that is a second priority, not the first.


1) Liquidate your entire IRA, other than the CDs, and invest in a broad intermediate term bond preferably index fund. Or maybe two if you want. For example, you might want half TIPS (inflation protected bond fund). When the CD matures next month, put that into the bond fund(s). That all by itself will simplify the portfolio a lot and removes the Total Stock mutual fund that will eventually cause a wash sale with the same fund in taxable.


2) In taxable, check for the date of reinvestment of dividends in the 2.5% VG Total Stock Market Index Admiral VTSAX ER .04 (61% ltcg) . If necessary, turn reinvestment of dividends off. This is so that you can sell the VTI, which is at a loss, without creating a wash sale.

In the future, do not hold an ETF and a mutual fund version of the same thing. Pick one or the other.


3) Sell everything else that is a loss (​​Ishares Core MSCI Total International IXUS, Dimensional Fund Advisors(DFA) Short term Govt Fund DFFGX, DFA Intermediate Govt Fixed Income DFIGX).


4) Use those losses to offset the sale of something else (VG Dividend Growth Investor VDIGX and VG Midcap Growth Index Admiral VMVMX are candidates or something in the individual stock list).

Just doing those 4 steps will eliminate about 13 positions in your portfolio without costing any taxes.
Thanks for this thorough analysis! My AA could be easily maintained because: value of stocks in IRA = value of bonds in taxable.

One question: Let’s say I sell the bonds in taxable today. And I continue with the plan to spend from the CD’s through 2021. What happens in 2022 if there is a market downturn? I’d only have stocks in taxable at that point. I’d be 61 years old. And if you’d advise that I sell back to my AA each year instead of spending the CD’s, then I could probably keep the ACA subsidies most years. But I’d be in the 22% bracket if I wanted to do ROTH conversions. Would you advise I do them in that bracket?

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 7:38 am

TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
Just want to make sure you realize that while getting the ACA subsidy, the 15% cap gains you mention is really about a 25% rate due to reduced subsidy for each additional dollar of income, even below the cliff. Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.

It might still make sense to then, just make sure you take the right numbers into account.

I also struggle with the fixed income allocation decision. Since I couldn't decide which was best, nominal bonds, tips, or CDs, I decided to just diversify and own all three.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Wed Feb 13, 2019 8:12 am

marcopolo wrote:
Wed Feb 13, 2019 7:38 am
TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
Just want to make sure you realize that while getting the ACA subsidy, the 15% cap gains you mention is really about a 25% rate due to reduced subsidy for each additional dollar of income, even below the cliff. Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.

It might still make sense to then, just make sure you take the right numbers into account.

I also struggle with the fixed income allocation decision. Since I couldn't decide which was best, nominal bonds, tips, or CDs, I decided to just diversify and own all three.
Thanks for putting this so clearly. In 2018, as a newly minted Boglehead, the decision seemed simple: 70% of the portfolio was in taxable; I had and AA of 90/10 that I wanted to rebalance to 60/40; and I had two individual stocks with more than 95% ltcg making up more than 1/3 of my entire portfolio. The significant portfolio risk reduction seemed worth the added tax.

Plus, if I understand correctly, since the ACA subsidy goes away completely at $48,001, the stock above that amount that I sold was effectively taxed at 15%. Right?

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 8:39 am

TXJeff wrote:
Wed Feb 13, 2019 8:12 am
marcopolo wrote:
Wed Feb 13, 2019 7:38 am
TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
Just want to make sure you realize that while getting the ACA subsidy, the 15% cap gains you mention is really about a 25% rate due to reduced subsidy for each additional dollar of income, even below the cliff. Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.

It might still make sense to then, just make sure you take the right numbers into account.

I also struggle with the fixed income allocation decision. Since I couldn't decide which was best, nominal bonds, tips, or CDs, I decided to just diversify and own all three.
Thanks for putting this so clearly. In 2018, as a newly minted Boglehead, the decision seemed simple: 70% of the portfolio was in taxable; I had and AA of 90/10 that I wanted to rebalance to 60/40; and I had two individual stocks with more than 95% ltcg making up more than 1/3 of my entire portfolio. The significant portfolio risk reduction seemed worth the added tax.

Plus, if I understand correctly, since the ACA subsidy goes away completely at $48,001, the stock above that amount that I sold was effectively taxed at 15%. Right?
Yeah, getting out of concentrated position like that i would think out weighs the tax implications.

Beyond the cliff, the marginal tax rate on ltcg drops back down to 15%, until you hit the some of the medicare add-ons.
The impact of the cliff can be small or huge depending on the state/county you are in and the plan you choose.
If it seems complicated, that is because it is, IMHO.

Good luck to you
Once in a while you get shown the light, in the strangest of places if you look at it right.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 10:52 am

TXJeff wrote:
Wed Feb 13, 2019 5:33 am
One question: Let’s say I sell the bonds in taxable today. And I continue with the plan to spend from the CD’s through 2021. What happens in 2022 if there is a market downturn? I’d only have stocks in taxable at that point.
There are several ways to address that.

1) You can always keep 1 or 2 years of expenses in CDs.

2) You can sell stocks in taxable for your expenses and then exchange an equal amount of bonds into stocks in the IRA. That way, you are selling bonds, not stocks.

3) You could spend from your IRA in a down year. This would reduce the amount you can convert which may not be what you want to do.

I’d be 61 years old. And if you’d advise that I sell back to my AA each year instead of spending the CD’s, then I could probably keep the ACA subsidies most years. But I’d be in the 22% bracket if I wanted to do ROTH conversions. Would you advise I do them in that bracket?
Not sure I understand. If the market is down you would have too much in bonds and not enough in stocks. So you'd sell bonds in the IRA to buy stocks to maintain your overall 60% stocks and 40% fixed. This would not affect any CDs in taxable.

If you are talking about after you run out of the CDs in taxable, consider the options above. Especially #2. Do some scrap paper math until you can wrap your head around that and get over your fear of "selling stocks in a downturn". Using that method, selling stocks in a downturn is harmless.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 10:57 am

marcopolo wrote:
Wed Feb 13, 2019 7:38 am
Just want to make sure you realize that while getting the ACA subsidy, the 15% cap gains you mention is really about a 25% rate due to reduced subsidy for each additional dollar of income, even below the cliff. Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.
Apparently I'm too dense to understand this. Can you give a simple example?


I also struggle with the fixed income allocation decision. Since I couldn't decide which was best, nominal bonds, tips, or CDs, I decided to just diversify and own all three.
I think this is a good idea.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 11:11 am

TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
I had planned to suggest another big step year of some kind - maybe a big Roth conversion one year or another big sell off of the scary stock. It seems you already have ideas like that in mind. So I won't go into more suggestions, but a couple of comments come to mind.

1) Selling to the top of the 15% cap gains bracket put you into NIIT territory. So some of your gains were taxed at 18.8% (if not higher due to the thing from marcopolo that I don't understand yet). Consider if a future stock sell off should stop at $200k total income which is where NITT starts for single people (I think).

2) Give some consideration to the real importance of this ACA subsidy. It is the tax tail that is wagging your dog and the limit is pretty low. That's ok...until the point where it inhibits your getting something else you want. Is it doing that?

For example, my tax tail is the $85k limit for IRMAA. I don't want to go over that because it causes higher Medicare rates. But staying under that level is easy and is not keeping me from doing anything else I want. I can meet all my goals while still staying under that limit.

Is the same true for you?

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 12:23 pm

retiredjg wrote:
Wed Feb 13, 2019 10:57 am
marcopolo wrote:
Wed Feb 13, 2019 7:38 am
Just want to make sure you realize that while getting the ACA subsidy, the 15% cap gains you mention is really about a 25% rate due to reduced subsidy for each additional dollar of income, even below the cliff. Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.
Apparently I'm too dense to understand this. Can you give a simple example?
The way the ACA subsidy works is that you pay a certain percentage of your MAGI towards your premiums. The subsidy covers the rest.
The percentage is on sliding scale, but near the cliff, you pay 9.86% of each incremental dollar. of MAGI.
So, having an extra $100 of ltcg, you pay $15 in tax, and lose $9.86 of your subsidy, for a total of $24.86 extra taxes.
Same with ordinary income, $100 additional income, pay $12 in tax, and lose $9.86 is subsidy, total of $21.86 extra taxes.

Here is a link that provides detailed analysis (table 2 shows the sliding scale of % of MAGI you are required to pay)
https://www.kff.org/health-reform/issue ... ut-health/
Once in a while you get shown the light, in the strangest of places if you look at it right.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Wed Feb 13, 2019 12:30 pm

retiredjg wrote:
Wed Feb 13, 2019 11:11 am
TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
I had planned to suggest another big step year of some kind - maybe a big Roth conversion one year or another big sell off of the scary stock. It seems you already have ideas like that in mind. So I won't go into more suggestions, but a couple of comments come to mind.

1) Selling to the top of the 15% cap gains bracket put you into NIIT territory. So some of your gains were taxed at 18.8% (if not higher due to the thing from marcopolo that I don't understand yet). Consider if a future stock sell off should stop at $200k total income which is where NITT starts for single people (I think).

2) Give some consideration to the real importance of this ACA subsidy. It is the tax tail that is wagging your dog and the limit is pretty low. That's ok...until the point where it inhibits your getting something else you want. Is it doing that?

For example, my tax tail is the $85k limit for IRMAA. I don't want to go over that because it causes higher Medicare rates. But staying under that level is easy and is not keeping me from doing anything else I want. I can meet all my goals while still staying under that limit.

Is the same true for you?
Good question. I am tax driven, but not ACA-subsidy only driven. Here is how I came up with that multi-year strategy:

At retirement, I realized I didn’t understand much about the mechanics of living off a portfolio. Read a lot, and waded into the abyss of ACA subsidies, ROTH conversions, SS tax percentages, RMD’s and “the hump.” Couldn’t use I-Orp because of it’s assumptions about ltcg in taxable.

I knew I wanted to take SS at 70 for the longevity insurance. So I started my own calculations with SS and RMD’s at 70, plus no ROTH conversions—just selling needed amounts from taxable until then. Looked at my likely total taxes through age 85. Then I tried to see if I could lower the total taxes via ROTH conversions, ACA subsidies, etc. The result was the strategy I posted above. If I’ve understood things correctly, I’ll be able get ACA subsidies and ROTH-convert about $400k. And that should keep my SS taxed at 50%--at least most of the time. A relatively low total tax.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 12:40 pm

Thanks for that marcopolo, but it surely made my brain hurt. How people understand that stuff is beyond me.

However, I still do not get "Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.". Under what conditions would that occur?
Last edited by retiredjg on Wed Feb 13, 2019 1:26 pm, edited 1 time in total.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 1:00 pm

TXJeff wrote:
Wed Feb 13, 2019 12:30 pm
Good question. I am tax driven, but not ACA-subsidy only driven. Here is how I came up with that multi-year strategy:

At retirement, I realized I didn’t understand much about the mechanics of living off a portfolio. Read a lot, and waded into the abyss of ACA subsidies, ROTH conversions, SS tax percentages, RMD’s and “the hump.” Couldn’t use I-Orp because of it’s assumptions about ltcg in taxable.

I knew I wanted to take SS at 70 for the longevity insurance. So I started my own calculations with SS and RMD’s at 70, plus no ROTH conversions—just selling needed amounts from taxable until then. Looked at my likely total taxes through age 85. Then I tried to see if I could lower the total taxes via ROTH conversions, ACA subsidies, etc. The result was the strategy I posted above. If I’ve understood things correctly, I’ll be able get ACA subsidies and ROTH-convert about $400k. And that should keep my SS taxed at 50%--at least most of the time. A relatively low total tax.
I gather all that means is that you can get what you want long term while still getting the $4k ACA subsidy most years?



Let's look at the plan for 2019:" manage income for ACA subsidy. Do Roth conversions".
  • You will spend whatever you need from a CD in your taxable account - no taxable income there.

    You need to stay under $48k to get the $4k ACA subsidy (which I assume means you pay $4k less for your insurance).

    Your income will consist solely of dividends and capital gains distributions from the taxable $1.36 million taxable account and your Roth conversion.

    Let's assume your dividends and CG are about 2% - that's $27,200.

    That leaves you able to convert $20,800 to Roth.
Is that what your plan looks like for this year?

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 1:46 pm

retiredjg wrote:
Wed Feb 13, 2019 12:40 pm
Thanks for that marcopolo, but it surely made my brain hurt. How people understand that stuff is beyond me.

However, I still do not get "Same thing applies to Roth conversions, those in the 12% bracket are really costing you about 22%.". Under what conditions would that occur?
Yeah, it makes my brain hurt as well. I am still debating whether or not to try to get the subsidy, or if it really is the tail wagging the dog as you mentioned. I would really like to do bigger Roth conversions.

As for how it impacts Roth conversions. It really is the same math. When converting trad IRA to a Roth to the top of the 12% bracket, those amounts are taxed at 12%, but they are also included in your AGI, and subsequently MAGI, used by the ACA. So, every $100 you convert costs you $12 in taxes and $9.86 in lost subsidies, so a net tax impact of about 22% on those conversions.
Once in a while you get shown the light, in the strangest of places if you look at it right.

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 1:58 pm

TXJeff wrote:
Wed Feb 13, 2019 12:30 pm
retiredjg wrote:
Wed Feb 13, 2019 11:11 am
TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
TXJeff wrote:
Tue Feb 12, 2019 12:53 pm
Note: I realize that technically the individual stocks are probably the biggest portfolio threat, but there, I am executing a well-thought out, multi-year strategy, and I am completely comfortable. No wincing!
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.

***Yes, I paid a bunch in cap gains tax. But with such high gains rates, I just said “thanks, I was lucky,” and happily wrote the check.
I had planned to suggest another big step year of some kind - maybe a big Roth conversion one year or another big sell off of the scary stock. It seems you already have ideas like that in mind. So I won't go into more suggestions, but a couple of comments come to mind.

1) Selling to the top of the 15% cap gains bracket put you into NIIT territory. So some of your gains were taxed at 18.8% (if not higher due to the thing from marcopolo that I don't understand yet). Consider if a future stock sell off should stop at $200k total income which is where NITT starts for single people (I think).

2) Give some consideration to the real importance of this ACA subsidy. It is the tax tail that is wagging your dog and the limit is pretty low. That's ok...until the point where it inhibits your getting something else you want. Is it doing that?

For example, my tax tail is the $85k limit for IRMAA. I don't want to go over that because it causes higher Medicare rates. But staying under that level is easy and is not keeping me from doing anything else I want. I can meet all my goals while still staying under that limit.

Is the same true for you?
Good question. I am tax driven, but not ACA-subsidy only driven. Here is how I came up with that multi-year strategy:

At retirement, I realized I didn’t understand much about the mechanics of living off a portfolio. Read a lot, and waded into the abyss of ACA subsidies, ROTH conversions, SS tax percentages, RMD’s and “the hump.” Couldn’t use I-Orp because of it’s assumptions about ltcg in taxable.

I knew I wanted to take SS at 70 for the longevity insurance. So I started my own calculations with SS and RMD’s at 70, plus no ROTH conversions—just selling needed amounts from taxable until then. Looked at my likely total taxes through age 85. Then I tried to see if I could lower the total taxes via ROTH conversions, ACA subsidies, etc. The result was the strategy I posted above. If I’ve understood things correctly, I’ll be able get ACA subsidies and ROTH-convert about $400k. And that should keep my SS taxed at 50%--at least most of the time. A relatively low total tax.
The Roth Conversions while getting ACA subsidies is a tricky question.
You need to project out what your RMDs will look like at age 70.
One way to reduce that somewhat is to keep your fixed income in your tax-deferred accounts, it reduces tax drag, and help keep a lid on the growth of your tax-deferred accounts. Get your growth in Roth and taxable, where they have favorable tax treatment.

Realize that some of those RMD dollar might get taxed at the lowest bracket, so it would not pay off to convert all of the tIRA now.
Your conversions now (with ACA subsidies) cost 22% tax rate, might not make sense if your projected RMD would be taxed at 12%.
It may make more sense to forego them now, and do them more aggressively after age 65 (Medicare), or if the subsidies are changed/eliminated by changes to the ACA.
Once in a while you get shown the light, in the strangest of places if you look at it right.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 2:36 pm

marcopolo wrote:
Wed Feb 13, 2019 1:46 pm
As for how it impacts Roth conversions. It really is the same math. When converting trad IRA to a Roth to the top of the 12% bracket, those amounts are taxed at 12%, but they are also included in your AGI, and subsequently MAGI, used by the ACA. So, every $100 you convert costs you $12 in taxes and $9.86 in lost subsidies, so a net tax impact of about 22% on those conversions.
Thanks. I think I get it now.

But I suppose if you are saving $4k that year, then converting at a higher rate is not really so high as 22% in the end? Or maybe the better way to look at it is the reverse....if you skip the ACA subsidy and can convert a large enough amount at 12% instead of 22%, you might be saving more than the $4k subsidy.

marcopolo
Posts: 2536
Joined: Sat Dec 03, 2016 10:22 am

Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Wed Feb 13, 2019 2:45 pm

retiredjg wrote:
Wed Feb 13, 2019 2:36 pm
marcopolo wrote:
Wed Feb 13, 2019 1:46 pm
As for how it impacts Roth conversions. It really is the same math. When converting trad IRA to a Roth to the top of the 12% bracket, those amounts are taxed at 12%, but they are also included in your AGI, and subsequently MAGI, used by the ACA. So, every $100 you convert costs you $12 in taxes and $9.86 in lost subsidies, so a net tax impact of about 22% on those conversions.
Thanks. I think I get it now.

But I suppose if you are saving $4k that year, then converting at a higher rate is not really so high as 22% in the end? Or maybe the better way to look at it is the reverse....if you skip the ACA subsidy and can convert a large enough amount at 12% instead of 22%, you might be saving more than the $4k subsidy.
Well, then the 4k lost subsidy would also have to be included in the "effective tax" rate. The 22% is for amounts below the cliff. You lose subsidy in a somewhat linear fashion, then you take a big hit at the cliff (you marginal rate spikes), then the marginal rate goes back down to the 12%, but your effective rate decays slowly as you get further beyond the cliff.

So, if you decide to convert, or take ltcg, beyond the cliff, you want to big, way beyond the cliff. The worst case is to be just a little over the cliff.

For the OP, the cliff is not that big (4k), it is not uncommon for a married couple to have a subsidy cliff over $20k.
Once in a while you get shown the light, in the strangest of places if you look at it right.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Wed Feb 13, 2019 2:46 pm

marcopolo wrote:
Wed Feb 13, 2019 1:58 pm
Your conversions now (with ACA subsidies) cost 22% tax rate, might not make sense if your projected RMD would be taxed at 12%. It may make more sense to forego them now, and do them more aggressively after age 65 (Medicare), or if the subsidies are changed/eliminated by changes to the ACA.
Could the RMDs be taxed at only 12%? Seems possible or even likely to me except the 12% bracket may have gone back to the 15% bracket by then.

This IRA is not that huge. Let's say a good portion gets converted to Roth and there is some IRA growth as well. Seems unlikely it would be over $500k - first RMD would only be about $20k That plus SS is not going to put anybody into a very high bracket.

Topic Author
TXJeff
Posts: 101
Joined: Mon Sep 25, 2017 7:47 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Thu Feb 14, 2019 5:56 am

retiredjg wrote:
Wed Feb 13, 2019 1:00 pm
TXJeff wrote:
Wed Feb 13, 2019 12:30 pm
Good question. I am tax driven, but not ACA-subsidy only driven. Here is how I came up with that multi-year strategy:

At retirement, I realized I didn’t understand much about the mechanics of living off a portfolio. Read a lot, and waded into the abyss of ACA subsidies, ROTH conversions, SS tax percentages, RMD’s and “the hump.” Couldn’t use I-Orp because of it’s assumptions about ltcg in taxable.

I knew I wanted to take SS at 70 for the longevity insurance. So I started my own calculations with SS and RMD’s at 70, plus no ROTH conversions—just selling needed amounts from taxable until then. Looked at my likely total taxes through age 85. Then I tried to see if I could lower the total taxes via ROTH conversions, ACA subsidies, etc. The result was the strategy I posted above. If I’ve understood things correctly, I’ll be able get ACA subsidies and ROTH-convert about $400k. And that should keep my SS taxed at 50%--at least most of the time. A relatively low total tax.
I gather all that means is that you can get what you want long term while still getting the $4k ACA subsidy most years?



Let's look at the plan for 2019:" manage income for ACA subsidy. Do Roth conversions".
  • You will spend whatever you need from a CD in your taxable account - no taxable income there.

    You need to stay under $48k to get the $4k ACA subsidy (which I assume means you pay $4k less for your insurance).

    Your income will consist solely of dividends and capital gains distributions from the taxable $1.36 million taxable account and your Roth conversion.

    Let's assume your dividends and CG are about 2% - that's $27,200.

    That leaves you able to convert $20,800 to Roth.
Is that what your plan looks like for this year?
Pretty much. Some of the individual stocks are non-dividend paying, so the total div, interest and cap gains distrib. is under $20k. That leaves @ $27k for ROTH conversion. With a likely 5 similar years pre-65, then bigger conversions 65-70, I should be able to convert $350k-$400k.

retiredjg
Posts: 38493
Joined: Thu Jan 10, 2008 12:56 pm

Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Thu Feb 14, 2019 8:02 am

It's a good plan. I think you realize that those "bigger conversions 65 - 70" may be taking you into IRMAA territory because IRMAA tiers are not just for the first year? However, going into the first IRMAA tier is not as costly as losing the $4k ACA subsidy.

About converting the IRA - I would likely not convert all of it which does not seem to be your plan either. Having some money in IRA is a good thing.

Have you made any decisions about getting rid of some of the positions in your portfolio? It is unnecessarily complex as you have already noticed. And if you wish to tax loss harvest, I'd put all the international into the taxable account and not use total stock in either IRA. In fact, for that Roth IRA, I'd suggest using a target or LifeStrategy fund. It is tiny enough not to throw off your allocations and solves the "problem" of holding large allocation of bonds in Roth which some people prefer.

When the market crashes, you may be able to make some very large moves. You might get rid of the clutter in taxable - move toward holding only Total Stock and Total International and the individual stocks in that account. You will be able to convert more shares to Roth for the same tax. You will be able reduce the two larger individual stock holdings, etc.

As for the $40k, just buy total stock and total international and call it good.

retiredjg
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Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Thu Feb 14, 2019 8:10 am

One thing that keeps coming up in my mind is marcopolo's idea that staying under the ACA cliff is causing your Roth conversions to be taxed at about 22% instead of 12%.

I can't verify the numbers (know nothing about ACA) but I can verify the concept that being in a phase out can raise your marginal rate. We see that in several other situations as well.

Assuming that marcopolo's number is right, you are paying an extra $2,700 in conversion costs on your $27k conversion in order to get the $4k ACA subsidy. So you are not really "getting" $4k. You are getting $1.3k.

Make sure that $1,300 is worth that to you.

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Thu Feb 14, 2019 9:12 am

retiredjg wrote:
Thu Feb 14, 2019 8:10 am
One thing that keeps coming up in my mind is marcopolo's idea that staying under the ACA cliff is causing your Roth conversions to be taxed at about 22% instead of 12%.

I can't verify the numbers (know nothing about ACA) but I can verify the concept that being in a phase out can raise your marginal rate. We see that in several other situations as well.

Assuming that marcopolo's number is right, you are paying an extra $2,700 in conversion costs on your $27k conversion in order to get the $4k ACA subsidy. So you are not really "getting" $4k. You are getting $1.3k.

Make sure that $1,300 is worth that to you.
I think you might be thinking about this the wrong way.
The OP can't get the $2,700 back by not taking the subsidy. If he goes over the cliff, he loses BOTH the $2,700 AND the $4k.

Maybe a better way to think about it is that if he did not do the Roth conversion (right up to the cliff), he would actually be getting $6,700 subsidy.
By doing the conversion, he loses $2,700 of the subsidy (plus pays the 12% income tax). He still gets a $4k subsidy.
If he gets $1 additional income, he loses the $4k subsidy altogether.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Thu Feb 14, 2019 9:26 am

marcopolo wrote:
Thu Feb 14, 2019 9:12 am
I think you might be thinking about this the wrong way.
The OP can't get the $2,700 back by not taking the subsidy. If he goes over the cliff, he loses BOTH the $2,700 AND the $4k.

Maybe a better way to think about it is that if he did not do the Roth conversion (right up to the cliff), he would actually be getting $6,700 subsidy.
By doing the conversion, he loses $2,700 of the subsidy (plus pays the 12% income tax). He still gets a $4k subsidy.
If he gets $1 additional income, he loses the $4k subsidy altogether.

Maybe I am looking at it wrong. But this is what I'm looking at:
" By doing the conversion, he loses $2,700 of the subsidy...He still gets a $4k subsidy. "
To me that says s/he does a smaller conversion than desired and only getting a $1,300 benefit from it. I'm not sure that $1,300 is worth it

What am I missing?

retiredjg
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Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Thu Feb 14, 2019 9:35 am

retiredjg wrote:
Thu Feb 14, 2019 9:26 am
What am I missing?
Here's one thing I was missing. I was thinking of a larger conversion, but the top of the 12% bracket is only a little higher than the ACA cliff at $48k. Any conversion over that would be at 22% anyway. So TxJeff is not missing the opportunity to convert a lot at only 12%.

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by marcopolo » Thu Feb 14, 2019 10:46 am

retiredjg wrote:
Thu Feb 14, 2019 9:26 am
marcopolo wrote:
Thu Feb 14, 2019 9:12 am
I think you might be thinking about this the wrong way.
The OP can't get the $2,700 back by not taking the subsidy. If he goes over the cliff, he loses BOTH the $2,700 AND the $4k.

Maybe a better way to think about it is that if he did not do the Roth conversion (right up to the cliff), he would actually be getting $6,700 subsidy.
By doing the conversion, he loses $2,700 of the subsidy (plus pays the 12% income tax). He still gets a $4k subsidy.
If he gets $1 additional income, he loses the $4k subsidy altogether.

Maybe I am looking at it wrong. But this is what I'm looking at:
" By doing the conversion, he loses $2,700 of the subsidy...He still gets a $4k subsidy. "
To me that says s/he does a smaller conversion than desired and only getting a $1,300 benefit from it. I'm not sure that $1,300 is worth it

What am I missing?
I am not sure where you are getting the $1300 from. Let me try some specific examples.

To simplify the numbers, lets assume the OP has enough other income to consume any deduction and use up the 10% tax bracket, such that any Roth conversions are in the 12% tax bracket. Lets also assume they have $20k of space below the "cliff" to do the Roth conversions, and that is all in the 12% bracket. Let's also assume (to make calculation easier) that there is another $20k of space above the cliff but still in the 12% tax bracket.

Since they are $20k below the cliff without any conversions, and the cliff itself is $4k, they will get $6k of ACA subsidy (rounding the 9.86% to 10% to simplify)

So, let's look at some dollar amounts of conversions, and see what happens:

Code: Select all

   Roth Conversion     Tax @ 12%     New  Subsidy   Loss of Subsidy  Total marginal tax   Total (effective) tax rate
       Amount                                                                              of Roth Conversion dollars

            $0            $0          $6,000             $0                 $0                 0%
         $1,000          $120         $5,900            $100                $220              22%
        $10,000         $1,200        $5,000           $1,000             $2,200              22%
        $20,000         $2,400        $4,000           $2,000             $4,400              22%
        $20,001         $2,400.12       $0             $6,000             $8,400.12           42% (this is the cliff!)
        $30,000         $3,600          $0             $6,000             $9,600              32% (cliff decays slowly)   
        $40,000         $4,800          $0             $6,000            $10,800              27% (cliff decays slowly)   
This is a bit simplified (hard to believe, i know), but that is essentially how the cliff interacts with additional income, regardless of whether that income is from dividends, ltcg, roth conversion, or any other source (including non-taxable interest).
Once in a while you get shown the light, in the strangest of places if you look at it right.

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TXJeff
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Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Fri Feb 15, 2019 7:11 am

marcopolo wrote:
Thu Feb 14, 2019 10:46 am
retiredjg wrote:
Thu Feb 14, 2019 9:26 am
marcopolo wrote:
Thu Feb 14, 2019 9:12 am
I think you might be thinking about this the wrong way.
The OP can't get the $2,700 back by not taking the subsidy. If he goes over the cliff, he loses BOTH the $2,700 AND the $4k.

Maybe a better way to think about it is that if he did not do the Roth conversion (right up to the cliff), he would actually be getting $6,700 subsidy.
By doing the conversion, he loses $2,700 of the subsidy (plus pays the 12% income tax). He still gets a $4k subsidy.
If he gets $1 additional income, he loses the $4k subsidy altogether.

Maybe I am looking at it wrong. But this is what I'm looking at:
" By doing the conversion, he loses $2,700 of the subsidy...He still gets a $4k subsidy. "
To me that says s/he does a smaller conversion than desired and only getting a $1,300 benefit from it. I'm not sure that $1,300 is worth it

What am I missing?
I am not sure where you are getting the $1300 from. Let me try some specific examples.

To simplify the numbers, lets assume the OP has enough other income to consume any deduction and use up the 10% tax bracket, such that any Roth conversions are in the 12% tax bracket. Lets also assume they have $20k of space below the "cliff" to do the Roth conversions, and that is all in the 12% bracket. Let's also assume (to make calculation easier) that there is another $20k of space above the cliff but still in the 12% tax bracket.

Since they are $20k below the cliff without any conversions, and the cliff itself is $4k, they will get $6k of ACA subsidy (rounding the 9.86% to 10% to simplify)

So, let's look at some dollar amounts of conversions, and see what happens:

Code: Select all

   Roth Conversion     Tax @ 12%     New  Subsidy   Loss of Subsidy  Total marginal tax   Total (effective) tax rate
       Amount                                                                              of Roth Conversion dollars

            $0            $0          $6,000             $0                 $0                 0%
         $1,000          $120         $5,900            $100                $220              22%
        $10,000         $1,200        $5,000           $1,000             $2,200              22%
        $20,000         $2,400        $4,000           $2,000             $4,400              22%
        $20,001         $2,400.12       $0             $6,000             $8,400.12           42% (this is the cliff!)
        $30,000         $3,600          $0             $6,000             $9,600              32% (cliff decays slowly)   
        $40,000         $4,800          $0             $6,000            $10,800              27% (cliff decays slowly)   
This is a bit simplified (hard to believe, i know), but that is essentially how the cliff interacts with additional income, regardless of whether that income is from dividends, ltcg, roth conversion, or any other source (including non-taxable interest).
Thanks for running this! Very helpful.

Topic Author
TXJeff
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Re: Portfolio Check Up: fund placement and tax efficiency

Post by TXJeff » Fri Feb 15, 2019 7:36 am

retiredjg wrote:
Thu Feb 14, 2019 8:02 am
Have you made any decisions about getting rid of some of the positions in your portfolio? It is unnecessarily complex as you have already noticed. And if you wish to tax loss harvest, I'd put all the international into the taxable account and not use total stock in either IRA. In fact, for that Roth IRA, I'd suggest using a target or LifeStrategy fund. It is tiny enough not to throw off your allocations and solves the "problem" of holding large allocation of bonds in Roth which some people prefer.

When the market crashes, you may be able to make some very large moves. You might get rid of the clutter in taxable - move toward holding only Total Stock and Total International and the individual stocks in that account. You will be able to convert more shares to Roth for the same tax. You will be able reduce the two larger individual stock holdings, etc.

As for the $40k, just buy total stock and total international and call it good.
Yes, I've made some decision. I’m consolidating all international in taxable, turning off div reinvestment in taxable, "swapping" most IRA stocks and taxable account bonds (just keeping stocks in IRA that I’ll convert to ROTH this year and next), and rolling BIV into BND. Researching TIP’s. Re-analyzing overall ACA/ROTH conversion/individual stock reduction strategy.

Many thanks to you, retiredjg, aristotelian and marcopolo.

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Fri Feb 15, 2019 9:19 am

marcopolo wrote:
Thu Feb 14, 2019 10:46 am
This is a bit simplified (hard to believe, i know), but that is essentially how the cliff interacts with additional income, regardless of whether that income is from dividends, ltcg, roth conversion, or any other source (including non-taxable interest).
Thanks for taking the time to explain it to me. I don't use the ACA and don't fully understand how the subsidies work. Along with some internet research on the subsidies, your example is starting to make some sense to me. I think you are correct that I've not been looking at it in the right way.

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by retiredjg » Fri Feb 15, 2019 9:28 am

TXJeff wrote:
Fri Feb 15, 2019 7:36 am
Yes, I've made some decision. I’m consolidating all international in taxable, turning off div reinvestment in taxable, "swapping" most IRA stocks and taxable account bonds (just keeping stocks in IRA that I’ll convert to ROTH this year and next), and rolling BIV into BND. Researching TIP’s. Re-analyzing overall ACA/ROTH conversion/individual stock reduction strategy.
Sounds like you have a plan and are moving toward a simpler portfolio. Financially, you are in good shape and you have a very good understanding of what you are doing tax wise. You'll be able to figure this out as the market and tax gods send us their worst, which they will eventually do.

I think you should probably ignore my musings on the ACA and whether the subsidy is worth it. :happy

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Re: Portfolio Check Up: fund placement and tax efficiency

Post by celia » Fri Feb 15, 2019 6:36 pm

Comments are in a random order:
TXJeff wrote:
Tue Feb 12, 2019 2:48 pm
retiredjg wrote:
Tue Feb 12, 2019 11:50 am
How important is it to you to stay under a limit to get ACA subsidies? What is the number you need to stay under?
For 2019, I need to stay under $48,000. Subsidy at that amount is just under $4,000. Note that in the taxable account, some of those individual holdings are non-dividend stocks. Early estimate is that I can prob. do $28,000 in Roth conversion this year.
If you’re serious about Roth conversions, you will need to convert a lot more than $28K /year. That doesn't even make a dent in the tIRA balance. The growth per year in the tIRA is likely more than $28K /year.

I’m not that familiar with the ACA, but my impression is that it is not very compatible to get ACA subsidies (by keeping your income low) AND do much in Roth conversions (which makes your income high). You need to choose which ONE OF THEM you will do in a given year.

To get a picture of what lies ahead, have you made something like a financial timeline (spreadsheeet) for yourself with a column for each year showing what your incomes would be for the year and calculate the taxes for each year, such as in this example which was created under the old tax code. (It is also immediately preceded with an example chart showing three possible Roth conversion drawdowns that illustrate what will happen after age 70.) Your timeline needs to go to at least age 72 to see what RMDs and SS will do to your taxes. Give growth to the tIRA each year from now until then according to the AA of just the tIRA. If your taxes will be over the 22% tax bracket then, I think you would be better off leveling off your “income” and thus your taxes each year. That doesn’t mean you forego the ACA for all of those years, but maybe some of them. Consider the $4K lost subsidy as part of the Roth conversion taxes you would pay and look at the whole picture, not just one year, and not just one tax bracket.
TXJeff wrote:
Tue Feb 12, 2019 3:03 pm
retiredjg wrote:
Tue Feb 12, 2019 1:09 pm
Before I head into ideas for bigger changes, what is your well-thought out multi year strategy?
The strategy:
2018: in taxable, sell largest two stock holdings to the top of 15% cap gains bracket (was able to go over thanks to TLH). Buy total stock index and total international index. Put 3 years spending in CD’s as part of re-balancing.***
2019, 20, 21: manage income for ACA subsidy. Do Roth conversions.
2022, 23: Depending on factors such as the state of the market and of the ACA/it’s subsidies, consider another large sale of individual stocks in one of these years.
2024, 25: manage income for ACA subsidies if still available—or for Medicare “lookback” income limits if not. Do ROTH conversions.
2026-31: priority is ROTH conversions—last chance.
Personally, I would “reverse” your strategy and start with large Roth conversions for 2019, 2020, and 2021. The tax rates are due to revert to 2017 levels after 2025, right when you are currently planning to do large conversions (unless Congress makes the current rates permanent). [I hope I understand your strategy correctly.] I would aim to convert half your tIRA sooner rather than later and get growth stock funds in that Roth. The sooner you get money in the Roth, the sooner it would start growing tax-free and save taxes in the long run. I would split annual conversions up to happen 2 or 3 times in the year to get a diversity of price, but if the market went down over 30%, I would immediately convert for the year. (The conversion taxes would also be lower when the share price is lower. I think of this as “conversion taxes are on sale”.)

If it was me, I’d look at my capital gains and other incomes, then convert to the top of the 24% tax bracket for Singles, which is Taxable Income (after your $12K standard deduction) of $160,000 for Singles. Make another new timeline for this scenario and see how your taxes increase now and not so much after age 70, with a lower spot in between.

I also suggest you run everything through tax software for each year to confirm your estimates. Use 2018 software for years 2019-2025, ignoring inflation. After that use both 2018 and 2017 software for later years just to get a feel of what might happen if the tax laws revert back to 2017 rules.

You might also create a chart like the one in this post that I posted today in this thread. You can even create more scenarios on various Roth conversion patterns by making columns similar to column J thru N for each scenario (ie, a “minimal” Roth conversion, a “moderate” Roth conversion, a “total Roth conversion of all tIRA funds).

TXJeff wrote:
Mon Feb 11, 2019 6:47 am
Questions
1. Fixed income in IRA: After selling all individual stocks in IRA, I split proceeds between BND, BIV and CD’s, and continued reading/researching for a final fixed income plan. But I’m not any clearer now. It seems like some would recommend just BND, while others would suggest fund combinations or a CD ladder. My goal with bonds is to mitigate risk, especially given the risks here of so much in individual stocks. What fixed income strategy would you recommend for this portfolio?
Even bonds can lose money, especially if the feds increase the interest rate and the fund holds lots of bonds with low interest rates. The biggest risk I see is that one individual stock that is 15% of your portfolio. Work on bringing that down to less than 10%.
2. Fixed income in taxable: When I sold some of the appreciated individual stock in 2018, I needed to buy fixed income to rebalance to my AA. I bought CD’s to fund living expenses through 2021, and enable ACA subsidies plus ROTH conversions. I left the bond funds in taxable alone. Should I change that? “Swap” IRA stock etf’s and mutual funds for the bonds in taxable,? (I’ll still need to keep about 5% of portfolio in bonds in taxable—because my IRA is only 30% of my portfolio, and I want and AA of 60/40.)
I look at this as ACA subsidies **OR** Roth conversions. I also like that you have a couple of years in CDs to cover your living expenses.
4. Dividend reinvestment in taxable account. Currently, I reinvest dividends from mutual funds only. (Not from stocks or etf’s.) After research, am thinking of turning off dividends for everything. Reasons: I am at my correct AA; I am living from the money in taxable,; and turning it off in VTSAX, will prevent a wash sale if I TLH VTI. Is this thinking correct? Is there a better strategy?
I agree with turning off dividend re-investment in taxable account.
5. I have $40,000 in cash in my taxable account to re-deploy into the portfolio. Where should I put it? Bulk up my International holdings? Keep it as is to enlarge the cash reserves?
Use it for Roth conversion taxes.
6. The portfolio still seems a long way from the simple, efficient Boglehead 3-fund. Any other suggestions?
The simplest thing is to minimize the number of holdings. Also note that anything that is worth less than 1% of your portfolio hardly has any impact on the portfolio. Even if a 1% holding doubled in value, it would hardly make a dent in your portfolio worth.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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