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Subject:  Re: Roth IRA Tax Loss Date:  12/14/2019  12:27 AM
Author:  joelcorley Number:  129792 of 130843


I wrote, Wait a second! I thought that was exactly the point of this exercise. To keep tracking the cost basis into future years so you can effectively use your market losses instead of just throwing them in the waste bin.

To which you replied, I think you misunderstood me. My point is NOT to make a partial conversion when the IRA is worth less than it's basis. You are gaining nothing by converting.

I'm fairly sure I didn't misunderstand you. Also I didn't realize this thread was about your point. I thought it was about Ken288's question about using and dealing with a loss in the IRA before doing a conversion. I disagree with what you seem to be advising him to do because I don't think the math supports it.

Also I'm thinking that you probably didn't understand my point. My point is I think you are wrong. And I think the math clearly supports my assertion. You could make an emotional or convenience argument, but I'm pretty sure that the math doesn't. I tried to illustrate that point with examples.

I showed that there is financial advantage to doing conversions early and often regardless of gains or losses. It doesn't matter if you are carrying a loss forward or you have a gain, financially you gain the most by converting as much as you can as soon as you can. (Or at least as soon as you can remember.) If your cost basis is more than your available balance, you maximize this loss by carrying it forward; but it's still most advantageous to convert as much of your balance as you can as soon as you can - which in this case means leaving something in the IRA so that the cost basis doesn't get wiped out. I'm pretty sure I explained why this is so.

I also wrote, As for remembering, your previous Form 8606 records your running cost basis - you just have to pull that tax return to "remember" how much it was. And that's assuming your broker doesn't remember for you.

To which you replied, In reverse order, your broker CANNOT remember for you. ...

I realize they can't track everything because they can't know about other accounts at other brokers. But some brokers do try. Vanguard might not, but Merrill certainly does. They ask about deductibility of contributions and they report it as part of the 1099-R when you do conversions. So even though you should be tracking it, some brokers may have the information you need - because they asked and recorded your answers when you made your contributions and they're assuming they have all of your IRAs.

And, Finally zeroing out the TIRA while it has a cost basis loses the cost basis.

To which you replied, Yes. I'm the one in the thread who definitively answered that question.

Well since you whined about it, I'm pretty sure aj485 actually mentioned that first in this thread. You probably mentioned first in a prior thread, but not here.

Also you took my statement out of context. There was much more to it than that. What you quoted was just an opening preamble to another point I was trying to make that I assume you didn't bother reading.

Also, And why keep the funds in the account and wait to convert? Really?! Instead of converting now? I would have thought that was obvious. The more money you leave in the account, the smaller any market increase has to be to use up your excess cost basis.

To which you replied, Why wait long enough to accumulate a loss at all? If you're doing a backdoor Roth contribution, make the necessary conversion as soon as practical so there are no issues about gains or losses in the traditional IRA. But that's not the fact pattern we were given.

Because plans are something you do in the future and mistakes are something you do in the past? Also it's almost impossible to make a TIRA contribution and convert it the same day.

Did you read a different original post than me? In fact the fact pattern you were given started out as, I have no other traditional IRA. If I buy a traditional IRA for $1,000 and the market goes down and it's worth $800 when I convert it to a Roth IRA, then there's a loss of $200. ...

That looks a lot like the a fact pattern I was addressing. Were you conflating this thread with another one?

Finally I wrote, So tell me again, why should you just convert it all and not worry about preserving the cost basis?

To which you replied, Go back and read my post again. I never argued for that outcome.

Well I guess I reached that conclusion from this exchange you had with aj485 where she wrote, Why wouldn't converting just part of the IRA work?

And you replied, It would work. But what is there to gain by converting when the non-deductible IRA is at a loss? All I see is added complexity for no benefit.

That just seemed to me that you were advocating a convert-it-all approach. And even if you weren't, I also make an argument that waiting to use up the cost basis also makes no sense. My argument in either case stands. Convert everything early and often. If you have a net loss, the most mathematically sound thing to do is to convert most of the TIRA in order to preserve your cost basis so you can roll that loss into the next contribution period.

- Joel
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