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No. of Recommendations: 7
I would also suggest visiting a tax professional, as you have a lot of moving parts.

1) In January 2020 I started a non-retirement investing account to learn more about the stock market and put some extra money in savings to work. To this point in the year, I have a realized loss of about $1,300. But an unrealized gain of around $9,000 and the total account sits at around $32,000 actively invested in stocks. In that account, I had about 4-5 stocks/ETFs that did have a very small realized gain and 7 stocks/ETF's that accounted for the overall realized loss. Will I be taxed at short term capital gains rates for those 4-5 holdings that did go up before selling before 1 year had passed? Or will that money be absorbed by the losses from a tax perspective?

Interpreting "To this point in the year, I have a realized loss of about $1,300" to mean that the loss is inclusive of all of your gains and losses netted together, then the $1,300 loss will actually decrease your taxable income, per step 3 in vkg's post, assuming you have no wash sales.

2)When looking at selling or holding my non-retirement investments my understanding is that after 12 months of holding that I will be taxed at long-term capital gains rate of 15%. Is that correct?

Maybe. There is a 0% long term capital gains rate up to $80k for MFJ, so it could very well be that some or all of your LTCGs will be taxed at 0%, depending on other income. And just to be clear, LTCG rates kick in 1 year and 1 day after your initial purchase. If you sell on the 1 year anniversary of your purchase, it's still a short term CG.

What, for comparison sake, would be my short term capital gains tax rate? Would those taxes need to be paid in advance of 12/31/20 via estimated tax payments to the IRS? Or just taken out during the filing process?

STCGs are taxed at your ordinary income rates. foo1bar's post is a good source for information about estimated payments.

3)About 3 years ago I rolled old work retirement money into a traditional IRA account and also we have been annually maxing out a Roth account for me and my wife with a financial advisor. I am looking at opening self-directed accounts for both and no longer working with the financial advisor.

Just to be clear, what you are likely looking at are 'self-managed' IRAs, not 'self-directed'. Self-directed accounts typically charge significant fees, but allow you invest in things like real property that regular brokerage accounts don't allow.

I am considering converting my traditional IRA into my Roth IRA. Currently, I have about $60,000 in my Traditional IRA. Does the amount I have contributed to the traditional IRA vs investment gains matter when determining tax implications for a rollover? Or do taxes simply relate to the total in the account at the time of the rollover?

Since the IRA was funded by a prior workplace plan, presumably, there is no after tax basis in the account. If that's the case, the taxes will be based solely on the amount that you convert, and will be at ordinary income rates, not capital gains rates. As also mentioned, you cannot reverse conversions into Roth IRAs - so you need to be REALLY sure that you want to do the conversion and how much you want to convert BEFORE you do one. This is another reason to visit with a tax advisor.

Would that rollover amount contribute to our overall income for the year? I am expecting we will be around the $75 - 80K mark for 2020 income between my wife and I. If I do the rollover I would just need to be careful to not push us up into the next bracket, correct? Is 80K the current cutoff for married filing jointly?

Yes, the conversion would add to your income for the year. Whether you want to be 'careful' about pushing into the next bracket or not is a decision that you need to make. That said, if the income from both you and your wife is $74,800 and you take the standard deduction of $24,800, that would mean that your taxable income is $50k. The break point for MFJ between 12% and 22% (Federal only) is $80,250 So, with no other income (which may or may not be correct), you could potentially convert $80,250 - $50,000 = $30,250 and still stay in the 12% bracket. As also mentioned, you need to consider if your state will tax the income.

What is the time frame for doing a conversion in 2020? Is it 12/31/20 or 4/15/21?

All conversions are calendar based, so you only have until 12/31/20 to do a conversion during 2020.

I would also point out that the information contained in n8larson's post is wrong:

I was also under the impression when the Roth program began (1998?) that you can only exceed the annual Roth contribution limit by doing a Traditional-to-Roth rollover *once*, so parceling out that $60k you mentioned over multiple years to avoid the marginal tax bracket bump might not be an option. And I'm nearly certain it would be expensive for you (that particular bracket jump is big, IIRC). I haven't kept track to see whether that rule has changed since the early days.

Even in the early days of Roth IRAs, there was no limit on the number of partial Roth conversions that you could do. The limit that was there, and has since been lifted, was an income limit of $100k in income on being able to do a conversion. If you had more than $100k in income, you were not eligible to convert from a Traditional account to a Roth account.

4)Would you recommend using some of my non-retirement investment money potentially to account for the taxes due because of the conversion? Would those payments need to be made via estimated tax payments to the IRS prior to April to avoid a tax penalty? Any other things to consider with that?

Well, I definitely would not recommend having taxes withheld from the conversion, because you will pay taxes and penalties on any amount you have withheld for taxes. Whether you should use some of your taxable account assets to pay for the taxes on the conversion is more dependent on what other funds you might have available outside of your IRAs and other retirement accounts.

5)I have a 403B Roth Option through my work. Contributions to this must be made out of my income/monthly check. This year I have contributed about $4,200 which reduces our overall income a bit.

Ummm...I'm confused. If you are contributing to a Roth 403(b) account, how does that reduce your income? Roth account contributions are after tax, not pre-tax.

We will have some inheritance money coming within the next few months. Would you recommend maxing out 403B contributions from a tax and investment perspective? If we can survive income wise with that inheritance money for awhile I think that reducing our income level and maxing out our tax favored investing might be a good way to go. Do you agree? Anything I should consider or watch out for with that plan?

Assuming you are happy with the investment choices and fees in your 403(b) plan, that seems like a reasonable approach. I would strongly suggest waiting until you actually get the inheritance before you adjust your contribution rates.

My understanding is that the inheritance income is not taxed and is considered a gift, is that correct?

From a Federal perspective, that's correct. Some states do tax inheritances, so you need to figure out if your state is one of those.

7) My wifes grandfather purchased some bonds in my wifes name years ago. Several of them came to maturity this year so we cashed them out. My understanding is that we would need to pay long term capital gains on the interest accrual of those bonds at the time of us cashing them out. Is that correct? Or would this be considered a gift and not taxed?

What kind of bonds are these? If they are savings bonds (the type of bonds that are typically given as gifts), you will actually pay ordinary income rates, not capital gains rates. And, unless your wife has been declaring the interest each year since she got the bonds, you will owe taxes on the entire amount of interest that was paid to her.

As far as the bonds being a gift and not being taxed - gifts themselves are not taxed, if the giver has not exceeded the lifetime exemption amount ($11.58MM per person in 2020 - although it likely would have been much lower when your wife received the gift), and even if that's exceeded, it would be the giver who would pay any taxes. That said - the beneficiary of a gift retains the basis of the gift, so taxes will be owed on any gains, or in the case of savings bonds, on the interest that accrued.

Again - I would strongly suggest that you sit down with a tax person to go over the details your situation before you decide to do anything like a conversion from your Traditional account to a Roth account.

AJ
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