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Married filing jointly, household taxable income around 75K

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?

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?
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?

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

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?

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

6)We started a 529 account for our daughter when she was born. Due to her medical history and some continued complications she has been on Medicaid health care coverage since birth. We were advised this year to move the 529 money out of her name for Medicaid purposes since she cannot have assets in her name and continue to be eligible for Medicaid coverage. So, we rolled that money into a 529 account in my wifes name with the plan of switching it back to our daughter once she is off of Medicaid coverage.
Are there any tax implications for this move? If we are making or will make contributions towards this account this year or next will that change anything tax wise?

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?
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You will get answers and probably from knowledgeable people but you would be better off getting professional help in real life. You have lots of different issues they may work in different ways together.
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mc, hat is off to you for taking these steps to make your financial future better. I have a couple of thoughts, but generally echo rad's first response to your post (more on that at the end).

I started a non-retirement investing account to learn more about the stock market and put some extra money in savings to work.

All of the advice I've ever gotten, and all I've ever done, is to make sure all tax-deferred options for investing are maxed out *before* starting anything that's taxable. Even an HSA (triple benefit!), if you're eligible. Depending on what you plan to use the money for, "tax-deferred" doesn't automatically have to mean "can't touch until retirement age". Emergency fund, one-time home purchase, and other uses are potential exemptions to taxes and/or penalties in IRA or similar accounts.

Does the amount I have contributed to the traditional IRA vs investment gains matter when determining tax implications for a rollover [to Roth]? Or do taxes simply relate to the total in the account at the time of the rollover? Would that rollover amount contribute to our overall income for the year?

Pretty sure it's the second one, and yes. 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.

So, we rolled that money into a 529 account in my wifes name with the plan of switching it back to our daughter once she is off of Medicaid coverage. Are there any tax implications for this move? If we are making or will make contributions towards this account this year or next will that change anything tax wise?

No tax implications... your wife and daughter are basically equals under 529 rules. It's basically an 'education Roth' with looser rules in a couple of areas, including which family members can contribute and benefit. The one thing I learned over the years with 529s for my own kids though, is that *rolled* is more accurate than *switched*. Neither institution I've held them with has let us just swap out the 'student SSN'. As you probably saw, it's a whole new account number your wife now has, and when your daughter needs that money, her account will also be set up as a new one to receive the rollover from your wife, rather than the original one you opened--in my experience they only 'roll forward'.

So, I'll let others address the other 4, and certainly hope someone can correct me where I wasn't right, but here's the "Consult your tax advisor" part: I had a detailed tax question that this website wouldn't let me post here for some technology reason, so I ended up meeting with a basic strip-mall tax dude from H&R Block to get answers. I made an appointment for 2 days after my call, sent my questions (a detailed list like you posted) to him in advance, and spent the money. Sort of (he refused to accept it). Their rate was $30 for a half-hour sit-down, $50 for an hour. It took under 20 minutes, and at least 5 of that was b.s.ing about football. Given how much money you'll save in taxes with the situations facing you, that will be money VERY well-spent. If you're averse to Block or have a tax person available through your financial advisor (they're rarely the same person, or even firm), you could surely contact someone else. I used Block because the two other places I called weren't taking new clients and didn't want to do a one-off Q&A anyway. But I found them plenty confident about the "taxes" part of investing. Regardless of where you get your advice, I hope it goes well!

-n8
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As previously recommended, this is a year that professional help would be a very good idea.

With your daughter medical situation consulting someone who is familiar with legal issues associated with Medicaid and a disabled child would also be a good idea. With my mother-in-laws passing we are dealing with a relative that is an Disabled Adult Child (Social Securities term). There is a lot to learn.

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

Where any of your contributions to the IRA taxable? If not then the amount you contributed doesn't matter for the rollover.

It is no longer possible to undue a ROTH conversion. Once converted it is committed.

Conversions are taxable in the calendar year converted. Limit is 12/31.

Partial ROTH conversions are allowed and multiple can be done in a calendar year providing IRA administrator allows it. The taxable part of a conversion is taxed as regular income.

$80,000 reference is likely regarding federal taxes. You should also check state income tax.
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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?

I am assuming that you don't have any wash sales.

The order of use of realized Capital Losses for realized Capital Gains

1.) Short Term Capital Loss --> offsets Short Term Capital Gains
Long Term Capital Loss --> offsets Long Term Capital Gains

2.) Remaining either Short or Long Losses --> offsets remaining Short or Long Term Gains

3.) Remaining either Short or Long Losses -> Up to $3,000 used against regular income

4.) Remaining either Short or Long Losses --> Carried over
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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?

I am going to interpret this as:
"Do I have to make estimated tax payments to the IRS?"
Or
"Will I have to pay extra if I don't make estimated tax payments to the IRS?"

And the answer is of course "It depends".

Do you have a "normal" job where a company pays you and gives you a W-2 for tax purposes?
I'm guessing you do.

On your 1040 for last year, there's a line "Total Payments" (probably it is mostly amounts taken out of your paycheck and reported on your W-2)
And there is a line "Total Tax"

If your W-2 for 2020 will have *more* than the "Total Tax" from your 2019's 1040, you are in a "safe harbor" and won't have interest or penalties on any taxes you still owe.
If you make >$150k in 2020, the 2020 payments (taken out of your paycheck) need to be >110% of your total tax from 2019.
If you make <$150k in 2020, the 2020 payments only need to be >100% of your total tax from 2019.

This is usually the safe harbor from underpayment penalties that I use.

Other options to avoid underpayment penalties are:
* pay at least 90% of the tax owed for the current year (ie. make sure you're paying in at least 90% of what will be the total tax on the 2020's 1040)
* owe less than $1000

If you look at your paycheck stub it probably has amount withheld for federal taxes.
You can look at that and guesstimate what will be withheld for remaining paychecks you'll get in 2020.
And then compare that to your 2019 "Total Tax".
There *may* be enough time right now that you can increase your tax withheld in your last paycheck or 2 for the year. (You can ask your company's payroll/HR person about increasing the $ withheld and if they can get it processed in time for your next paycheck.)

If you won't fall within a safe harbor just from W-2 withholding, you can still make estimated tax payments to minimize or avoid underpayment penalties and interest. I find it easiest to use the safe harbor. But if you aren't going to hit one of those safe harbors, I'd ask in a separate thread about how to calculate estimated payments. If you provide details (ie. amounts of gains/losses and dates of realizing those gains/losses) and total wages (at least approximate) and amounts withheld for 2020, someone probably will help with what you should do for estimated taxes. I don't like sharing that much information myself - so it's understandable if you don't want to either. With details like that, people can give you more detailed answers though.

BTW - Due dates for estimated tax payments were July 15 (For income from Jan through May), Sept 15 (income June 1-Aug 31), and Jan 15, 20201 (for income Sept. 1-Dec.31)

So if your trades that resulted in cap gains were after Sept. 1, you have until Jan 15 to make an estimated tax payment for those cap gains.


An article about avoiding underpayment penalties:
https://www.hrblock.com/tax-center/irs/tax-responsibilities/...
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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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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.

I agree that there is no legal limit. My 401K administrator limits the number of conversions per year. It is unlikely that an IRA administrator would limit the number of conversions per year but it is not impossible.
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Wow! Thank you all for taking the time to read and reply to my situation. I really appreciate all the thoughtful advice you gave. I did end up meeting with a professional but located in a different state from where I am currently. Going to meet with someone local in the next week to get some more clarification on my states specific rules especially regarding the 529.

Here is my plan at the moment:

1) Going to hold my non-retirement investments as the money is not needed at this moment and I anticipate future income level changing where realized gains may not have much of an impact. For the future, planning to maximize tax-favored options, specifically with the Roth 403(B) option.

2) Based on past filings, my current withholdings, and my plan for wrapping up this year it doesn't look like an estimated payment is needed. I have had a tax penalty in the past that required estimated payments to be made (rookie mistakes...) so was double checking I wasn't missing something.

3) I was discouraged from doing a rollover. The main reason is I don't anticipate my income bracket drastically changing so the benefit is not going to be much. When rolling over total amount I roll over would be counted as revenue and be taxed at the bracket I would then be in. Since I am right on the edge currently income wise this move in this year would have a negative impact.

4)see above...

5)Roth 403(b) is a great option to better maximize my retirement savings. But, it will not impact my income level since it is a contribution made after tax as posters mentioned.

6) Need to do a bit more research/get local advice on this item specific to my state. From an initial view point this should have no tax impact and fits with what n8 mentioned.

7) These were savings bonds so planning for paying ordinary income rates on the interest growth.
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