You have a gift James for being able to take complex topics and break them down into very manageable elements so that they can be well-understood. Thank you!
re tax gain harvesting: watch out for IRMAA . Same applies to Roth conversions. Also in your planning you might consider tax consequences for your beneficiaries/heirs.
Excellent point. I didn’t want to go that high because of the tax rate. Now, with trumps tax cuts expiring, I’m forced to go a little higher with conversions but not enough to impact IRMAA. My goal is the kids will inherit all or most Roth funds.
The amount of Social Security that is taxed increases with Tax Gain Harvesting. This factor must be taking into consideration when tax gain harvesting or you will overshoot the mark.
I especially liked the idea of Donor-Advised Funds, where you can give to charities and get tax benefits. Keep up the great work in helping people with their retirement finances!
Re tax gain harvesting: be careful if you are on Social Security. The capital gain income can make more of your SS income taxable, increasing your taxes even though the capital gain income stays untaxed.
I donate two years in one year and take itemized deduction and then take standard deduction the next year. Putting 150K in the tax fund is like to lock up the potential growth of the 150K over the next 10 years ...
during your discussion of arbitrage, it seems that something was left out, i.e., its explanation is incomplete. how does a roth get involved in arbitrage? what is the connection?
One comment about tax gain harvesting. If you buy back the samestock you can indeed raise the basis on your overall holding. However, when you make future sales, you do need to be careful about how you set the sale up. The default for most brokerage accounts is FIFO which stands for first in first out. How does that impact things. Lets say you has 1,000 shares of stock X you bought for $10 per share. You sold 500 shares at $20 for a gain of $10 per share or $5,000 on a sale total of $10,000. You then immediately used the $10K from the sale to buy back 500 shares of the stock at $20 per share. You now hold 500 shares that you bought some time ago with a basis of $10 and the 500 shares you just bought with a basis of $20. The basis for your 1,000 shares is $15/share. Now lets say it is the next year and you want to harvest gains again so you decide to sell 500 shares at $30/share. If you sell using FIFO, the 500 shares you sell will be the shares you have held the longest - i.e., those with the $10 basis. So your gain will be $30 (sale price) - $10 (basis) = $20/share for a gain of $10,000. This might be a surprise to you if you thought your basis was $15. So be careful which shares you sell.
Great information on numbers 2 and 3. Roth conversions followed by a three year down market could be devastating to a portfolio and is the reason I can't pull the trigger.
You’re thinking about it wrong. Whether your money is in an IRA or a Roth, it will still go up and down with the market. So the only risk is that you might pay more in taxes when you convert if the market subsequently goes down, but that’s not a huge risk. Besides, when was the last time we had 3 down years?
You have to have nonretirement investments for the tax harvesting. unfortunately, many of us were told put all your money in 401k by prominent retirement "experts" and cannot use this strategy.
My question is if I withdrwan" unearned income " like mutual fund or selling business ,it will be added to Annual adjusted income (AGI) related tax braket. I worried related to Roth Ira contribution and my next question was 15 percent capital gain applicable to long term investment from mutual fund .Thanks
Charitable organizations need to be promoting your third point on Donor Advised Funds accounts, because ever since the significant increase in the standard deduction a few years ago that took into account charitable contributions, the tax saving incentives for giving away money ended.
@@KatieLibby1315 True. There was an interesting initiative in 2021 or 2022 that encouraged DAF “owners” to gift out 50% of their holdings. Not sure what the overall effect was, but we liquidated ours that year.
I hope you can answer this question. I understand that I can put $7500 into a Roth IRA. However, I also have a Roth 401k with my employer. Do they have to total $7500, or are they different, so the two Roth’s can exceed $7500?
They are subject to different limits. So you could do $7,500 to a Roth IRA AND contribute to your Roth 401k up to the max. This assumes your income doesn't disqualify you from making Roth IRA contributions. With the Roth 401k there aren't any income limitations.
I might have missed this, but can tax gain harvesting be used with a 401k or IRA, or is it just a brokerage account? My understanding is it only works from withdrawing from brokerage through long term capital gains, since 401k and IRA are taxed as ordinary income. Just want to confirm.
If you have enough in your brokerage account that your capital gains from annual selling are almost the threshold for LTCG, then you are bound to have dividends/interest that are going to be taxed as ordinary income. To claim that you could get an income of $70,000 and not owe taxes, is simply not true.
If you have enough in your brokerage account that your capital gains from annual selling are almost the threshold for LTCG, then you are bound to have dividends/interest that are going to be taxed as ordinary income. To claim that you could get an income of $70,000 and not owe taxes, is simply not true. Same situation applies to tax gain harvesting. Most retirees who are getting income by taking distribution from brokerage account have large enough dividend distributions that tax gain harvesting is not going to be beneficial for them.
Something has to be said about considering the trade off in total earnings when you’re focusing on tax savings. You can move to a state with little or no state income tax, but at the cost of lowering overall net take home income to where it’s lower than when you were paying the higher state taxes. Also there are benefits to higher income and paying higher taxes such as with higher income, you can qualify for more credit cards with intro bonuses and also qualify for higher credit card limits, yielding higher total rewards. Higher taxes will allow for increased spend on credit cards with high intro bonuses. Higher income also means more purchasing power with regards to qualifying for home mortgage.
That only applies if you have to take a pay cut when moving to a new lower tax/cost location. I moved from CA (13.3% income tax) to NV (0.0% income tax) and suffered no pay reduction. Remote work is changing the landscape dramatically.
good video but you made a mistake, capital gains rate in not determined by your taxable income it is determined by your agi, so if the gain pushes your agi above the threshold you still pay capital gains tax.
what's total BS is that roth conversions impact your AGI. I mean, you're paying taxes to the Fed and maybe State, all at once. As long as you make no withdrawals from that Roth, it shouldn't be included as income, it's literally just a rollover. I despise our govts tax rules, they're nothing but traps for people who've tried to do the right thing and prepare for their own retirements.
There’s a difference between a Roth Rollover and Roth conversion. A conversion is moving pretax money to an after tax account. A rollover is moving from pretax to pretax or after tax to after tax.
My CPA finds these tax savings. And if I wasn't happy with my CPA, I would simply find another one. If you were to start using these strategies, you'd probably get audited and will have to pay expensive penalties and fines.
You have a gift James for being able to take complex topics and break them down into very manageable elements so that they can be well-understood. Thank you!
That Qualified Charitable Deduction is a really good idea, and allows you to be more generous for the same cost to you.
re tax gain harvesting: watch out for IRMAA . Same applies to Roth conversions. Also in your planning you might consider tax consequences for your beneficiaries/heirs.
Give now.
Don’t wait for them to wish for your death.
Excellent point. I didn’t want to go that high because of the tax rate.
Now, with trumps tax cuts expiring, I’m forced to go a little higher with conversions but not enough to impact IRMAA.
My goal is the kids will inherit all or most Roth funds.
Thanks for another outstanding financial lesson! You are a gifted teacher and smart advisor.
The amount of Social Security that is taxed increases with Tax Gain Harvesting. This factor must be taking into consideration when tax gain harvesting or you will overshoot the mark.
I especially liked the idea of Donor-Advised Funds, where you can give to charities and get tax benefits. Keep up the great work in helping people with their retirement finances!
Thanks, will do!
Re tax gain harvesting: be careful if you are on Social Security. The capital gain income can make more of your SS income taxable, increasing your taxes even though the capital gain income stays untaxed.
Yes, you will need to do the calculation and see which side is better off.
Thank you for sharing all this information. I have learned so much from you.
I love this video. several pieces of information that I have been looking for.
I donate two years in one year and take itemized deduction and then take standard deduction the next year. Putting 150K in the tax fund is like to lock up the potential growth of the 150K over the next 10 years ...
I did that too
Your DAF can stay invested. Usually the company holding it for you has several investment options based on your risk profile.
Another excellent video, James. Thank you for sharing your knowledge - and in such an understandable way.
Thanks for explaining what happens if you go over a little bit. I contributed a few hundred to a regular IRA account to get back under the amount.
during your discussion of arbitrage, it seems that something was left out, i.e., its explanation is incomplete. how does a roth get involved in arbitrage? what is the connection?
One comment about tax gain harvesting. If you buy back the samestock you can indeed raise the basis on your overall holding. However, when you make future sales, you do need to be careful about how you set the sale up. The default for most brokerage accounts is FIFO which stands for first in first out. How does that impact things. Lets say you has 1,000 shares of stock X you bought for $10 per share. You sold 500 shares at $20 for a gain of $10 per share or $5,000 on a sale total of $10,000. You then immediately used the $10K from the sale to buy back 500 shares of the stock at $20 per share. You now hold 500 shares that you bought some time ago with a basis of $10 and the 500 shares you just bought with a basis of $20. The basis for your 1,000 shares is $15/share. Now lets say it is the next year and you want to harvest gains again so you decide to sell 500 shares at $30/share. If you sell using FIFO, the 500 shares you sell will be the shares you have held the longest - i.e., those with the $10 basis. So your gain will be $30 (sale price) - $10 (basis) = $20/share for a gain of $10,000. This might be a surprise to you if you thought your basis was $15. So be careful which shares you sell.
Thanks. Little by little...learning. Some not applicable but still giod
I love all your videos. You are knowledgeable and very likable. Keep them coming.
How above the Roth IRA? What is your opinion? Thanks
I read that in California, social security income is fully taxed.
Great information on numbers 2 and 3. Roth conversions followed by a three year down market could be devastating to a portfolio and is the reason I can't pull the trigger.
You’re thinking about it wrong.
Whether your money is in an IRA or a Roth, it will still go up and down with the market. So the only risk is that you might pay more in taxes when you convert if the market subsequently goes down, but that’s not a huge risk. Besides, when was the last time we had 3 down years?
You have to have nonretirement investments for the tax harvesting. unfortunately, many of us were told put all your money in 401k by prominent retirement "experts" and cannot use this strategy.
My question is if I withdrwan" unearned income " like mutual fund or selling business ,it will be added to Annual adjusted income (AGI) related tax braket. I worried related to Roth Ira contribution and my next question was 15 percent capital gain applicable to long term investment from mutual fund .Thanks
I had been looking at standard deductions Im single and 72 I had figured that my standard deduction for 2023 would be 15700 did I make a mistake?
15,700 for singles is what I was told. Not 15,350?
Charitable organizations need to be promoting your third point on Donor Advised Funds accounts, because ever since the significant increase in the standard deduction a few years ago that took into account charitable contributions, the tax saving incentives for giving away money ended.
DAF allows people to sit on donations for as long as they want but get the tax deduction. Immediatly.
@@KatieLibby1315
True.
There was an interesting initiative in 2021 or 2022 that encouraged DAF “owners” to gift out 50% of their holdings. Not sure what the overall effect was, but we liquidated ours that year.
I hope you can answer this question. I understand that I can put $7500 into a Roth IRA. However, I also have a Roth 401k with my employer. Do they have to total $7500, or are they different, so the two Roth’s can exceed $7500?
They are subject to different limits. So you could do $7,500 to a Roth IRA AND contribute to your Roth 401k up to the max. This assumes your income doesn't disqualify you from making Roth IRA contributions. With the Roth 401k there aren't any income limitations.
Does Roth 401k has contribution limit too? thanks@@RootFP
@@RootFP much thanks!
I might have missed this, but can tax gain harvesting be used with a 401k or IRA, or is it just a brokerage account? My understanding is it only works from withdrawing from brokerage through long term capital gains, since 401k and IRA are taxed as ordinary income. Just want to confirm.
Correct
Thanks James, always learn something with your content!
If you have enough in your brokerage account that your capital gains from annual selling are almost the threshold for LTCG, then you are bound to have dividends/interest that are going to be taxed as ordinary income. To claim that you could get an income of $70,000 and not owe taxes, is simply not true.
I really enjoy your videos. So good.
great information, thank you
Love your videos. So easy to understand!
I'm so glad!
😂😂
Excellent, James, as usual!
If you have enough in your brokerage account that your capital gains from annual selling are almost the threshold for LTCG, then you are bound to have dividends/interest that are going to be taxed as ordinary income. To claim that you could get an income of $70,000 and not owe taxes, is simply not true.
Same situation applies to tax gain harvesting. Most retirees who are getting income by taking distribution from brokerage account have large enough dividend distributions that tax gain harvesting is not going to be beneficial for them.
You’re very sharp for such a young guy 👍
outstanding as always.
Very informative video, thanks
This video shows why Congress will not simplify paying Taxes. 😳
What's a standard deduction?
Please switch to some videos that give a tutorial on the American tax system. Then you can make more sense of the investment tutorials.
😊wow😊 thanks😊
Looking good😊
Love your content
Does a retiree who is blind get both the blind and the retiree deduction?
Yes for blind and over 65 years old. Retired or not doesn’t matter.
Thank you very much for the useful information. 🙏🏻❤
Something has to be said about considering the trade off in total earnings when you’re focusing on tax savings. You can move to a state with little or no state income tax, but at the cost of lowering overall net take home income to where it’s lower than when you were paying the higher state taxes. Also there are benefits to higher income and paying higher taxes such as with higher income, you can qualify for more credit cards with intro bonuses and also qualify for higher credit card limits, yielding higher total rewards. Higher taxes will allow for increased spend on credit cards with high intro bonuses. Higher income also means more purchasing power with regards to qualifying for home mortgage.
That only applies if you have to take a pay cut when moving to a new lower tax/cost location. I moved from CA (13.3% income tax) to NV (0.0% income tax) and suffered no pay reduction.
Remote work is changing the landscape dramatically.
good video but you made a mistake, capital gains rate in not determined by your taxable income it is determined by your agi, so if the gain pushes your agi above the threshold you still pay capital gains tax.
James is correct. LTCG is based on taxable income, not AGI.
Sorry but you forgot property tax that would greatly change the numbers
Property tax is subject to the $10,000 SALT limit that he mentioned.
If you draw down your savings by 3% a year you’ll outlive your savings.
what's total BS is that roth conversions impact your AGI. I mean, you're paying taxes to the Fed and maybe State, all at once. As long as you make no withdrawals from that Roth, it shouldn't be included as income, it's literally just a rollover.
I despise our govts tax rules, they're nothing but traps for people who've tried to do the right thing and prepare for their own retirements.
There’s a difference between a Roth Rollover and Roth conversion. A conversion is moving pretax money to an after tax account. A rollover is moving from pretax to pretax or after tax to after tax.
James is correct and clarified rollover and conversion. 👍
Let's assume you invested in a miracle stock and got 5x return? Sorry James. Extreme examples don't help.
🤘
My CPA finds these tax savings. And if I wasn't happy with my CPA, I would simply find another one. If you were to start using these strategies, you'd probably get audited and will have to pay expensive penalties and fines.