Should I take a loss on a mutual fund (non-IRA) for TY2020, if otherwise
I owe no (ie, zero) tax this year, due to not taking usual RMDs ?
Should I save the loss for next year when RMDs will increase taxable
I do normally use Sch D & Cap Gain W/S for other gains.
Doing a what-if 1040 etc makes it look like the IRS would owe me money
(on top of a full refund of withholdings)
Does this sound correct ?
That could be one option.
Depending on how you end up owing no taxes, you may be able to carry over the loss. But if you have other capital gains those may be offset by the mutual fund loss, leaving you nothing to carry over. But if there is a carry-over, that would be another option.
Another option would be to withdraw enough money from the retirement account so that you still end up with a 0% tax bill for this year. You would give up perhaps a year of tax-deferred growth of that withdrawal. But as you presumably don't need the money, you could invest it and perhaps get preferential capital gains or qualified dividend treatment of the resulting income instead of having it be treated as ordinary income.
Do you want to sell that mutual fund in any case for non-tax reasons?
If not, you may not want to do anything right now.
One adjustment - Instead of withdrawing the money Convert To Roth. The
loss will offset the tax on the conversion, and it will remain tax free
from that point. You can convert "In Kind". The fund isn't sold at all,
just convert the precise dollars from IRA to Roth IRA.
Tom and Russ,
Thanks for your comments. To clarify the issue, this fund in question is
in a taxable non-IRA brokerage account, along with 3 other funds. 6
years ago I bought $35,000 worth. Today the NAV is $36500 with a a Cost
Basis of $40300.
As I am retired, I currently live off my SS benefits, and have not
tapped this, or my other investments (2 IRA accounts) for expenses. As I
plan to take advantage of the RMD waiver this year, I will pay no income
tax this year. I will get a 100% refund of withholdings, so I don't need
a Capital Loss this year, but could use it next year when my RMDs will
drive a tax bill of about $4000.
Upon selling this fund next year, I might spread the proceeds across the
3 other funds at this brokerage.
As to why sell, that's due to the poor performance with no improvement
Thanks again for any comments.
So a loss of roughly $4000.
So that should mean you are in the 12% tax bracket.
That means a capital loss of $4000 would save about $480 in taxes next year.
So the sale isn't tax driven (That's good). The question now is to decide whether
to do something else with the tax loss today. Such as Joe's suggestion to convert
just enough of one of your IRAs to Roth so that you won't owe any taxes after
using the loss.
That won't save you anything in the short run, but it would reduce slightly the future
RMDs, as Roth IRAs don't have them. And it allows you to keep the money growing
now tax-free. That produces a savings over the long haul, which is perhaps a bit less
The alternative is to wait until January to realize the loss. That gives the immediate
tax savings, but would require you to stay invested in a mutual fund with poor performance
for another 45 days or so. So that gives up some potential appreciation. Exactly how
much would be very difficult to predict, of course.
What I don't know is whether your taxes for 2020 would allow you to carry over the
entire loss. It would have to be netted against your capital gains for this year, including
capital gains dividends, so that would be lost as a tax benefit. And it could also need
to reduce your other taxable income by $3000, not leaving anything to carry over.
Hope this helps with your decision-making. Good luck.
After your comments, and a talk with the brokerage account custodian, I
have decided to do nothing this year.
If into next year the fund pulls out of it's "flat-line", I will keep
it. If it doesn't, I'll sell it and probably spread the proceeds across
the other 3 funds that are doing OK.
Then take the Capital Loss on next year's taxes when I should see my
"normal" $4000 tax bill, mainly driven by RMDs from my IRA accounts.
In future, I will pay more attention to Cost Basis, as well as NAV
Thanks again :-)