Surely I'm not the only one who eschewed the advice of, well, everybody throughout one's life and only began thinking about retirement once it became abundantly clear that I might actually live to a ripe old age. Best laid lack of plans and all that ...
If anyone has considered or applied a transfer from a Rollover IRA to a Roth IRA to maximize untaxed returns on TSLA investment, please take a moment and look this over.
Planning for a sustainable financial future became a priority for me late last year as I pondered the long running flat-line that was TSLA, right up to when I learned more about the company and was ready to dive in. This has opened the door to the possibility that I might be able to pull this off at the last minute, after all.
Since that time I've opened a personal account at Fidelity (mostly because my employer's 401K was there), then learned how (being over the 59.5 years old threshold) I could roll the meager 401K into a Rollover IRA and buy TSLA. Which I have done.
Later in this year I learned about the Roth IRA and sold some other assets in o tax-freerder to buy into it at the $7000 maximum allowed for my age. Which, frankly, ain't much in that account, but TSLA has treated the meager investment nicely. Considering how in five years I'll be able to withdraw from that account I'd love to have more there earning its keep over those years, but couldn't find a way to contribute more.
Until now, as I've stumbled across how one may roll any amount from their Rollover IRA into the Roth IRA, with the caveat that taxes must be paid on the amount coming out of the Rollover IRA, as "income" on that year's return. Fair enough. Based upon what I've found in a few Roth threads here, getting funds in the Roth from the Rollover should be a priority. Mostly because what TSLA will make over the next five years will likely be far in excess of the cost to make the transfer.
This led into a drawn out exercise in math, as I worked out the ways to go about this. There are several variables to consider and after much contemplation a plan developed that appears to be a good fit for me and I'd like to bounce it around here in case someone might see some glaring oversight on my part.
Here's the parameters at play:
Working it out on a spreadsheet over a five year forecast, three scenarios were considered. Each scenario was calculated to compare:
I've come to the decision to go with the first scenario before year end so it will apply to 2019 taxes. This reduces the tax burden due to a smaller number of shares to be transferred, and, to be sold to cover the tax on the shares being moved. Keeping the most shares in HODL status while significantly increasing the Roth balance.
Immediately after the new year the same amount will be transferred again from Rollover to Roth, which will show as income on 2020 taxes.
These two transactions will result in about half of the Rollover balance being moved into the Roth. While keeping cost to do so low, and providing time for SP upward moves to possibly offset the costs further if gains are realized over the months between now and tax days for 2019 and 2020 returns.
If this makes any sense at all, and, there is any angle that has been overlooked or otherwise unconsidered, please let me know. I've got just a few days to roll on this. (pun intended)
If anyone has considered or applied a transfer from a Rollover IRA to a Roth IRA to maximize untaxed returns on TSLA investment, please take a moment and look this over.
Planning for a sustainable financial future became a priority for me late last year as I pondered the long running flat-line that was TSLA, right up to when I learned more about the company and was ready to dive in. This has opened the door to the possibility that I might be able to pull this off at the last minute, after all.
Since that time I've opened a personal account at Fidelity (mostly because my employer's 401K was there), then learned how (being over the 59.5 years old threshold) I could roll the meager 401K into a Rollover IRA and buy TSLA. Which I have done.
Later in this year I learned about the Roth IRA and sold some other assets in o tax-freerder to buy into it at the $7000 maximum allowed for my age. Which, frankly, ain't much in that account, but TSLA has treated the meager investment nicely. Considering how in five years I'll be able to withdraw from that account I'd love to have more there earning its keep over those years, but couldn't find a way to contribute more.
Until now, as I've stumbled across how one may roll any amount from their Rollover IRA into the Roth IRA, with the caveat that taxes must be paid on the amount coming out of the Rollover IRA, as "income" on that year's return. Fair enough. Based upon what I've found in a few Roth threads here, getting funds in the Roth from the Rollover should be a priority. Mostly because what TSLA will make over the next five years will likely be far in excess of the cost to make the transfer.
This led into a drawn out exercise in math, as I worked out the ways to go about this. There are several variables to consider and after much contemplation a plan developed that appears to be a good fit for me and I'd like to bounce it around here in case someone might see some glaring oversight on my part.
Here's the parameters at play:
1. TSLA holdings are scattered across: a) Individual Account; b) Rollover IRA; c) Roth IRA.
2. 2019 taxes on the transfer would be paid by selling TSLA from the Individual account, as I've been quite generous with my investment, bleeding cash and couch cushions nearly dry. Did I mention how this is a last-minute retirement plan?
3. Some of the shares in the Individual plan are now long-term, offering a lower tax rate on their sale.
2. 2019 taxes on the transfer would be paid by selling TSLA from the Individual account, as I've been quite generous with my investment, bleeding cash and couch cushions nearly dry. Did I mention how this is a last-minute retirement plan?
3. Some of the shares in the Individual plan are now long-term, offering a lower tax rate on their sale.
Working it out on a spreadsheet over a five year forecast, three scenarios were considered. Each scenario was calculated to compare:
a) 25%/year average gain in SP for five years (being conservative compared to 2020 gains)
b) 100%/year average gain in SP for five years (still feels a little conservative, ... for TSLA)
This revealed how the costs of taxes on the Rollover transfer, and cost of long-term shares sold to pay those taxes would be recovered in the Roth over 4-5 years at 25%/year growth, and in 1-2 years at 100%/year growth.b) 100%/year average gain in SP for five years (still feels a little conservative, ... for TSLA)
Scenario 1: moving only an amount from Rollover to Roth that keeps my total "income" for tax purposes that won't bump it into the next level of taxes and keeps the amount of tax owed modest.
Scenario 2: moving an amount that would bump me up one level on the tax rate scale and more than double.
Scenario 3: moving all from the Rollover to Roth which would bump the tax rate up two levels.
Scenario 2: moving an amount that would bump me up one level on the tax rate scale and more than double.
Scenario 3: moving all from the Rollover to Roth which would bump the tax rate up two levels.
I've come to the decision to go with the first scenario before year end so it will apply to 2019 taxes. This reduces the tax burden due to a smaller number of shares to be transferred, and, to be sold to cover the tax on the shares being moved. Keeping the most shares in HODL status while significantly increasing the Roth balance.
Immediately after the new year the same amount will be transferred again from Rollover to Roth, which will show as income on 2020 taxes.
These two transactions will result in about half of the Rollover balance being moved into the Roth. While keeping cost to do so low, and providing time for SP upward moves to possibly offset the costs further if gains are realized over the months between now and tax days for 2019 and 2020 returns.
If this makes any sense at all, and, there is any angle that has been overlooked or otherwise unconsidered, please let me know. I've got just a few days to roll on this. (pun intended)