On various occasions we’ve discussed the benefits of segregating different assets in separate Roth IRAs when doing a conversion. A reader asks whether it would be possible to achieve the same benefit, or at least a similar one, with assets that were initially converted to a single Roth IRA that was subsequently divided. (more…)
Archive for the ‘Tax Strategies’ Category
Segregate Assets After Roth Conversion?
Saturday, December 11th, 2010The Tax Deal: Rethink Roth Conversions?
Thursday, December 9th, 2010It’s going to be quite a scramble to figure out what planning moves make sense in light of a suddenly changing tax landscape. One item sure to draw the attention of many is Roth conversions. Will they become more attractive? Or possibly, for some people, less attractive? (more…)
Planning for Higher Capital Gains Rates
Thursday, September 9th, 2010For people in the higher tax brackets, capital gains rates are likely to be higher in the near future. Many investors may wonder whether they should cash gains before the end of the year. Our analysis reveals that this strategy won’t always produce benefits. Paradoxically, some people end up with better results when paying more tax. (more…)
Roth Conversions and the Medicare Tax
Thursday, June 24th, 2010This is the fifth in our series on Roth conversions and tax rates. (For earlier ones, click on the “Roth conversion” tag below this entry.) Our focus here is on how the new Medicare tax on investment income may affect planning for a Roth conversion in 2010 — even though the new tax doesn’t take effect until 2013. (more…)
Muddled Thinking on Roth Conversions
Monday, June 14th, 2010I couldn’t possibly comment on every article that comes out on Roth conversions. My Google alert for that topic comes up with so many entries on a daily basis that it would be a full-time job just to read them all. The vast majority reflect muddled thinking on the subject. Today’s piece in the Wall Street Journal on reasons not to convert is no exception. (more…)
Changing Tax Rates Affect ISO Strategy — Part II
Tuesday, June 8th, 2010In a previous post we explain why, for years prior to 2010, it was potentially advantageous for individuals holding incentive stock options with large built-in profits to adopt a strategy under which they sell 65% of the shares immediately after exercising the option and hold 35% of the shares long enough to avoid a disqualifying disposition. In this post we explain how the “35% solution” changes for options exercised in 2010, and changes again for options exercised in 2011. (more…)
Changing Tax Rates Affect ISO Strategy — Part I
Friday, June 4th, 2010Strategies for incentive stock options are complicated by the need to factor in the effect of the alternative minimum tax (AMT). In my writings on managing stock options — Consider Your Options, a book for option holders, and Equity Compensation Strategies, a text for professional advisors — I explain why the optimal approach from a tax perspective for people who have very large profits built into their ISOs is to sell 65% of the shares immediately after exercise of the option and hold 35% long enough to convert the profit on those shares to long-term capital gain. The “35% solution” changes when tax rates change. This is the first of two articles on how these changes affect ISO strategy for options exercised this year, given that shares not sold immediately will be taxed at next year’s capital gains rates, and for options exercised in later years, when both regular tax rates and capital gains rates will be higher.
Finanacial Advisor magazine published an article quoting us on this subject and referring to this series of articles. (more…)
