On Jan 14, 7:43*pm, Will Trice <wtr...[at]notmonitored.com> wrote:

- quote -

Definitely not a dumb question Will.

Unfortunately, the IRS has a look back period on the retitling or
transfer of assets "in contemplation of death". Same goes with asset
transfer for the purposes of receiving medcaid benefits. And of
course, don't forget the IRS stance on any action taken for "the sole
purpose of avoiding taxation".

All reasons why one should plan ahead.

sandy wrote:

- quote -

You need earned income to make a new Roth deposit. But, you are
permitted (as I alluded to in a prior post) to convert money from an IRA
to a Roth IRA. There is no penalty to do so, only ordinary income tax.
Now, since you have no other income besides SS, it makes sense to check
out http://www.fairmark.com/refrence/index.htm and see that in 2008 you
have an exemption of $3500 and standard deduction of $5450, total $8950.
It may make sense for you to convert that amount each year. You'd pay no
income tax on the conversion, and over time convert all $60,000 to Roth,
paying no tax the whole way. There's no downside to this I can think of
given the rest of your details. Any beneficiary you leave it to would
have no income tax to pay on withdrawal, and you can still invest the
money within the Roth as you choose. Any question on this specific
issue, please ask. There's likely going to be a couple threads here
addressing different aspects of your situation.
JOE

sandy wrote:
- quote -

Sandy, I don't know the answer to that, it's a pretty obscure issue that
may depend on WA's probate code. Generally speaking the "ownership" of a
loss carryforward traces back to the property that generated the loss.
But the change of state in the interim adds another wrinkle to it, as
does the fact that you'd already bought property in WA at the time (was
it your domicile at that point?) This sounds kind of like a law-school
hypothetical! Perhaps WA would regard the loss as a community asset and
let you use it all, I have no idea. A tax attorney or CPA licensed in
Washington should know the answer based on WA law.

But Washington is one of the few community property states so I believe
my comments about CP and basis would apply...community assets get a full
step-up in basis upon the death of either spouse. So you might have much
lower unrealized investment gains in that mutual fund, or even losses.
The valuation date chosen for the estate may affect this (and if that
hasn't been done yet it may mean there is still some estate-settlement
planning to do). And it all raises the question of which of your assets
are considered community property in WA.

There are enough state-specific tax issues to resolve that it would make
sense to get some help. Not necessarily on the investment questions at
this point, but the tax and estate issues -- you might be able to make
substantial changes to your investments without incurring any tax and
that would be good to factor into any investment plans. And personally I
would not rely on Usenet given the complexities of some of these questions.

-Tad

Just to be complete, I trust you are reading Joe and Tad's
posts and also backing up the tax discussion with a new
thread at misc.taxes.moderated. I have never been paid for
financial advice but instead offer a Do-It-Yourselfer's
perspective, based on some 20 years of investing in stocks
etc. Tad and Joe (among others here) may have been exposed
to situations very similar to yours and so speak from that
perspective, in my estimation. I would be out of turn to
speak much more on taxes, though I do have a lot of tax
experience.

Do start a new thread to ask about whether to convert your
Traditional IRA to a Roth. This is something to consider. Or
maybe Joe or others would like to address this?

I want to encourage you to go to some of those quick, easy
to use, and even fun tools (linked in my previous post) that
offer substantive ideas on allocating. For example, using
some of the info you provided and some guesses,
http://www.smartmoney.com/oneasset/ suggests you have about
42% in cash and conservative (that is, no junk) bonds, 16%
in small cap stocks, 23% in large cap stocks, and 19% in
international stocks. These allocation tools are rough. Then
again, allocation is such an inexact science, with so much
unknown about the future, that they should be seen only as
rough. The point is, unless you have a really low risk
tolerance, then for your age and health etc. you should
consider continuing to hold upwards of say 25% in
conservative stocks, and the rest in very conservative
investments such as CDs, high grade bonds, and money
markets.

For stocks, I would use exchange traded funds (ETFs) and/or
mutual funds, preferably strictly index versions of these
with no loads and low expense ratios. Start another thread
anytime if you need to ask questions on ways to pick a fund.
Vanguard is an excellent fund company. Disclaimer: I am a
long time Fidelity client but recently purchased two ETFs
(within my Fidelity accounts) run by Vanguard. Fidelity's
mutual funds remain expensive, and I own none other than
money markets at this time. Vanguard's tend to be far less
expensive.

I am not sure how certain you are of the SS amount. Are you
aware that the Social Security Administration provides for
free pretty reliable estimates of Social Security payments?
It also mails out a more specific statement once a year to
all (or nearly all) stating what expected SS payments will
be.

Regarding watching one's expenses, for your reference: I
just create a line on a spreadsheet for each monthly expense
category. Right now, I have: Property tax, health insurance,
homeowner association fee, phone, internet service provider
fee, home heating (gas and/or electric), home water, auto
insurance, food, recreation.

You are asking good questions, so hang in there. This all
takes time to sink in. Read other threads here regularly,
and it will make more sense. Plus, there is nothing wrong
with using a paid financial advisor. The wisdom around here
is to use a fee only advisor. This is one who does not work
on commission. You can always run by this group the fee
structure of any advisor you are considering, and folks will
share their thoughts. A general consensus is often reached.

Apologies to the moderators for the length here. I am aware
I am likely over the line and will try to return to shorter
and sweeter in the future.

I really appreciate all your feedback. I had not really paid all that
much attention to our portfolio before hubby's death, but I do think
that your suggestion to diversity my portfolio is a very good idea.
Do you have any suggestions as to what percentage should be in various
types of investments??? (global, bonds, stocks, etc.???) Right now
virtually everything is either in Oakmark or in the money market.

My income will be very little (social security only which will be
somewhere around $900 I think. I own the home, cars, rvs, boats so
no mortgage payments. We've always reinvested dividends.

We've always preferred to live frugally....only dipping into savings
when we had a pricey toy (RV, boat, etc.) that we wanted. I actually
think I'll be quite comfortable on the social security alone but am
trying to convince myself to "live a little" and start spending/
enjoying savings (take a real trip, buy a canoe & another sailboat,
etc.) Spending 4% would make me feel like a wealthy woman!!! As to
my annual living expenses, I really have no idea. I'll have to sit
down and look through checkbooks, etc. to figure out everything like
property taxes, vehicle insurance/tags, etc. Although hubby's pension
stopped at his death, I DO still have lifetime medical insurance from
his former employer at no cost to me (which I am very grateful for).
I don't use it much but it's great to have.

Sure....I plan on living more than 20 years or at least as long as I'm
still having fun.

I've got an IRA of my own and I've heard the term "Roth IRA" but
really know virtually nothing about it. Is this something I should be
looking into or that I would qualify for? I haven't worked for years.

As for cost basis of the jointly held stocks we sold at a loss (no I
hadn't realized that the carryover might change)..... They were sold
several years ago while we were living in Florida to get funds for a
home renovation on property we had just purchased in NE Washington
state where we/I currently live. Are the state laws regarding this
from the state where the loss occurred (Florida) or the state where we
currently live and where my husband died? (Washington)?

I really appreciate all your help and suggestions. Thanks!

Sandy

- quote -

Sandy, I realized another complication here...the capital loss
carry-forward was from prior years, from before your husband passed
away. You may only have a portion of it to use now, on your tax return.
I believe the answer depends on the titling of the property sold, for
example if it was joint tenancy property then only 1/2 of it is "yours"
to carry forward. I would suggest asking a local tax expert about that
one, the answer varies by state and the specifics of the loss sales.

Will - that's correct but in your scenario the basis step-up on the
transferred half of the joint tenancy applies only if at least one year
passes after the transfer, under IRC Sec. 1014(e). If it's less than a
year, the original basis applies so that wouldn't work.

-Tad

Tad Borek wrote:

- quote -

Huh, is this a free lunch for taxes? Presumably the reason that assets
get a step-up in basis is because they are subject to estate taxation.
But estates passed from one spouse to the other are not taxable are
they? I apologize for being morbid, but in the case of a terminally ill
spouse, is it advisable to re-title all assets to the ill spouse to get
the step-up tax free?

Probably a dumb question anyway...

-Will

william dot trice at ngc dot com

"sandy" <fossilnut[at]isp.com> wrote
- quote -

My comments below are only to get you going. Consider asking
your tax questions at misc.taxes.moderated for more detailed
answers.

Generally one can deduct a maximum of $3000 of capital gain
losses from earned income. Losses in excess of this may
indeed be carried over to future years.

- quote -

Page D-7 of the Form 1040 instructions for 2007 will
introduce you to how carry over capital gain losses from
2006 to your 2007 taxes.

- quote -

What are your annual living expenses? Do you expect to live
20 or more years? When do you expect to need to dip into
principal? What kind of health expenses do you anticipate in
the coming years (with and without Medicare support)?

These will determine some of the guidelines for how you
should invest.

As for a recession, if you think it's likely you will live
20 or more years, then I suggest you not try to do what's
called "timing the market." The reason is that it's very
hard to say whether we will have a profound recession
(several years, meaning a depression, with the last one
being in the 1930s) or a not so profound one (year or so,
occurring once a decade or so). It's even harder to say
whether stocks will take a big hit or just stay flat.
Historically speaking, stocks recover from a "correction"
within a few years. One has to think about what's behind
this. It's not just luck. Economies thrive on innovation,
consumption, more workers, etc.

If you can afford to re-invest dividends, then doing so in
recessionary years generally means you pick up stocks at
bargain prices. This yields a compound effect in the years
subsequent to the recession.

You might remember that, if you are retired, the media's
comments about a recession tend to focus on how the average
Joe is affected. Meaning they will tend to lose jobs; some
will lose homes (though in the near future, I think nothing
like the Great Depression). Are you at risk for these? If
not, you're going to be fine.

- quote -

Maybe. But going in prepared will save you money. Experiment
with the free online asset allocators listed at
http://home.earthlink.net/~elle_navorski/id8.html. Note how
they ask about your time horizon and risk tolerance.

I echo much of what Joetaxpayer wrote to you on withdrawal
rates and allocating for diversity.

sandy wrote:
- quote -

If you get a copy of Schedule D at www.irs.gov you can see how it all
flows out. You tally up your gains/losses in two categories, short &
long-term, depending on whether you've held the asset for at least 12
months. Then, use the carry-forward against any gains, knocking them
down to $0 if the carry-forward is large enough. There is no $3k limit,
that only comes into play after your capital gains are netted out to
zero, and you still have remaining losses. Then, you can apply up to
$3,000 of any remaining losses against other income ("ordinary income"
in tax speak).

The carry-forward retains its character as short-term or long-term loss,
which is important to factor in because those are taxed at different
rates. Your prior-year tax returns would have the information you need
on them, about the carry-forward and its division into short/long term
losses...see Schedule D of the federal tax return.

There is a complicating factor here. You mentioned that your husband
passed away recently and that you held these assets jointly. Perhaps
you're already factoring this in, but there was a change to cost basis
for, likely, half of the account at that time. The cost basis was
"stepped up" to the value on the date of death, for that portion of the
assets (or "stepped down" if worth less than the purchase price on that
date). If this was a community property account, because you live in one
of the few states that have a concept of community property (CA is one),
the entire account was stepped up. Have you made that adjustment? The
gain might be smaller than that $50k you mentioned.

-Tad

PeterL wrote:

- quote -

Hold on, Peter. A sale a few years ago produces a loss, for say $50K.
That year, only $3000 is taken against income. The $47,000 carried
forward can offset up to $47,000 in capital gains (first) and then if
any is left, $3,000 in ordinary income. It carries forward until used up.
The answer to Sandy's question is a loud 'yes', even though I don't
suggest she bail out.
But if she decides on a new allocation, as per my previous postings, she
will take advantage of those losses, and reallocate with little, if any,
tax consequence.

JOE

On Jan 13, 4:17*pm, sandy <fossil...[at]isp.com> wrote:
- quote -


First of all my condolence for your loss. That said, I would advise
against doing something because you "keep hearing" about some
impending events. It is impossible to predict the short term
movements of the market. While some investors think that the market
is ready for a down turn, others think the opposite.

Not knowing your financial circumstances, it is not possible to anyone
to give you financial advice. Since you have a broker, see if they
know some fee-only financial advisors that is close to where you live.

- quote -

Not from a year or two ago. Right now all you can take is the $3,000
carry over from prior years.

sandy wrote:

- quote -

I replied to a different aspect of your question at MTM.

Looking at Oakmark, it seems to have outperformed its peers, but over 5
years slightly underperformed its index by a slight amount. It's a large
cap fund, so you are underdiversified if this is the bulk of your
investment.

We had a lively discussion on safe withdrawal rates here recently.
My reply was to quote the 4% resulting from the Trinity Study, and often
referred to by Author Scott Burns.

So you mention about $410K above, don't know how big the MM chunk is,
add it and multiply by 4%.

Depending on your annual adjusted gross income, you may be a candidate
for Roth conversion. In 2008, a single person in the 10% bracket has a
zero rate on dividends and cap gains, so you may have very little income
(you mention no pension or other income). In this case, a small amount
may be converted from the IRA to the Roth each year and no tax due. Or
maybe just 10% depending on other income. I know this was a tangential
to your original question, I am just looking to save you every cent you
can over the long term.
JOE

People in another group suggested I post my questions here.


This will be my first year trying to make financial decision and
understand/file taxes by myself (hubby died recently) and I've got
some question that I'm hoping you can help me with.

I've been toying with the idea of selling a good portion of our
portfolio as I keep hearing that a recession is coming. I'm guessing
that there would be tax consequences if I did so. My husband and I in
past years sold off a number of poorly performing stocks (tech stuff)
at quite a loss. Can I offset any current stock gains by that
carryover loss or is it limited to $3,000 (or is that $3,000 limit
offset refer only to earned income?). The stocks that we sold were in
joint name. In other words, if I sold mutual funds for a $50,000
capital gain, could I offset that with a $50,000 loss from a year or
two ago????

Also like opinions as to whether this is something that I should be
considering doing or should I just let investments sit in the account
(The great majority is invested in mutual funds). And should I decide
to sell, is a money market the best option or are their better
investments in times of recession?

I live in a tiny town and have to travel 50 miles just to see a
traffic light. I don't believe that we have any (or any good)
financial advisors locally. Would it be worthwhile taking the trip
to
consult one? And if yes, how do I make a decision as to who to
call?

Investments are [at]$60,000 in IRAs. I've got only [at]$5,000 in stocks now
and most of them are nothing I'm proud of (Lucent, Sun Microsystems,
etc.) I've got [at] $350,000 in Mutual Funds....mostly Oakmark Equity
and Income Fund Class I which seems to be rated highly (I've been
trying to research everything) and a chunk sitting in Money Market
Prime account. I'm a healthy 63 year old.

And a side question that I've been wondering about......How much can I
safely withdraw from savings each year (I don't really care that much
about conserving funds for heirs).

Appreciate your opinions.

Sandy