On Jan 30, 12:05*pm, "Mike Morgan" <cfpm...[at]twangtown.net> wrote:

- quote -

The retiree can sell enough stock to generate $3,000 dollars in losses
which would be $3,000/0.18 = $16,667. The $3,000 loss can than be
used to reduce taxable income. Current market conditions should
impress upon congress the need to increase that loss provision. More
than $3,000 can be done but the loss over $3,000 would need to be
carried over into next year.

Another alternative is to have the broker lend him money against his
stock holdings to give the market a chance to recover.

--
Ron

On Jan 30, 1:40*pm, PeterL <po.n...[at]gmail.com> wrote:

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Withdrawals from a tax deferred account are counted as ordinary income
and except for the first $3,000, capital losses can't count against
it.

--
Ron

Mike Morgan wrote:

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Yes, read Tad's reply first, then this.
Since RMDs (required minimum distributions) are not in the mix due to
age and recent legislation, your retiree should look at his tax bracket.
See http://www.fairmark.com/refrence/index.htm to at least get an idea
of where he falls.
Once you know the rate he'd be in, I'd adjust the pre-tax withdrawals to
top off the current rate, but go no higher.
For example, in 2009 you estimate that his taxable income is $60K. Why
not convert $22K to Roth from the pretax account and avoid the risk that
his rate will go up in future years?

On Jan 30, 10:05*am, "Mike Morgan" <cfpm...[at]twangtown.net> wrote:
- quote -


Well, this person can take some out of the tax deferred acct., and
also sell some of the losses in the taxable acct. to counter the tax
he has to paid for taking funds out of the tax deferred acct.

Mike Morgan wrote:

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One way is to convert cash or bonds in the tax-advantaged account to an
comparable stock fund, then sell the stock fund for cash in the taxable.

I would avoid buying the exact fund in the tax-advantaged if the
taxable fund has a loss, because the wash rule would wipe that out.
However, equivalent funds that don't violate the regs can be found.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

Mike Morgan wrote:
- quote -

Mike, this is not a specific recommendation but always keep in mind that
whether an investment is underwater is only relevant for tax purposes,
and only for investments held in taxable accounts...not for asset
allocation purposes. Your portfolio has no memory of its cost, only the
IRS does. The only valid concern might be "not wanting to reduce the
stock allocation" and if that's the reason for not-selling, then you
just make the tax decision about the best source of cash, and reallocate
remaining dollars to keep stocks at target levels.

Imagine you sell $10k of stocks in the taxable account, at a net loss,
and buy $10k of them in the IRA (if that's what the tax-deferred account
is), via a similar but not "substantially identical" stock index fund.
Your stock exposure hasn't changed. But the client's raised the needed
cash at a negative tax cost - there's a capital loss on the tax return
that might net a tax benefit - value is > $10k net. If you'd pulled cash
from the IRA, it would be taxable income so he'd assumedly have a tax
bill, i.e. less than $10k net. And a 69 year old isn't facing MRDs yet
so there is no requirement to make that withdrawal (though MRDs have
been suspended for 2009 anyway).

You can and should get much more refined than this in determining the
best source of cash and rebalancing approach. Maybe he doesn't have much
income. The capital gains rate is 0% for 2009, for those in the 10% or
15% tax brackets, so you might want to realize gains this year (using
specific-ID sales) instead of losses, because you can't beat a tax rate
of 0%. Alternatively, you might sell every loss holding in the taxable
account to generate capital loss carry-forwards. It's always
client-specific.

But beware of the tendency to "get even" with a specific investment
before selling it which is a fallacy. If it helps, imagine forming the
portfolio from cash today, what would you do? Then assess the tax costs
of getting to that point.

-Tad

I know the conventional wisdom is for a retiree to withdraw living expenses
first from his taxable account so that his tax-deferred account can continue
to grow with the tax deferral advantage.

But what about this? Retiree age 69 has funds in both a taxable account
(stock index fund) and a tax-deferred account (stock index fund, cash, and
bond index fund). The taxable account is presently valued about 18% below
cost basis.

Withdrawing from an under-water stock fund doesn't seem like a good idea
when slightly ahead cash and bond funds are available, even though they are
in a tax-deferred account.

Recommendation?

Mike

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