[manaboutown]

Anyone else electing to take one or more sizable LTCGs before year end?

I am taking a huge (to me) one as I fear taxes will be significantly higher in 2022. Other factors are pushing this action, not just taxes.

The problem is of course where to reinvest now that we are experiencing a high rate of inflation. Inflation surge pushes gold to five-month high | Fox Business

[retiredguy123]

Good luck. I have been moving money from my Vanguard money market fund, which earns nothing, into my Vanguard high yield corporate bond fund, which is earning 3.12 percent. I have not cashed in any capital gains because of the promise that no one making $200,000 (individual) or $400,000 (joint) will experience a tax increase.

[manaboutown]

Originally Posted by retiredguy123

Good luck. I have been moving money from my Vanguard money market fund, which earns nothing, into my Vanguard high yield corporate bond fund, which is earning 3.12 percent. I have not cashed in any capital gains because of the promise that no one making $200,000 (individual) or $400,000 (joint) will experience a tax increase.

Thanks. I am having the money at closing wired to my Vanguard account and go from there. I am afraid of getting into bonds as they pay paltry interest now and interest rates are sure to rise.

[Boomer]

I realize I am not exactly answering the OP's question about where to put captured long term cap gains, but it made me wonder about something else.

(btw, OP, the tax brackets for 2022 are up on the aarp.org site along with a comparison to 2021.)

For what it's worth -- I don't see a big need to be paranoid about higher cap gain taxes -- any time soon. When the gold-hawkers show up in ads, it always looks to me like they are opportunists trying to create and then tap into fear and a sense of urgency -- for their own gain.

If your gains are inside IRAs, I am sure you know that taking a bigger than needed RMD could bring on IRMAA. If you are charitably inclined, you could look into using QCDs to lower your AGI, and maybe head off IRMAA at the pass. (I am pretty sure that if you go even a buck into IRMAA territory, you are had.)

If those cap gains are residing in regular accounts, not tax-deferred, and you decide to capture them, there will be no QCD opportunity to rescue you from IRMAA. And IRMAA waits two years to get you -- just when you might have forgotten all about it.

But if you are all set to take a tax hit anyway -- there could be another angle on where to take gains -- but only if they are inside IRAs right now.

If you like what you own inside IRAs -- especially if you have owned the investments forever and the gains are big enough to stand a bit of a hit and still look good, and, most especially, if there are stocks that have been paying and increasing dividends for decades -- well then.....breaking up could be hard to do......

So......would a conversion to Roth (after RMDs or QCDs) possibly be the way to go? If the conversion could be done in-kind, you could still keep your favorites -- even though you would have had to pay taxes on their current value. But then they could be tucked away inside a Roth, never to be taxed again.

Warning to any readers out there: I am not a CPA or a financial advisor of any kind, so please do not take tax advice from me because I don't actually know what I am talking about. But I might give you some ideas about things to think about or check on.

Boomer

PS: If I am wrong about IRA conversion to Roth being a possibility, albeit a taxable one, after RMDs are covered, somebody please tell me. Maybe things have changed on that and I missed it. Also, am I right about in-kind conversions to Roth? (Hey, retiredguy123 -- I'm talkin' to you. Am I right about what I am saying about conversion to Roth still being a possibility after RMDs are covered?)

[retiredguy123]

Originally Posted by Boomer

I realize I am not exactly answering the OP's question about where to put captured long term cap gains, but it made me wonder about something else.

(btw, OP, the tax brackets for 2022 are up on the aarp.org site along with a comparison to 2021.)

For what it's worth -- I don't see a big need to be paranoid about higher cap gain taxes -- any time soon. When the gold-hawkers show up in ads, it always looks to me like they are opportunists trying to create and then tap into fear and a sense of urgency -- for their own gain.

If your gains are inside IRAs, I am sure you know that taking a bigger than needed RMD could bring on IRMAA. If you are charitably inclined, you could look into using QCDs to lower your AGI, and maybe head off IRMAA at the pass. (I am pretty sure that if you go even a buck into IRMAA territory, you are had.)

If those cap gains are residing in regular accounts, not tax-deferred, and you decide to capture them, there will be no QCD opportunity to rescue you from IRMAA. And IRMAA waits two years to get you -- just when you might have forgotten all about it.

But if you are all set to take a tax hit anyway -- there could be another angle on where to take gains -- but only if they are inside IRAs right now.

If you like what you own inside IRAs -- especially if you have owned the investments forever and the gains are big enough to stand a bit of a hit and still look good, and, most especially, if there are stocks that have been paying and increasing dividends for decades -- well then.....breaking up could be hard to do......

So......would a conversion to Roth (after RMDs or QCDs) possibly be the way to go? If the conversion could be done in-kind, you could still keep your favorites -- even though you would have had to pay taxes on their current value. But then they could be tucked away inside a Roth, never to be taxed again.

Warning to any readers out there: I am not a CPA or a financial advisor of any kind, so please do not take tax advice from me because I don't actually know what I am talking about. But I might give you some ideas about things to think about or check on.

Boomer

PS: If I am wrong about IRA conversion to Roth being a possibility, albeit a taxable one, after RMDs are covered, somebody please tell me. Maybe things have changed on that and I missed it. Also, am I right about in-kind conversions to Roth? (Hey, retiredguy123 -- I'm talkin' to you. Am I right about what I am saying about conversion to Roth still being a possibility after RMDs are covered?)

It sounds like the OP is selling assets from non-IRA accounts and paying the long term capital gains taxes. Any gains made within an IRA would be taxed as ordinary income, not as capital gains. You can never take advantage of the capital gains rates from an IRA. If you withdraw money from an IRA, in excess or your RMD, you can convert that money to a Roth, but you will need to pay taxes on the converted funds at your ordinary income tax rate. I have assets within a traditional IRA but I have not seen the need to convert any of those assets to a Roth. However, I have a friend who is systematically converting all of his traditional IRA assets to a Roth, so that his children can inherit the Roth with no tax liabilities or the legal hassles of dealing with an inherited traditional IRA. In some cases, that can make sense, especially if your tax rate is lower than your heirs.

[manaboutown]

It is a large commercial property owned by an LLC (taxed as a partnership) of which I am a member. It would be impossible to "drop and swap" my share. "Drop and Swap” is a term used to describe the process of dropping out of a partnership or membership interest of a limited liability company (LLC) into an ownership interest in investment real estate and then exchange or swap for new investment real estate. We are mostly in the 80ish year old range and the guy who manages it wants to totally retire. We have had two members die and another gift his share to his adult children. I will be hit by the Obamacare tax, too. Nothing to do but pay tax on the sale as I can't 1031 my share. On the good side the price is unbelievably high due to the current bubble on this type of property.

My conundrum is where do I invest the proceeds given current economic conditions which seem quite bubbly to me?

[Stu from NYC]

I would take a look at conservative mutual funds such as a Value fund or a dividend yield fund that invests in companies with increasing cash flows that allow it to raise the dividends every year.

[CFP James]

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

[manaboutown]

Originally Posted by CFP James

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

Thank you for this. It seems to me a SMA is similar to an old fashioned account with a stockbroker who manages it for an investor for a fee. Is it that or something else? It appears that with SMAs one can have several portfolios, each managed by a different manager, though.

ruhttps://www.investopedia.com/articles/mutualfund/08/managed-separate-account.asp

I have been managing my own stock and bond portfolio since I bought my first stock at age 17. It has been more like a hobby as most of my assets have been in commercial real estate. Yet I will reach 80 early next year and have grown weary of the headaches active real estate management involves. In fact next year I plan on selling another multimember LLC owned property. That will leave me with only a handful of properties I own entirely (without others) which should hopefully mean fewer headaches.

Being a fan of Consuelo Mack and Bill Miller I may go with some of his ideas (not the Bitcoin). GREAT VALUE INVESTOR BILL MILLER DISCUSSES HIS CORE HOLDING WINNERS AND RECENT PROMISING ADDITIONS : WealthTrack

[Stu from NYC]

Originally Posted by CFP James

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

I like a mutual fund as it spreads out the risk by investing in a basket of stocks.

[CoachKandSportsguy]

Where to invest a large amount of cash now is the question:

My thought process: Selling assets now appears not to be a requirement to maintain your current lifestyle, so I am going to assume that your goal is to purchase assets which are income producing without having to sell them for your current living expenses.

Second, I am going to assume that you will want to use any income but pass the assets on to your offspring/descendants, family members, etc. Putting the assets into a trust, if you don't have one, would help with any probate or distribution delays. Federal inheritance taxes kick in at nearly $12M in CY2022, and not sure how big your total estate is, but I am going to assume for now that you are below that.

Third, to avoid probate and any lawsuits, etc, make the trust very clear about the disposition of the assets. A friend of mine, who is a lawyer, took his father's estate, who had dementia, which was partly some dissolved LLCs, to the NY supreme court about dissolution valuations, and lost. So, selling now for cash is always best and having a clear trust directions for distribution is key. That is the legal piece which is not my expertise, but should be reviewed if not already in place.

Finally, where to put the money for income. From reading your posts, you manage your investments yourself. No better way as noone else can take advantage of you, and you take full responsibility for any mistakes.

In the equity markets, you cannot avoid systemic risk, (example is the banking crises or the congress voting not to increase the debt limit) without market timing, and I assume you are not into market timing. So, i would have you think about the three main income producing sectors of the equity market for tax free dividends, because you don't appear to need the future assets:

* real estate investment trusts, which pass through income, ETFs
* high yield dividend stock ETFs, which are value stocks, with dividend growth, which are tax free
* Utilities, which also throw off dividends and are the power backbone of the country
we are SOL without them. . .

Thought process: most to all of these investments are becoming more valuable as time marches on, as each are stable, and have long term scarcity or demand growth valuations

Real estate, as you have been invested, you know well
Equity high dividend stocks are low qrowth, stable value stocks, not alot of
appreciation but stable earnings with dividend distributions and dividend increases
Utilities generate electricity and that demand is only going to get larger with the clean
energy movement


* Real estate ETF in vanguard (VNQ), yield 2.91%
* Vanguard Whitehall Funds - Vanguard International High Dividend Yield ETF (VYMI) - 3.0 to 4.0% annual estimate
* SPDR Series Trust - SPDR Portfolio S&P 500 High Dividend ETF (SPYD) - 3.8 to 4.8% annual distribution yield. invested in about 70-80 companies for diversification.
* Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) - 3.71% current distribution yield
* Vanguard Utilities Index Fund Admiral Shares (VUIAX) - 2.8% current dividend yield.


I would consider:
10% VYMI just for diversification and with the dollar high, you are buying from the better FX position. USD down, foreign investments UP. .
The rest i would split evenly to any preferences, remembering that there is overlap as the SPYD or SPYHD has utilities and reits in them and is more diversified.

The dividends are tax free, except maybe the international, but there are ways around that. Targeting 3-5% dividend rates are the sweet spot for income earned. higher is suspect, like GE taking on LTD to maintain dividends. . (stupid mgmt decision from several points of views, a tangent i don't want to go down)

In closing i have made assumptions with my intuition from your posts. Those implicit assumptions can be wrong, which would make this post completely irrelevant and worthless. Otherwise, for the most part, this is my optimal strategy, which I am using along with some market timing, which I need to pay more attention to. .

good luck, and when we move down permanently, would love to share a dinner to discuss investments. . .

finance guy

[manaboutown]

Thank you Coach for your comprehensive sharing of ideas. I had small positions in a couple different utilities stocks way in the past but currently have none except through my Vanguard S&P 500 shares. You are so right about electric utilities as more and more electric vehicles are being sold and driven. I might even see if I can invest in the electric vehicle service stations being built as fast as they can get them up.

Of course there is no way I can get a single penny of this money into my Roth IRA which is loaded with high dividend stocks. 60% of my taxable accounts are in BRK which I bought in the mid 1980s. Thank you Warren Buffet! It of course has paid no dividends which is fine and dandy with me.

BTW I do own some REITs. Wish I had bought more. I bought them in 2009 after they dropped like bombs but was afraid to put much into them. They of course skyrocketed to where they are now and I unfortunately sold some on their way up. Hindsight! REITs look pricey to me now especially as we assuredly face rising interest rates. Too, REITs currently are driving the sky high commercial real estate market into which I am selling. They are paying cap rates of 3.5 to 5 on properties which would have sold at cap rates of 7 to 11 three or four years ago. IMHO it is just crazy!

As an aside I am going to finish loading up my grandchildren's 529 plans, too.

Thank you for the dinner invite Coach! I would like to meet you and kick around investment ideas.

[CoachKandSportsguy]

Originally Posted by manaboutown

I might even see if I can invest in the electric vehicle service stations being built as fast as they can get them up.

Now that is a great idea, and if you come across anything worthwhile, let me know as that is definitely a specialty need which is coming, and worth getting in on the ground floor. Mostly battery replacements, but other high tech repairs is needed.

Happy Holidays!

sportsguy or finance guy

[CFP James]

I hope to answer your concerns with a few comments.
STU from NYC: Your comment does describe a SMA. It is a diversified portfolio of stocks that spread the risk. Just like a mutual fund.

manaboutown: SMA's have Chartered Financial Analysts managing the portfolio. This can not be compared to a local stock broker (with no CFA designation).

Here is a short personal explanation of why I am more comfortable with an SMA.
My manager is a CFA (Charted Financial Analyst) with 39 years experience of managing both mutual funds and SMA's.
My portfolio of 53 individual stocks that all pay dividends are actually owned by me and listed with the shares I own in each stock on the Charles Schwab Website.

My manager has full discretions over buying and selling. I rely on the manager's expertise just like a mutual fund manager.

However unlike a mutual fund my manager will never "over diversify" my stock portfolio or take gains or losses that are forced due to cash flows of the mutual fund. Let me explain that I have spoken over lunch with successful mutual fund managers that admit they are buying 25 or more stocks they DO NOT WANT TO OWN. Why?
Because they are attracting so much new money into the mutual fund and they have to invest the new money. Regulations state they can own over a certain % of any one stock. (they can not buy more of their best stocks)

A SMA manager can attract new money but it is never comingled with my shares and the manager never has too over diversify my account.

My closing thought is I have had several mutual fund managers with billions under management admit to the group at lunch they dream of only managing SMA accounts.

Can I get invited to lunch with some of you guys?
Merry Christmas

[Stu from NYC]

Originally Posted by CFP James

I hope to answer your concerns with a few comments.
STU from NYC: Your comment does describe a SMA. It is a diversified portfolio of stocks that spread the risk. Just like a mutual fund.

manaboutown: SMA's have Chartered Financial Analysts managing the portfolio. This can not be compared to a local stock broker (with no CFA designation).

Here is a short personal explanation of why I am more comfortable with an SMA.
My manager is a CFA (Charted Financial Analyst) with 39 years experience of managing both mutual funds and SMA's.
My portfolio of 53 individual stocks that all pay dividends are actually owned by me and listed with the shares I own in each stock on the Charles Schwab Website.

My manager has full discretions over buying and selling. I rely on the manager's expertise just like a mutual fund manager.

However unlike a mutual fund my manager will never "over diversify" my stock portfolio or take gains or losses that are forced due to cash flows of the mutual fund. Let me explain that I have spoken over lunch with successful mutual fund managers that admit they are buying 25 or more stocks they DO NOT WANT TO OWN. Why?
Because they are attracting so much new money into the mutual fund and they have to invest the new money. Regulations state they can own over a certain % of any one stock. (they can not buy more of their best stocks)

A SMA manager can attract new money but it is never comingled with my shares and the manager never has too over diversify my account.

My closing thought is I have had several mutual fund managers with billions under management admit to the group at lunch they dream of only managing SMA accounts.

Can I get invited to lunch with some of you guys?
Merry Christmas

Would be a very interesting lunch.