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raemart
Full Member
Cash: $ 18.90
Posts: 90
Joined: 03 Jun 2012
Location: USA
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| Gains as Income..... Realized or Unrealized |
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Hello again. You all helped me immensely when I retired last year and moved my 401k to an IRA. Through the years, I managed to put away a good some in both 401k and personal monies. I always had a terrific job and I saved very well. I have a good pension, as well. I will probably never need my IRA monies(except for RMD at 70 1/2; I am 56 now), nor my personal monies and will leave it to the kids. My home, cars are paid for and just utility bills each month. I have plenty for anything I might want to do. I have done some fun traveling since retired and some small remodeling and checked those squares, etc. etc. My income will let me take several vacations each year, comfortably.
What my question is..... The market has done very well this year, and wondering if I should take some of the gains in my personal account? I don't need this money but I know the market will correct itself one day soon and thought I should at least take some gains while they are there for the taking. The market will be ready for correction, at some point, and those gains may be lost. Of course the market WILL come back, but it may take some time for it to come back? Or it may come right back, or it may continue on the same, who knows?
I will owe tax on the gains and I hesitate because of this. Another $10,000 puts me in the next tax bracket. I probably wouldn't take more than 10k because of the tax incurred. I can always find a way to use the amount but would have to think about how to use it. I could even re-invest it in an ETF or mututal fund I don't now own. If I took some gains as cash, I could take maybe, $1,000, just as a small celebration. Have I lost my mind?
What is everyone else doing out there? Are they taking more than their usual gains as income? Is there a way to invest the gains without realizing those gains and paying taxes on them?
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Wed Jun 25, 2014 5:04 am |
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Wino
Senior Member
Cash: $ 113.80
Posts: 560
Joined: 03 Aug 2012
Location: Dubai
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First off, you're trying to time the market; however, if you're trying to just secure gains, with no intention of jumping in and out of funds as they go down and up, then that's not quite the same thing.
You have left out another option. You can take the market/fund-invested money and invest it into a money market instead, still within your IRA. This way, you capture your gains without incurring any additional taxes. There is no rule against having IRA money in a money market account instead of a mutual fund or other type of "investment."
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Wed Jun 25, 2014 6:36 am |
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oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
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As wino says - you can trade inside your IRA/401 accounts w/o involving taxes, no taxable events. So you could sell stock and go into MM, CDs, bonds, etc.
If you sell some of your personal accounts that will be taxable - but probably at the 15% MAX capital gains rate on your unrealized profits.
As for "going into a higher bracket" that urban legend is hard to kill. I used to have employees that swore that they couldn't accept overtime pay because it would put them in a higher bracket and cause them to lose money. And no matter how often it was explained, that worry never went away.
Anyway, if you your earn an extra $10k and that $10k is in the next bracket, you will pay a higher tax rate on ONLY the $10k.
As for timing the Market - historically that has been a bad approach. It seems intuitive and obvious that it should work, yet 85% of the professional fund managers are unable to beat/match the SP500. And the 15% who beat the Market are a different 15% each year - ie, not a good plan to build wealth. However if your plan is to reallocate and STAY that way as you move from your wealth-building years to your wealth-preservation years - that makes sense (to me). 
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Wed Jun 25, 2014 6:09 pm |
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raemart
Full Member
Cash: $ 18.90
Posts: 90
Joined: 03 Jun 2012
Location: USA
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Thanks! (At this moment in time), I probably would not take any amount to a money market within this account nor my IRA. To me, money markets are like sitting on the sidelines making very little progress. I would just as soon ride the ups and downs of the market. Why sell out when you just have to buy back in at some point. I will stay in position and take my licks or my glory.
Yes, I had forgotten that taxes are incremental. I wouldn't pay 28% on my entire income, just any amount over the 25% tax bracket. lol, That truely is an urban legend that is hard to remember each time.
I have timed the market in the last year. So hard to buy on the high....ugh. Thought I did well buying in the dips but the good dips were so few and far between that lots of money stayed on the sidelines too. Although, when I did buy on the high several times, one time I didn't have gains for 3 months(stayed in the red). But you are right. Just get it invested no matter. The only way I see beating the market by timing is 1) having a huge dip and on that dip 2) investing large amounts, like a hundred $100,000 or (2) at a time. Possibly that could beat Dollar Cost Averaging.
I studied the forum here very well before I made any big moves. I followed Old Guy advice on several things, not all, but several items. I have stayed with the S&P 500 funds and ETF's and kept the lowest of expense ratios. I own no single stock at this point but may pick up a couple of shares of 'heart' stock sometime. I have mostly driven Ford vehicles through the years and want at least a couple of shares of that. Nothing fancy. Thanks again.
Think I will leave my gains in place. Just thought would ask what others are doing out there. Thanks.
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Wed Jun 25, 2014 8:14 pm |
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