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Message
Help me with my ROTH financial logic.
Posted on 4/4/25 at 3:19 pm
Posted on 4/4/25 at 3:19 pm
Let's say I have 200,000 shares of XYZ. I paid 1 dollar a share so $200,000.
If the stock now is at .50 cents a share, and I do a ROTH conversion, with 200,000 shares now worth $100,000, buy back the 100,000 shares at $100,000. When the stock appreciates in value again, it would all be tax free.
Is this thinking correct?
Is this a good strategy? Taxes would be paid from a cash account.
What am I missing or what other things should I consider?
If the stock now is at .50 cents a share, and I do a ROTH conversion, with 200,000 shares now worth $100,000, buy back the 100,000 shares at $100,000. When the stock appreciates in value again, it would all be tax free.
Is this thinking correct?
Is this a good strategy? Taxes would be paid from a cash account.
What am I missing or what other things should I consider?
5
Posted on 4/4/25 at 3:42 pm to Enadious
quote:
Let's say I have 200,000 shares of XYZ. I paid 1 dollar a share so $200,000.
If the stock now is at .50 cents a share, and I do a ROTH conversion, with 200,000 shares now worth $100,000, buy back the 100,000 shares at $100,000. When the stock appreciates in value again, it would all be tax free.
Is this thinking correct?
Is this a good strategy? Taxes would be paid from a cash account.
What am I missing or what other things should I consider?
Are you selling the shares at some point prior to or right after the roth conversion?
Not sure how it works with a ROTH but there are wash sale rules in place to prevetn these types of trades.
Posted on 4/4/25 at 4:14 pm to Enadious
Sounds good.. fwiw
I have a little portfolio of pure speculative high risk stocks that unfortunately were way down .. they were in a piece of regular 401 funds
I did a direct transfer like you described and moved them from 401 to Roth ..
They then went up .. down some now but my hopes are go up.. imo yes in 20 years if you sell you get a tax break.. but also you removed them from your rmd calculation .. I am hoping they are the next tsla so they would have forced rmd selloffs if they skyrocket ..
I am 67 years old so not sure if that was why I was able to move the 401 to Roth easily.. I knew at the time but have forgotten the specific.. it was a direct move of the shares and I paid the taxes from other 401 cash moves.
I have a little portfolio of pure speculative high risk stocks that unfortunately were way down .. they were in a piece of regular 401 funds
I did a direct transfer like you described and moved them from 401 to Roth ..
They then went up .. down some now but my hopes are go up.. imo yes in 20 years if you sell you get a tax break.. but also you removed them from your rmd calculation .. I am hoping they are the next tsla so they would have forced rmd selloffs if they skyrocket ..
I am 67 years old so not sure if that was why I was able to move the 401 to Roth easily.. I knew at the time but have forgotten the specific.. it was a direct move of the shares and I paid the taxes from other 401 cash moves.
This post was edited on 4/4/25 at 4:19 pm
Posted on 4/4/25 at 4:44 pm to Enadious
You can only convert other retirement accounts to a Roth. Technically, you would be withdrawing the $100K from that account and have to pay income tax on that withdrawal. But you would never have to pay tax on whatever gains you make or subsequently withdraw from the Roth.
This post was edited on 4/4/25 at 4:46 pm
Posted on 4/5/25 at 12:59 am to whodatigahbait
Wash sale applies to taxable brokerage not tax advantaged retirement accounts since you can write off loses from taxable brokerage. Purchases in retirement accounts can trigger wash sale preventing write off of loss in taxable though.
Posted on 4/5/25 at 1:26 am to Enadious
Wow
Posted on 4/5/25 at 1:27 am to TorchtheFlyingTiger
quote:not true
Wash sale applies to taxable brokerage not tax advantaged retirement accounts since you can write off loses from taxable brokerage. Purchases in retirement accounts can trigger wash sale preventing write off of loss in taxable though.
Posted on 4/5/25 at 9:25 am to DraggingPride
Ok, where am I wrong?
Posted on 4/5/25 at 12:46 pm to TorchtheFlyingTiger
Wash sales apply across all of your accounts, granted if they're at different brokerages there's no way to track.
Posted on 4/5/25 at 1:27 pm to DraggingPride
So, as I said repurchase in retirement can trigger wash sale disallowing deducting a loss taken in taxable account.
I was addressing the earlier incorrect comment
In fact, this is not why wash sale rules are in place and they do not apply to OP's situation.
In this case the stock sold for loss in traditional IRA prior to conversion would not be eligible to claim as a loss anyway so repurchasing in Roth post conversion wouldn't trigger a wash sale.
All of this is moot anyway because the shares most likely dont need to be sold in the conversion process. It would usually be an in kind transfer to the Roth unless a proprietary fund and switching firms.
I was addressing the earlier incorrect comment
quote:
"Are you selling the shares at some point prior to or right after the roth conversion?
Not sure how it works with a ROTH but there are wash sale rules in place to prevetn these types of trades."
In fact, this is not why wash sale rules are in place and they do not apply to OP's situation.
In this case the stock sold for loss in traditional IRA prior to conversion would not be eligible to claim as a loss anyway so repurchasing in Roth post conversion wouldn't trigger a wash sale.
All of this is moot anyway because the shares most likely dont need to be sold in the conversion process. It would usually be an in kind transfer to the Roth unless a proprietary fund and switching firms.
This post was edited on 4/5/25 at 1:35 pm
Posted on 4/6/25 at 5:04 am to Enadious
Ultimately you want to do a roth conversion when you are at a lower tax rate than you will be in retirement. I am 32 and the funds I am converting will be taxed at 12%. I am converting now that the market has retracted because my taxable income on those shares is lower than if I liquidated at a higher price point. Now those same number of shares will (hopefully) recover tax free. In retirement I will likely be paying over 20% on my retirement distributions because I plan to have a lot of ordinary income.
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