2024 Tax Year Planning: long-term capital gain vs. IRA withdrawal?

[thepinkmonkey]

Hi all-seeking some clarity on whether to take a LTCG (15%, right?) vs pulling some money from my IRA that I haven't started taking my RMD yet. If I take it from my IRA I believe that the proceeds will be taxed at the 22% rate because adding this to my AGI will put me well over the $47,025.

So, 15% vs 22%? Seems like it's better to take the LTCG and save 7%?

Thanks for your input.

TPM

[Opus 17]

Your understanding is basically correct.  And when you sell your investments, you won't even pay 15% on the entire amount, just the portion that is gains.  The trade-off is that you got to invest the IRA money tax-free at the beginning, so you had more to invest.

I can't tell you what you should do, that's complex and probably requires the assistance of a financial planner who knows all your important details, future spending plans, etc.

I will point out that in 2026, the 22% tax bracket will go up to 25%, unless Congress intervenes to extend the 2017 rate reductions.  So there might even be an argument that you should withdraw more from the IRA now, or do a Roth conversion, to pay 22% now instead of 25% or more in the future (depending on your long term view of political and tax trends).  But this is just a comment, not advice.  

Good luck.

[thepinkmonkey]

Thanks for replying. I'll be 72 in a few weeks but haven't started taking my RMD. I'll never get anywhere near the 20% income bracket but will be in the 15%. 

This will be a one-time event that I will realize in 2024 tax year. 

As the other reply noted, it seems like a no brainer to take the LTGC at 15% vs the IRA withdrawal at 22%.

Am I missing anything?

[NCperson]

@thepinkmonkey further, in most cases the IRA distribution is all taxes, while selling after tax assets is only 15% on the gain - not the whole thing.

Let's say you distribute $20,000 from the IRA - your tax bracket is 22%. or $4400 in tax.

the alternative is selling $20,000 of securities and let's further assume the cost basis is $8,000.  So the capital gains tax is on $12,000 or $1800. in tax, 

[dmertz · Accepted solution]

If you expect your marginal tax rate in the future to be less than 22%, it would likely be sensible to avoid taking the traditional IRA distribution now and instead sell the long-term capital investment.  In the future when your marginal tax rate is lower you can do Roth conversions (after satisfying any RMDs from your traditional IRAs) which will move the funds to investments where gains will be tax-free once you have met the requirements for qualified distributions from your Roth IRAs.   This will also reduce your traditional IRA balance, reducing future RMDs.

[thepinkmonkey]

Thank you all for the responses.

Happy Thanksgiving!