In late 70’s converting TIRAs to RIRAs to offset capital losses

Submitted by barberella on Fri, 2017-03-03 17:06

2016 tax return yielded a capital loss of $90K. $3K applied to 2016 taxes.
I sold a mutual fund in non-retirement account for a capital gain of @15K, and will use that in 2017 to partially offset capital loss. I’m considering converting a TIRA to RIRA, offsetting the taxes incurred by remaining balance of capital loss carried forward.

FYI: beneficiaries are non-spousal. In the long run, they’ll pay less taxes, and I’ll avoid future RMDs on that RIRA.
Does this make sense? Am I missing something?



Submitted by Alan - IRA critic on Fri, 2017-03-03 19:34

  • Your capital loss carryover cannot be applied directly against the conversion income like it is applied to the cap gain. Therefore, if you have 87k of cap loss carryover into 2017, 15k will be applied to offset the cap gain, but only 3k can be used to offset other income including the conversion.  Thus, 18k of your cap loss carryover will be applied in 2017 leaving you with 69k of cap loss carryover for 2018 and beyond. Accordingly, you may not want to convert as much as you had planned to.
  • A non spousal beneficiary inheriting a Roth IRA still must take RMDs, even though the owner does not. Normally, those RMDs are tax free, so the beneficiary benefits more from inheriting a Roth IRA compared to inheriting a larger TIRA if they are in a higher tax bracket than the owner. If they are in a lower tax bracket, they benefit more from inheriting a larger TIRA because they will be paying lesst taxes on an inherited TIRA than the owner paid to convert it.

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