IRA conversion to Roth IRA with Long Term Capital Losses in Stocks
I have a IRA that I wish to convert to Roth IRA so I don’t need to take RMDs. There were several stocks in the IRA that have declined in value since purchased more than three years ago. Can I choose to convert only enough stock from the IRA to a Roth to offset all of my income for 2023? My AGI will be approximately $57,000 and taking a standard deduction my income will be approximately $3,000. Is this even a good strategy?
Permalink Submitted by Alan - IRA critic on Mon, 2023-10-30 21:54
Unless you have basis in your IRA from making non deductible contributions, a conversion of any amount or of any particular holding will be fully taxable. There are no cap gains or losses in an IRA and when your investments lose money it just results in a lesser amount eventually to be taxed when you take distributions. In determining whether you should convert an amount, compare your marginal tax rate due on the conversion with your estimated marginal rate in retirement. If the conversion rate is lower, a conversion should be beneficial, if about the same it could be somewhat beneficial, but if your conversion rate is higher, then you should not convert. If you have a net realized cap losses in your non IRA accounts, those losses can be used to offset only 3,000 of your conversion income.