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One strategy that may be attractive in years when you have less income is a Roth Individual Retirement Account conversion, which involves moving pre-tax or non-deductible IRA funds into a Roth IRA, says Catalina Franco Cicero, CFP, a wealth advisor with Tobias Financial Advisors in Plantation, Florida.
“It’s not a freebie,” she says, because you’ll still have to pay regular income tax on the converted balance — but if you’re in a lower tax bracket, your tax bill could be lower.
Converting funds into a Roth IRA “can be a great opportunity for tax-free growth and future tax-free distributions,” Franco Cicero said.
Of course, you don’t have to decide on a strategy right away: You can wait until closer to the end of the year when you have a more accurate idea of your 2024 income projections, she says.
Experts say that if your income is low enough, you can take advantage of the 0% long-term capital gains tax rate to rebalance your taxable portfolio or save money on future taxes.
For 2024, you may qualify for the 0% long-term capital gains tax rate if your taxable income is $47,025 or less for single filers and $94,050 or less for married couples filing jointly.
“The range of 0% tax brackets is actually pretty broad,” Quinones said, especially for married couples. “You can have a six-figure income and still be in the 0% bracket.”
That’s because tax brackets are based on taxable income, which is calculated as your adjusted gross income minus the greater of the standard deduction or itemized deductions.
One of the perks of the 0% tax rate is that it gives you the chance to reset the purchase price, or “NAV,” of an asset by selling it and quickly buying it back. Experts say resetting your NAV can help you save money on future capital gains.
However, you will need to run a projection of your 2024 taxable income before you can capture any benefits.
You should also consider your long-term plans for your assets.
Quinones explained that this strategy doesn’t make sense for taxable assets you plan to leave to your heirs, because the assessed value of those assets is automatically increased when you die.
