Tax planning is hard...

[geekette]

This is our first year of "retirement". I put that in quotes because DH (53) isn't admitting to anyone, even himself, that he's retired even though he's been out of work since May of last year and isn't looking for a job.  But I digress...

I'm not sure where to even begin with planning.  For decades, he's had a solid salary, so we just took our lumps at tax time.  Sure, we maximized his 401(k), but with no kids and, eventually, no mortgage, there wasn't much planning to do.  Then he was laid off and here we are.

Now we have little income (about $15k in stock options exercised this year, so that's W-2 income), plus about $2k in taxable dividends and interest, and $3600 gain on a stock sale (trying to whittle away our exposure to his old company's stock).

By the end of the year, we'll have about $11-12k in medical expenses, and they're a mix of COBRA premiums (first 4 months) and ACA premiums (unsubsidized), and other expenses.  DH has an almost visceral negative response to taking subsidies, although he doesn't have a problem with other ways of working within the tax code.  Me, I'd be fine with taking it now as written into the tax code but I'd be fine with there being an asset test as well.

We don't need cash (have a few year's worth of expenses in non-volitile accounts so I can sleep at night).

So we could sell more stock and avoid Cap gains on that, but we don't need the cash.  Maybe invest in other dividend stock?  Put it in an IRA?  Traditional?  Roth? 

We could do a Roth conversion, but how much to minimize the effect on our taxes. 

Can we deduct medical expenses if we don't take the subsidies?  Surely the tax forms won't "force" us to take subsidies (I use TTax, so not sure how that will work).  I can't find a 1040 for 2014 online to even play with the numbers.

Every time I try to figure this stuff out my head spins (and DH's eyes glaze over). 

[beltim]

There's a lot here, but I wanted to point you to http://www.irs.gov/pub/irs-dft/f1040--dft.pdf and
http://apps.irs.gov/app/picklist/list/draftTaxForms.html

This is a draft form of the 1040 for 2014, and a list of other draft forms.  It sounds like you like playing with the numbers yourself, and this may give you the info that you need.

[beltim]

For a quick first pass:

• I think you should be able to deduct medical expenses in excess of 10% of AGI, or whatever the current threshold is.
• It is a no-brainer to convert any 401k or traditional IRA balances that you can at the 0% tax rate.  This amount depends strongly on what you're able to deduct from income.
• Similarly, it is a no-brainer to sell appreciated stocks and funds in taxable accounts that qualify for the 0% rate.  It will require a bit of work to figure out the appropriate amount.  However, there's no need to invest it in something different if you don't want to - you can sell all the stock you want and buy it back the next day to increase your cost basis and reduce future tax bills. 

[Catbert]

It is a totally different mindset when you retire and need completely different long term tax strategies.  I'm assuming (?) that you have substantial 401ks and IRAs and probably appreciated stock/mutual funds in a taxable account .  If so, definitely fill up your current income tax bracket...and probably up to the top of the 15% bracket.  You can do this by:

*selling stock/mutual funds up to the top of the 15% income bracket but paying 0% capital gains rate.  Then turn around and buy mutual funds again.

*Think ahead to how large your RMDs will be when you're 70 1/2.  If your accounts gain by 7% a year then they will double in 10 years or so.  At 70 1/2 your MRD will be a bit less than 4%.  If that number will raise you're total income to above the 15% bracket you really need to aggressively do Roth conversions now (in a NTE 15% bracket).

As someone else said play with this to see all the moving parts.

*If you have appreciated stock/mutual funds in taxable accounts use this to make your charitable contributions.  You donate the stock and take the tax deduction but you don't have to pay cap gains.  Fidelity has a program to facilitate this - I'm sure other fund families do also.

[geekette]

Thanks all for the info.  The draft 1040, etc. will be very helpful.  And I hadn't even considered selling and then turning around and buying.  Duh. 

These next few years are going to be interesting...

[electriceagle]

You can always buy a copy of last year's taxcut/turbotax on ebay. Use it to run simulations for 2014; the numbers won't be exact, but they'll be close enough to help you figure out what to do.

As others have mentioned, it sounds like you have an opportunity to move traditional IRA/401k money to a roth IRA, and then sell/buy back funds with long term capital gains.