Raising cost basis in taxable brokerage

[JSMustachian]

I have 5 years of spending in my bridge account for future Roth conversions. (taxable brokerage).

Some of my index funds have quite a bit of unrealized gains. I’m concerned with the amount of income it will generate when I sell them in the first few years of retirement. This income might make Aca credits unavailable to me.

I can exchange these funds up until I max out the 0% capital gains tax bracket to raise the cost basis and reduce income in retirement.

Am I understanding this correctly and any drawbacks that I am not seeing?

Thank you

[reeshau]

Yes, that's fine.  June keep in mind that capital gains begin counting after ordinary income.  So, if you are married filing jointly, with $89,250, and your income net of deductions is $50,000, then you can convert $39,250 at 0%.  Of course, 15% isn't bad either--a wash without ACA, but then the ACA subsidy reductions on top of that if you wait.

[secondcor521]

Some caveats:

1.  The 0% bracket may go away in 2026 when TCJA expires.  Not sure.

2.  You'll probably still owe state income taxes on the CG.

3.  CG will still add to AGI, so anything AGI-based will still be affected:  FAFSA, ACA subsidies, eligibility for various tax credits and deductions.

Other than those things, yes, the 0% bracket works as described above.

[terran]

If nothing changes and we revert to to the 2017 tax code as is scheduled to happen in 2026 then there will still be a 0%  LTCG bracket -- it will align with the 10% and 15% ordinary income tax brackets.

[markbike528CBX]

I've done this (cost basis raising aka Tax Gain Harvesting).

While the wash rule does not apply here, some providers and some mutual funds (Vanguard) restrict buybacks within 30 days or so.

I've raised the cost basis on much of my VSIAX for the future.