Replies to post #40436 on Sharing Knowledge in Smallcaps

[timhyma]

Head Start
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If your IRA is worth less now than it was a year ago because of the stock market
slump, you can convert it to a Roth IRA and pay less income tax. Moreover, there's
another benefit to a Roth IRA conversion that occurs near year-end:

* Roth IRA distributions are completely tax-free, five years after a conversion,
once you pass age 59-1/2.

* All 2008 Roth IRA conversions have a January 1, 2008, starting date, no matter
when you convert your account. Therefore, if you convert a traditional IRA to a
Roth IRA in November or December 2008, you will reach the five-year mark on
January 1, 2013. Instead of a five-year wait, you can tap the account, tax-free,
in a little more than four years, assuming you'll be at least 59-1/2 years old.
In 2008, your income must be no more than $100,000 for a Roth IRA conversion.
To get the most benefit from a Roth IRA conversion, you should pay the income
tax due from other assets. You'll have more left in the IRA for tax-free
investment growth.

[Bill_Investor]

A tax discussion, I love it! I never liked the $3-K capital loss as a "strategy" for two reasons. First of all, the tax benefit is minimal (30% tax rate equates to only $900 in savings), plus you need to keep track in future years if the $3-K is exceeded. If the SAME tax software is not used, I've seen many miss or "forget" about the rollover loss in future years. Those who use this as a "strategy" are the same people who failed to cut their trading losses in the first place.

As for the wash sale, this is a basis discussion. You don't "lose" the loss per se, rather the basis is adjusted. Therefore, there is an easy way around this rule (repurchase that same security, sell for a gain, and you can grab the adjusted basis).