I am planning a Roth Conversion strategy for a $5M pre-tax account in conjunction with a $1M brokerage account that has no current unrealized LTCG and a $700K loss carryover. Pralana is quite insistent that choosing to withdraw funds with CG last is the smart move here, but I have not been able to rationalize why this is true. I reason that my loss carryover is not indexed to inflation, so I should use it up as early as I can. That will happen (I think) when I elect to withdraw funds with LTCG first.
What am I missing, or thinking about wrong here ?
With such a large carryover loss and no current unrealized gains, it doesn't sound like it should matter. Under what circumstance would you ever pay LTCG taxes on asset sales?
I was modeling Roth conversions to the top of of the 24% fed tax bracket for between 4 - 10 years. Since I tell Pralana to pay the taxes with the brokerage account, the loss carryover gets used up and then unrealized gains come into the picture.
As an aside, I don't really expect the TJCA to last 10 years, I wanted to see if my expectation that Roth conversions increase the final effective balance to a point, and then decrease as I 'overpay' early taxes was correct. Beyond just getting to know Pralana, and finding that Pralana justified my intuition, I figured that knowing the 'breakeven' point and having a general understanding of the rate of change was useful.
