Updated 12/1/2023

Clients often have outsized positions due to appreciation and large pre-tax retirement accounts. They may be looking to reduce portfolio risk and protect gains now, while also aiming to reduce their future income tax burden. Roth conversions and harvesting capital gains are two effective financial strategies that can achieve these goals; however, they accelerate income tax costs. There are current tax consequences associated with each strategy, and the issue becomes whether to accelerate ordinary income, capital gains, or a combination thereof.

Clients may struggle to choose the optimal balance between Roth conversions and harvesting capital gains. To help guide your conversations and the weighing of options, we have created this flowchart. It covers key considerations, including:

• Expected need and future goals for the assets
• Current tax brackets and the effect of increasing income (ordinary or capital gains)
• Projected future income and tax rates
• Collateral impact on Social Security, Medicare, wealth transfer goals, etc.

Please follow this link to read the article, written by Michael Kitces, that inspired this flowchart.