Managing Roth Conversion with Significant Capital Gains/Loss - Need Strategy

So if I'm understanding right, even with $108k in losses, I'd still pay taxes on the full Roth conversion amount? That seems crazy! Couldn't I use some of those losses to reduce the tax hit? And how much would you recommend converting in this situation?

The tax code treats different types of income and losses differently. Your capital losses can offset capital gains completely, but they're limited to offsetting only $3,000 of ordinary income per year. A Roth conversion is considered ordinary income, so only $3,000 of your losses can be applied against your total ordinary income (job + conversion). As for how much to convert, that depends on your tax brackets. Since you're at $41k income, you could potentially convert enough to "fill up" your current tax bracket without jumping to the next one. For 2025, if you're single, the 12% bracket goes up to $49,300 (estimated), so you might consider converting around $5,000-8,000 to maximize that bracket without going into the 22% bracket.

Did they help with figuring out how the wash sale rules might impact your strategy? I've got some losses but I'm worried I might have triggered wash sales without realizing it.

How is this different from just using TurboTax or something? I'm skeptical about these specialized services since most tax software should handle this stuff already.

They specifically helped me identify several wash sales I hadn't recognized, which saved me from a potential audit issue. Their tool actually flagged transactions across multiple accounts that I didn't realize were related under wash sale rules. They look at your entire trading history across platforms to catch these things. Regarding tax software, while TurboTax and others calculate your current tax situation, they don't typically do multi-year strategic planning or show you the long-term implications of different Roth conversion amounts. The taxr.ai tool let me model different scenarios over a 5-year period to see the compounding effects of my decisions, which standard tax software doesn't do. It's more about forward-looking strategy than just preparing this year's return.

How does this service even work? The IRS phone system is notoriously impossible to navigate - are you saying this somehow puts you at the front of the line? That sounds too good to be true.

This sounds like a complete scam. There's no way any service can magically get you to the front of the IRS queue. They probably just keep calling repeatedly using automated systems which is exactly what's making the wait times so long for everyone else. I'll stick to waiting my turn like everyone else.

The service doesn't put you at the "front of the line" - it uses an automated system that continually calls the IRS and navigates the phone tree until it gets a place in queue, then it calls you when an agent is about to be available. It basically does the waiting for you so you don't have to stay on hold for hours. Regarding it being a scam, I was skeptical too, but it worked exactly as advertised. I got a call back when they reached an agent, and I was connected immediately. The IRS wait times are long because they're understaffed, not because of services like this. In fact, this actually reduces total call volume since it's more efficient than individuals repeatedly calling and hanging up when the wait is too long.

Wait, I didn't even think about state considerations! I'm in California. Does anyone know if California follows the federal $3k limit or do they have their own rules for capital losses against Roth conversions?

California generally conforms to federal tax treatment regarding capital losses and the $3,000 limit against ordinary income. They typically follow the same rules as the IRS in this area, so the planning would be similar for both your federal and California returns. However, other states like Pennsylvania and New Jersey treat capital losses differently, which is why I mentioned checking your specific state. Since you're in California, you'll want to use the same $3,000 limitation in your planning for both federal and state tax purposes.

I did a $42k conversion last year when my income dropped to about $35k after changing jobs. Best financial decision I've made! Yes, the tax bill was around $5k, but now that money is growing tax-free forever. Stock market has been up since then, so that $42k is already worth about $48k and I'll never pay taxes on those gains or any future ones. Just make sure you have cash set aside to pay the tax bill.