Sit out the market for a day?

[adam1712]

I know in the grand scheme of things this won't make a big difference. But I still have to make a decision on what to do.

I have been tax-gain harvesting in 2012 and have about $5000 left that I have earmarked for my 2013 Roth IRA contribution. It seems that to realize the gain in 2012, I need to sell on Dec. 31st and then sit out the market for a day to buy on Jan 2 and risk the market going up and losing out. Alternatively, I can just sell this fund and buy back into a different fund in my taxable account on the same day. I would then contribute to the Roth IRA later in the year. I'd probably have money available in June. So, Bogleheads which would you do?

[Calm Man]

Adam, I have an idea as I give my working daughter a ROTH contribution annually. I wait until she has earned the amount needed. Just think that if a person dies after making the contribution but before they earn the amount that the heirs will have a problem. Or gets laid off. So if you adopt that plan, you have no decision to make over the New Year week.

[adam1712]

I can wait until I meet the earned income requirement, but then I have to either sit out of the market longer with this money or realize short-term capital gains at that time. I'm realizing I should have started exchanging my taxable accounts earlier in the year in 2012. The earliest I can sell a fund to have money for the Roth that would be long-term capital gains would be in June. I'm thinking it's probably right though that I should just wait until then.

[grabiner]

You don't actually have to sit out when you harvest your gains or losses; if you sell $5000 worth of stock for tax reasons, you can sell $5000 worth of bonds in your 401(k) and buy $5000 worth of stock to keep the same stock allocation.

That said, I wouldn't worry about $5000 for a short time. I usually have $5000 sitting in my money-market fund for a week at the end of every year, as I use my December dividends to make my January Roth contribution. And I have $5000 sitting around at other times as well; if I want to buy an ETF, I have to move $5000 from my bank account to my brokerage account, and wait for Vanguard's seven-day hold.

[adam1712]

You don't actually have to sit out when you harvest your gains or losses; if you sell $5000 worth of stock for tax reasons, you can sell $5000 worth of bonds in your 401(k) and buy $5000 worth of stock to keep the same stock allocation.

True, that's a good point. The only issue I see there is then I have to wait 60 days to contribute to the Bond fund again in the Roth because of frequent trading policies. So that would be 60 days in a money market fund instead of the bond fund. Plus, I dip below Admiral status although may not lose it in the two months.

Overall, the whole thing seems too complicated. I'll probably just wait to contribute to the Roth later in the year.

[sscritic]

The only issue I see there is then I have to wait 60 days to contribute to the Bond fund again in the Roth because of frequent trading policies. So that would be 60 days in a money market fund instead of the bond fund.

Read the frequent trading policy again. It's in your prospectus and in the wiki.

If, for some reason, you wish to buy back into a fund after selling it, you do not need to wait 60 days.

http://www.bogleheads.org/wiki/Frequent_trading_policy

The bold on you do not need to wait 60 days comes from the wiki, but if it didn't, I would have added it.

[adam1712]

Read the frequent trading policy again. It's in your prospectus and in the wiki.

If, for some reason, you wish to buy back into a fund after selling it, you do not need to wait 60 days.

http://www.bogleheads.org/wiki/Frequent_trading_policy

Thanks for the info. I knew about this but had forgotten as I've never had a use for it. I'm still just leaning toward waiting until later in the year.