G Fund/Placing Cash Needs in a Tax-Advantaged Account

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G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby kate1234 » Mon Jul 01, 2013 8:36 pm

I followed one of Grabiner's links today from a query about emergency funds that linked to the wiki about Placing Cash Needs in a Tax-Advantaged Account and am pondering how it might apply to our family. In our case we are in retirement so these are daily living expenses we are talking about plus big irregular expenses, not an emergency fund. We have TSP, and at Vanguard a taxable account, plus Roth and traditional IRAs. Right now our taxable account has VTSAX (Vanguard Total Stock Market) and VTMGX (Vanguard Tax Managed International), the IRAs have VTSAX, and our entire bond allocation is in the G fund.

I am trying to understand how it works. Let's say I need $30,000 and sell from my taxable account at a loss. First, what methodology makes sense for choosing whether to sell VTSAX or VTMGX? Second, if I then move $30,000 from the G fund into either C/S or I, are those funds enough different from VTSAX & VTMGX to avoid a "wash" and to allow for tax-loss harvesting? I haven't ever done tax-loss harvesting so forgive me if I have it mixed up.

Edited to add "G Fund" to title.
Last edited by kate1234 on Mon Jul 01, 2013 8:54 pm, edited 1 time in total.
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Re: Placing Cash Needs in a Tax-Advantaged Account

Postby livesoft » Mon Jul 01, 2013 8:43 pm

If you don't want to choose between US and Int'l when you sell, then sell some of both. Personally, I would sell the one with the lowest tax cost to me or the one which I might need to sell to rebalance. If I was doing rebalancing in my tax-advantaged accounts and didn't normally sell in my taxable, then it would be all about the lowest tax cost.

In my opinion C/S and I are different enough that one would not have to worry about a wash sale.

Added: The lowest tax cost will probably not come from using average basis, but from specific share ID and may involve specific separate lots from both funds to reach $30,000.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby Default User BR » Wed Jul 03, 2013 1:32 pm

1. There's no indication that anything that happens in a qualified plan like the TSP could generate a wash sale. The IRS publications only mention IRAs. Example:
Wash Sales

You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

Buy substantially identical stock or securities,

Acquire substantially identical stock or securities in a fully taxable trade,

Acquire a contract or option to buy substantially identical stock or securities, or

Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.

http://www.irs.gov/publications/p550/ch04.html#en_US_2012_publink100010601

Some have speculated that this could change.

2. No one knows what constitutes "substantially identical", as the IRS has never released any guidance and there are essentially no actual cases of different mutual funds being being declared that. In my opinion, there's no way that an EAFE fund is substantially identical to an all-world index fund, nor an S&P 500 to a total US market.


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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby grabiner » Wed Jul 03, 2013 9:37 pm

kate1234 wrote:I am trying to understand how it works. Let's say I need $30,000 and sell from my taxable account at a loss. First, what methodology makes sense for choosing whether to sell VTSAX or VTMGX?


Whichever one has a larger loss. (Likewise, if you sell at a gain, sell whichever one will lead to a lower tax on the gain.)

Second, if I then move $30,000 from the G fund into either C/S or I, are those funds enough different from VTSAX & VTMGX to avoid a "wash" and to allow for tax-loss harvesting? I haven't ever done tax-loss harvesting so forgive me if I have it mixed up.


Nobody knows, because the IRS has never made a ruling. TM International and the I fund are both developed markets indexes, but the indexes are significantly different; Total International follows the FTSE Index, which includes Canada, while the I fund follows the MSCI Index. Total Stock Market and the C/S funds also follow different indexes, although they are much closer; Total Stock Market follows the CRSP index, while 80%C/20%S approximates the WIlshire 5000. You have to ask your tax advisor whether these are substantially identical.
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby kate1234 » Fri Jul 05, 2013 10:18 am

Thanks for the answers. Currently we are set up with all bonds in the G fund and the taxable account with all equities. If we shifted some of that taxable account over to a 529 Plan would the effect be the same? If the 529 were loaded with equities that had dropped by a huge amount when they were needed for college, we could still do the same tax loss harvesting and move a corresponding amount out of the G into C/S?
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby livesoft » Fri Jul 05, 2013 10:22 am

kate1234 wrote:If we shifted some of that taxable account over to a 529 Plan would the effect be the same? If the 529 were loaded with equities that had dropped by a huge amount when they were needed for college, we could still do the same tax loss harvesting and move a corresponding amount out of the G into C/S?

Tax-loss harvesting a 529 plan is difficult if not impossible. I have done it.

http://www.bankrate.com/finance/taxes/c ... -plan.aspx
http://taxes.about.com/b/2009/09/09/ded ... s-plan.htm
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby grabiner » Fri Jul 05, 2013 10:28 am

kate1234 wrote:Thanks for the answers. Currently we are set up with all bonds in the G fund and the taxable account with all equities. If we shifted some of that taxable account over to a 529 Plan would the effect be the same? If the 529 were loaded with equities that had dropped by a huge amount when they were needed for college, we could still do the same tax loss harvesting and move a corresponding amount out of the G into C/S?


While you couldn't harvest losses, you could shift some contributions from the TSP to the 529 to make up for the losses, so that the 529 would be adequate for your college needs.
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby kate1234 » Fri Jul 05, 2013 11:19 am

Sorry, I probably wasn't clear. We are in retirement so there are no new contributions coming in from income. I am talking about converting maybe $100,000 from our taxable account into a 529 (all in one lump sum, and filing the gift tax return). The kid is a rising junior so we've got just two years of having it grow, then anticipate it reducing by $25,000 in each of the following four years.

The real answer might be that, at this late date, the tax advantage to having those funds in a 529 Plan isn't worth it.
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Re: G Fund/Placing Cash Needs in a Tax-Advantaged Account

Postby grabiner » Sat Jul 06, 2013 11:01 am

kate1234 wrote:Sorry, I probably wasn't clear. We are in retirement so there are no new contributions coming in from income. I am talking about converting maybe $100,000 from our taxable account into a 529 (all in one lump sum, and filing the gift tax return). The kid is a rising junior so we've got just two years of having it grow, then anticipate it reducing by $25,000 in each of the following four years.

The real answer might be that, at this late date, the tax advantage to having those funds in a 529 Plan isn't worth it.


It is probably worthwhile; any growth you do get will be tax-free, and some states allow a tax deduction for 529 contributions. (But don't over-fund the 529, as you'll pay capital-gains tax on any taxable stock sales, and then ordinary tax again, plus a possible penalty, on any money in the 529 not used for college.)
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