Taxes & Selling a high-fee mutual fund

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Topic Author
vanhart
Posts: 2
Joined: Fri Jul 11, 2014 9:33 am

Taxes & Selling a high-fee mutual fund

Post by vanhart »

I'm a relative beginner to investing but have been studying up on bogleheads and Vanguard and am looking to sell a mutual fund in a taxable account that I inherited with a lot of fees attached to it and move the money into an index fund at Vanguard. It's about $10k and I'm a little clueless--if I sell it, move it to Vanguard, and reinvest it (all or most in a taxable account) I'm going to get hit with a lot of taxes, yes? What would be the most tax-efficient way to do this?
Faith20879
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Re: Taxes & Selling a high-fee mutual fund

Post by Faith20879 »

Hello vanhard,

Welcome to the forum!
you wrote:I'm going to get hit with a lot of taxes, yes?
It depends. Are these shares in a trust? Is the person who you inherited them from still alive? And, this wiki may help too:http://www.bogleheads.org/wiki/Step-up_in_basis


Regards,
Faith
livesoft
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Re: Taxes & Selling a high-fee mutual fund

Post by livesoft »

To echo Faith20879, what is your cost basis? It is entirely possible that your cost basis is HIGHER than the current value of these shares. In that sense you may get a tax deduction for selling the shares.

If there is an unrealized loss, then sell the shares now. If there is an unrealized gain, the most tax-efficient way to deal with this is to give the shares away to a charity of your choice. Somehow, I don't think you will do that. After that, the possibilities get a little more complex because they depend on your current tax situation which you did not detail for us.
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grabiner
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Re: Taxes & Selling a high-fee mutual fund

Post by grabiner »

Paying a tax cost to switch funds on the wiki gives some idea of how to decide whether to switch.

Since you just inherited the fund, you probably will want to switch as soon as you know what to switch to; the capital-gains tax won't be very large, and you have years to benefit from the lower expenses. (Even if you inherited the fund less than a year ago, capital gains on an inherited asset are taxed at the long-term rate, so you don't need to wait to have held them for a year.)
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troysapp
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Re: Taxes & Selling a high-fee mutual fund

Post by troysapp »

Assuming you inherited the assets directly from the estate of a decedent, the tax cost basis should generally be the fair market value on the date of the decedent's death. Generally, advisory firms and/or custodians do not make the estate cost basis adjustment. As was previously posted, your gain could be small or at a loss.
Calm Man
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Re: Taxes & Selling a high-fee mutual fund

Post by Calm Man »

Most of us here are smiling. If it is worth 10,000, even if your cost basis is half of that, it wouldn't be "a lot" of taxes. I think you mean any taxes and taxes are the price you pay to live in the good old USA as the government shares in your profits. However, you may owe know taxes if the price when you inherited it was the same or more than you sold it for.
Topic Author
vanhart
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Joined: Fri Jul 11, 2014 9:33 am

Re: Taxes & Selling a high-fee mutual fund

Post by vanhart »

Thanks Grabiner--that wiki page was just the info I was looking for.
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