Taxable income computation by Vanguard

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VictoriaF
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Taxable income computation by Vanguard

Post by VictoriaF »

I have never sold partial mutual funds in taxable accounts. I have sold all holdings and paid tax on all gains, and I have exchanged funds in tax-deferred accounts, but I have not had a situation in which I had to estimate taxes from a partial sale.

I want to sell a part of my Vanguard TSM using the average cost accounting, which I think is the default. All my gains are long-term gains, all my shares are noncovered, I do not reinvest the dividends but collect them in money market accounts. For simplicity, lets assume the numbers and calculations as follows:

$100k - total VTSAX holdings
$40k - unrealized capital gains
40% - the percent of capital gains (40k/100k * 100%)
$30k - sold TSM holdings
$12k - reported long term capital gains (30k * 40%)

1. Are my calculations correct?
2. Are there other factors that could result in Vanguard reporting a different value than $12k in my example?
3. Considering that I will be selling nocovered shares, what will Vanguard report to me and to the IRS? The average basis, the unrealized gains of the sold amount, or something else?
4. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
5. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?

Thank you,
Victoria

P.S. I am asking this question in the context of my general financial planning. This is my first full year in retirement with relatively low income from the pensions. Ideally, I would like to use this opportunity to do Roth conversions. However, my traditional retirement account is in the TSP, and the TSP does not allow (yet) in-plan Roth conversions. Thus, I want to harvest some gains in my taxable accounts while waiting for the TSP to decide one way or the other.
Last edited by VictoriaF on Tue Jul 28, 2015 8:10 am, edited 2 times in total.
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Re: Taxable income computation by Vanguard

Post by Toons »

VictoriaF wrote:I have never sold partial mutual funds in taxable accounts. I have sold all holdings and paid tax on all gains, and I have exchanged funds in tax-deferred accounts, but I have not had a situation in which I had to estimate taxes from a partial sale.

I want to sell a part of my Vanguard TSM using the average cost accounting, which I think is the default. All my gains are long-term gains; I do not reinvest the dividends but collect them in money market accounts. For simplicity, lets assume the numbers and calculations as follows:

$100k - total VTSAX holdings
$40k - unrealized capital gains
40% - the percent of capital gains (40k/100k * 100%)
$30k - sold TSM holdings
$12k - reported long term capital gains (30k * 40%)

1. Are my calculations correct?
2. Are there other factors that could result in Vanguard reporting a different value than $12k in my example?
3. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
4. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?

Thank you,
Victoria
1.Average Cost Basis involves totaling the cost of all the shares you purchased(covered and non-covered) and dividing it by the number of shares you own.
2.I have never had any problems with Vanguards average cost basis accounting.
If you want to verify the sales transaction accountability yourself do the following:
Add up the cost of all the shares you own in the mutual fund.
Divide that result by the total number of shares you own. This gives you your average per share.
Multiply the average per share by the number of shares sold.
3. I would not let the time of year dictate when I sold shares,others might.
4.You aren't taking a capital loss here ,so buy any fund you want to buy. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

Toons wrote:
VictoriaF wrote:I have never sold partial mutual funds in taxable accounts. I have sold all holdings and paid tax on all gains, and I have exchanged funds in tax-deferred accounts, but I have not had a situation in which I had to estimate taxes from a partial sale.

I want to sell a part of my Vanguard TSM using the average cost accounting, which I think is the default. All my gains are long-term gains; I do not reinvest the dividends but collect them in money market accounts. For simplicity, lets assume the numbers and calculations as follows:

$100k - total VTSAX holdings
$40k - unrealized capital gains
40% - the percent of capital gains (40k/100k * 100%)
$30k - sold TSM holdings
$12k - reported long term capital gains (30k * 40%)

1. Are my calculations correct?
2. Are there other factors that could result in Vanguard reporting a different value than $12k in my example?
3. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
4. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?

Thank you,
Victoria
1.Average Cost Basis involves totaling the cost of all the shares you purchased(covered and non-covered) and dividing it by the number of shares you own.
2.I have never had any problems with Vanguards average cost basis accounting.
If you want to verify the sales transaction accountability yourself do the following:
Add up the cost of all the shares you own in the mutual fund.
Divide that result by the total number of shares you own. This gives you your average per share.
Multiply the average per share by the number of shares sold.
3. I would not let the time of year dictate when I sold shares,others might.
4.You aren't taking a capital loss here ,so buy any fund you want to buy. :happy
Thank you, Toons,

1. All my shares are noncovered, and my Vanguard account shows the most recent average cost per share.
2. Let's assume that the average cost per share is $20 and I have 5,000 noncovered shares with the total amount of $100k [$20 x 5,000 = $100k].
- The unrealized gains are $40k, which seems to imply that my average basis is $12 per share [$12 x 5,000 = $60k I have paid].
and
- My average gains are $8 per share [$8 x 5,000 = $40k I have gained].

If I sell 1,500 shares of TSM, for the total amount of $30k [$20 x 1,500 = $30k], what would Vanguard report to the IRS?

2.1. $30k income, from which I would have to figure out the actual gains when I file taxes for 2015?
or
2.2. $12k in the gains [$8 x 1,5000 shares = $12k,000 I gained.}
3. I think there are some considerations related to the earning distributions and it's not advisable to sell a fund just before these distributions.
4. Great, thanks!

Victoria
Last edited by VictoriaF on Tue Jul 28, 2015 8:23 am, edited 1 time in total.
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Re: Taxable income computation by Vanguard

Post by pshonore »

Since these are non-covered shares, VG will only report the gross proceeds to the IRS. You're responsible for the rest (which VG will probably report to you).
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Re: Taxable income computation by Vanguard

Post by Toons »

VictoriaF wrote:
Toons wrote:
VictoriaF wrote:I have never sold partial mutual funds in taxable accounts. I have sold all holdings and paid tax on all gains, and I have exchanged funds in tax-deferred accounts, but I have not had a situation in which I had to estimate taxes from a partial sale.

I want to sell a part of my Vanguard TSM using the average cost accounting, which I think is the default. All my gains are long-term gains; I do not reinvest the dividends but collect them in money market accounts. For simplicity, lets assume the numbers and calculations as follows:

$100k - total VTSAX holdings
$40k - unrealized capital gains
40% - the percent of capital gains (40k/100k * 100%)
$30k - sold TSM holdings
$12k - reported long term capital gains (30k * 40%)

1. Are my calculations correct?
2. Are there other factors that could result in Vanguard reporting a different value than $12k in my example?
3. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
4. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?

Thank you,
Victoria
1.Average Cost Basis involves totaling the cost of all the shares you purchased(covered and non-covered) and dividing it by the number of shares you own.
2.I have never had any problems with Vanguards average cost basis accounting.
If you want to verify the sales transaction accountability yourself do the following:
Add up the cost of all the shares you own in the mutual fund.
Divide that result by the total number of shares you own. This gives you your average per share.
Multiply the average per share by the number of shares sold.
3. I would not let the time of year dictate when I sold shares,others might.
4.You aren't taking a capital loss here ,so buy any fund you want to buy. :happy
Thank you, Toons,

1. All my shares are noncovered, and my Vanguard account shows the most recent average cost per share.
2. Let's say the average cost per share is $20 and I sell 5,000 shares. What would Vanguard report to the IRS?
2.1. $100,000 income [$20 x 5,000 shares], from which I would have to figure out the actual gains when I file taxes for 2015?
or
2.2. $40,000 in the gains, assuming that the average basis $12? [$12 x 5,000 shares = $60,000 I paid. $8 x 5,000 shares = $40,000 I gained.}
3. I think there are some considerations related to the earning distributions and it's not advisable to sell a fund just before these distributions.
4. Great, thanks!

Victoria
If you sell 5,000 shares at 20.00 per share your average cost basis is 10,000.
When you decide to sell your shares this year your "sales price " will be the Net Asset Value of the fund on day sold.You subtract the "Cost Basis " from "Proceeds" to determine your capital gain
Example:
Cost Basis Sell 5000 shares @20.00=100,000
Proceeds on date of sale 5000shares @52.00(current NAV VTIAX)=260,000

Proceeds 260,000
Cost Basis- 100,000
Profit 160,000
You have a long term gain of 160,000.

The fund pays out a quarterly dividend.
If distribution date concerns you then just sell before the dividend date.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

pshonore wrote:Since these are non-covered shares, VG will only report the gross proceeds to the IRS. You're responsible for the rest (which VG will probably report to you).
I found a Vanguard publication stating the following:
Vanguard wrote:All sales of mutual funds, most exchange-traded funds (ETFs), and stocks will generate a Form 1099-B that provides detailed cost basis information to help you report capital gains and losses on your tax return.

Although we'll include details for sales of both covered shares and noncovered shares, only the cost basis information for sales of covered shares will be reported to the IRS. Cost basis for sales of noncovered shares will be reported solely to you.
...
You remain responsible for reporting your cost basis information to the IRS on Form 8949 and on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered.
This means that I will get the cost basis for my noncovered shares from Vanguard. Will it be reasonably close to my estimates above?

Victoria
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Re: Taxable income computation by Vanguard

Post by Toons »

VictoriaF wrote:
pshonore wrote:Since these are non-covered shares, VG will only report the gross proceeds to the IRS. You're responsible for the rest (which VG will probably report to you).
I found a Vanguard publication stating the following:
Vanguard wrote:All sales of mutual funds, most exchange-traded funds (ETFs), and stocks will generate a Form 1099-B that provides detailed cost basis information to help you report capital gains and losses on your tax return.

Although we'll include details for sales of both covered shares and noncovered shares, only the cost basis information for sales of covered shares will be reported to the IRS. Cost basis for sales of noncovered shares will be reported solely to you.
...
You remain responsible for reporting your cost basis information to the IRS on Form 8949 and on Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered.
This means that I will get the cost basis for my noncovered shares from Vanguard. Will it be reasonably close to my estimates above?

Victoria
Yes you will get the cost basis from Vanguard on your 1099-B.
You will have a better idea of estimate when you know the total proceeds of your sale.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

I checked Form 8949 with which I was not familiar. Page-2 of the form (long term gains) asks to list all purchases of the fund with the corresponding costs. If I don't want to go through all purchases, is there a way to aggregate them and use the average cost?

Form 8949 includes a note:
Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported
to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions
In my case, Vanguard would not report to the IRS the basis for noncovered shares. Can I still report the aggregated amounts in Schedule D?

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

Toons wrote:Yes you will get the cost basis from Vanguard on your 1099-B.
You will have a better idea of estimate when you know the total proceeds of your sale.
I am trying to estimate it now so that I would know how much to sell. I don't want my estimates to be far off.

Victoria
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Re: Taxable income computation by Vanguard

Post by pshonore »

VictoriaF wrote:I checked Form 8949 with which I was not familiar. Page-2 of the form (long term gains) asks to list all purchases of the fund with the corresponding costs. If I don't want to go through all purchases, is there a way to aggregate them and use the average cost?

Form 8949 includes a note:
Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported
to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions
In my case, Vanguard would not report to the IRS the basis for noncovered shares. Can I still report the aggregated amounts in Schedule D?

Victoria
No, you have to use Form 8949 which will carry them to Sched D.
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Re: Taxable income computation by Vanguard

Post by Toons »

I havent' done taxes with paper in years.
All software programs allow one to use "Various" when reporting a group of multiple transactions in one category,short term or long term.http://www.irs.gov/pub/irs-pdf/f8949.pdf

Look at the NOTE-you may aggregate on Form 8949

form 8949

http://www.irs.gov/pub/irs-pdf/f8949.pdf
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

pshonore wrote:
VictoriaF wrote:I checked Form 8949 with which I was not familiar. Page-2 of the form (long term gains) asks to list all purchases of the fund with the corresponding costs. If I don't want to go through all purchases, is there a way to aggregate them and use the average cost?

Form 8949 includes a note:
Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported
to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions
In my case, Vanguard would not report to the IRS the basis for noncovered shares. Can I still report the aggregated amounts in Schedule D?

Victoria
No, you have to use Form 8949 which will carry them to Sched D.
To clarify, even if I sold my entire TSM holdings and knew the exact amount of unrealized gains, I would still have to file Form 8949 and report all purchases with the corresponding prices? Right?

I do my taxes in my own spreadsheets. This forces me to think about all my past and future actions. I realize that TurboTax could help me filing the forms, but I would still need to go back to all my TSM purchases and their prices.

Victoria
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Re: Taxable income computation by Vanguard

Post by BolderBoy »

VictoriaF wrote: $100k - total VTSAX holdings
$40k - unrealized capital gains
40% - the percent of capital gains (40k/100k * 100%)
$30k - sold TSM holdings
$12k - reported long term capital gains (30k * 40%)

1. Are my calculations correct?
Yes, allowing for it being a rough estimate. I moved out of my taxable position in VTSAX between Jan-Jun in increments and used a simple ratio method based on the above numbers $100k/$40k = $30k/X and solved for X each time to have $$$ numbers to figure my quarterly taxes and to manipulate the #s so as to ultimately keep myself in the 15% bracket for both 0% LTCG and Roth conversion purposes.

After each transaction I looked at my VG account under "taxes" and my calcs were pretty close to VGs (which will ultimately be reported.)

I think this is what you are trying to do as well, right?
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Re: Taxable income computation by Vanguard

Post by BL »

AFAIK, you report sale of this fund with VARIOUS as date of purchase of the uncovered shares (as one transaction). I suggest you do it on the paper forms using their instructions.
You found it:
Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported
to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions

Edit: crossed out because I was reminded by an expert that the quote is for covered shares.
Last edited by BL on Tue Jul 28, 2015 1:03 pm, edited 1 time in total.
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Re: Taxable income computation by Vanguard

Post by kaneohe »

As toons mentioned, you may aggregate all purchases for a security purchased on various dates (but separate into LT and ST) and sold on a specific date. Use another entry for a different sale date. This is for F8949 if basis is not reported to IRS . If basis is reported, you can skip F8949 and report directly on Sch D.
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

Thank you, all!

To summarize:
- The purpose of this discussion is to estimate how much to sell while being cognizant of what will happen after I sell (forms I will receive, forms I will file, and eventual taxes I will have paid).
- My approach to estimating the gains is producing values that are close enough to the gains I will calculate after I receive 1099-B from Vanguard.
- I WILL have to file Form 8949, because Vanguard will not report the cost basis to the IRS.
- I will NOT have to report every purchase and will combine them under the date "VARIOUS."

Victoria
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Re: Taxable income computation by Vanguard

Post by House Blend »

VictoriaF wrote:P.S. I am asking this question in the context of my general financial planning. This is my first full year in retirement with relatively low income from the pensions. Ideally, I would like to use this opportunity to do Roth conversions. However, my traditional retirement account is in the TSP, and the TSP does not allow (yet) in-plan Roth conversions. Thus, I want to harvest some gains in my taxable accounts while waiting for the TSP to decide one way or the other.
So it sounds like you are in the 15% Federal bracket, and want to take maximum advantage of that (before SS and RMDs start).

Does TSP not allow partial rollovers? I would roll some tax-deferred assets out to a trad IRA at VG (enough to cover a few years worth of conversions), and then get the annual conversion game going.

IMO the TSP is nice, but not so nice that I would forgo holding some assets in an IRA (trad or Roth) elsewhere.

If Roth conversions are off the table and tax gain harvesting is the only alternative, then regarding your last question:

5. Yes, exchanging your shares of TSM for some other fund you like is an option. In addition to 500 index, consider also Large Cap Index.

Or stay with TSM. There's no such thing as a wash sale when you sell at a gain, but Vanguard has frequent trading rules that restrict electronic purchases/exchanges. A workaround it to mail a check to buy back your shares, although it would mean having the money out of the market for a short time.
http://www.bogleheads.org/wiki/Frequent_trading_policy

Another option, if you have enough cash sitting around, is to buy $X shares of TSM *first*, and then sell $X the next day. Here, the $X would probably not be $30K, since the purchase would change the average basis of your shares, and change the amount of gains realized. (But still a simple algebra problem to estimate X so that the realized gains hit the desired target.)
Edit/Correction: Actually, $X does equal $30K. I forgot that this new purchase would buy *covered* shares, and so does not affect the gains realized from any sale of non-covered shares. So if $30K was the correct amount to sell under your original plan, it would still be the correct amount to buy/sell under this alternative plan.
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

House Blend wrote:
VictoriaF wrote:P.S. I am asking this question in the context of my general financial planning. This is my first full year in retirement with relatively low income from the pensions. Ideally, I would like to use this opportunity to do Roth conversions. However, my traditional retirement account is in the TSP, and the TSP does not allow (yet) in-plan Roth conversions. Thus, I want to harvest some gains in my taxable accounts while waiting for the TSP to decide one way or the other.
So it sounds like you are in the 15% Federal bracket, and want to take maximum advantage of that (before SS and RMDs start).
Thank you, House Blend,

I am in the 25% Federal bracket due to two pensions (Federal and Alcatel-Lucent), some delayed compensation I received this year, and interest income. I want to take advantage of the pre-SS/pre-RMD time to eliminate a traditional tax-deferred account (TSP) and large gains in taxable accounts. By the time I turn 70, I want to have only the pensions, Social Security, I Bonds, and Roth IRA/TSP. Even with a lower taxable income, my tax bracket will not change, but I will pay less for Medicare Part B, my state taxes will be lower, and I may escape the 46.25% marginal rate described in the Bogleheads Wiki.
House Blend wrote:Does TSP not allow partial rollovers? I would roll some tax-deferred assets out to a trad IRA at VG (enough to cover a few years worth of conversions), and then get the annual conversion game going.
Nope, and that's a problem. However, as another poster has written to me in a PM, the TSP Board is considering to allow flexible withdrawals. Right now, I can only make one partial withdrawal and one final withdrawal. If the TSP allows annual withdrawals, I will do withdrawals/rollovers/conversions as you suggest. While I am waiting for the TSP Board to make favorable rulings, I have plenty of taxable gains to get rid of.
House Blend wrote:IMO the TSP is nice, but not so nice that I would forgo holding some assets in an IRA (trad or Roth) elsewhere.
I agree. I will do Roth conversions, with or without the TSP. But I can do something else (tax gain harvesting) while waiting for the TSP to make my next steps easier.
House Blend wrote:If Roth conversions are off the table and tax gain harvesting is the only alternative, then regarding your last question:

5. Yes, exchanging your shares of TSM for some other fund you like is an option. In addition to 500 index, consider also Large Cap Index.

Or stay with TSM. There's no such thing as a wash sale when you sell at a gain, but Vanguard has frequent trading rules that restrict electronic purchases/exchanges. A workaround it to mail a check to buy back your shares, although it would mean having the money out of the market for a short time.
http://www.bogleheads.org/wiki/Frequent_trading_policy
I was thinking of moving the money to the 500 index for a couple months and then back to TSM after frequent trading period is over. I don't want to deal with a check; 500 seems good enough as a holding container for two months.
House Blend wrote:IAnother option, if you have enough cash sitting around, is to buy $X shares of TSM *first*, and then sell $X the next day. Here, the $X would probably not be $30K, since the purchase would change the average basis of your shares, and change the amount of gains realized. (But still a simple algebra problem to estimate X so that the realized gains hit the desired target.)
I have some cash, but not enough to do this cleanly. I think S&P500 will provide at least 80% benefit for 20% effort.

Victoria
Last edited by VictoriaF on Tue Jul 28, 2015 10:57 am, edited 2 times in total.
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Re: Taxable income computation by Vanguard

Post by Toons »

All matters being considered:
Try to maintain the mantra of :
Keep It Simple during your decision making process
:happy
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

Toons wrote:All matters being considered:
Try to maintain the mantra of :
Keep It Simple during your decision making process
:happy
Hey, Toons, this is your and other Bogleheads' fault! I post simple questions, and you make me think of interesting conditions and variations. And once I learn about interesting stuff I can't unlearn it.

Victoria
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Re: Taxable income computation by Vanguard

Post by Toons »

VictoriaF wrote:
House Blend wrote:
VictoriaF wrote:P.S. I am asking this question in the context of my general financial planning. This is my first full year in retirement with relatively low income from the pensions. Ideally, I would like to use this opportunity to do Roth conversions. However, my traditional retirement account is in the TSP, and the TSP does not allow (yet) in-plan Roth conversions. Thus, I want to harvest some gains in my taxable accounts while waiting for the TSP to decide one way or the other.
So it sounds like you are in the 15% Federal bracket, and want to take maximum advantage of that (before SS and RMDs start).
Thank you, House Blend,

I am in the 25% Federal bracket due to two pensions (Federal and Alcatel-Lucent), some delayed compensation I received this year, and interest income. I want to take advantage of the pre-SS/pre-RMD time to eliminate a traditional tax-deferred account (TSP) and large gains in taxable accounts. By the time I turn 70, I want to have only the pensions, Social Security, I Bonds, and Roth IRA/TSP. Even with a lower taxable income, my tax bracket will not change, but I will pay less for Medicare Part B, my state taxes will be lower, and I may escape the 46.25% marginal rate described in the Bogleheads Wiki.
House Blend wrote:Does TSP not allow partial rollovers? I would roll some tax-deferred assets out to a trad IRA at VG (enough to cover a few years worth of conversions), and then get the annual conversion game going.
Nope, and that's a problem. However, as another poster has written to me in a PM, the TSP Board is considering to allow flexible withdrawals. Right now, I can only make one partial withdrawal and one final withdrawal. If the TSP allows annual withdrawals, I will do withdrawals/rollovers/conversions as you suggest. While I am waiting for the TSP Board to make favorable rulings, I have plenty of taxable gains to get rid of.
House Blend wrote:IMO the TSP is nice, but not so nice that I would forgo holding some assets in an IRA (trad or Roth) elsewhere.
I agree. I will do Roth conversions, with or without the TSP. But I can do something else (tax gain harvesting) while waiting for the TSP to make my next steps easier.
House Blend wrote:If Roth conversions are off the table and tax gain harvesting is the only alternative, then regarding your last question:

5. Yes, exchanging your shares of TSM for some other fund you like is an option. In addition to 500 index, consider also Large Cap Index.

Or stay with TSM. There's no such thing as a wash sale when you sell at a gain, but Vanguard has frequent trading rules that restrict electronic purchases/exchanges. A workaround it to mail a check to buy back your shares, although it would mean having the money out of the market for a short time.
http://www.bogleheads.org/wiki/Frequent_trading_policy
I was thinking of moving the money to the 500 index for a couple months and then back to TSM after frequent trading period is over. I don't want to deal with a check; 500 seems good enough as a holding container for two months.
House Blend wrote:IAnother option, if you have enough cash sitting around, is to buy $X shares of TSM *first*, and then sell $X the next day. Here, the $X would probably not be $30K, since the purchase would change the average basis of your shares, and change the amount of gains realized. (But still a simple algebra problem to estimate X so that the realized gains hit the desired target.)
I have some cash, but not enough to do this cleanly. I think S&P500 will provide at least 80% benefit for 20% effort.

Victoria
"Hey, Toons, this is your and other Bogleheads' fault! I post simple questions, and you make me think of interesting conditions and variations."





LOL,,,,,I Noticed that when I read the thread above :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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grabiner
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Re: Taxable income computation by Vanguard

Post by grabiner »

VictoriaF wrote:4. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
This doesn't matter. If you sell after a dividend, you will receive the dividend but the fund value will decrease by an equal amount. Since the dividend is probably 100% qualified and the capital gain is long-term, this is a wash.
5. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?
If you are tax gain harvesting, you could even buy back into the same fund.

It is desirable not to buy a fund just before a dividend, but the dividends on these funds are so low that it doesn't matter much. The quarterly dividend is about 0.5%, all qualified, taxed at 15% federal and 5.75% VA, so the tax cost is 0.10%.
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

grabiner wrote:
VictoriaF wrote:4. Should I be careful not to sell before the end of a quarter (end of September) or end of the year (end of December)?
This doesn't matter. If you sell after a dividend, you will receive the dividend but the fund value will decrease by an equal amount. Since the dividend is probably 100% qualified and the capital gain is long-term, this is a wash.
Thank you, David,

This is very helpful.
grabiner wrote:
5. If I don't want to be out of the market, can I immediately buy Vanguard's S&P fund (VFIAX)?
If you are tax gain harvesting, you could even buy back into the same fund.
Vanguard requires a 2-month wait before investing in the same fund. I can keep the funds in the S&P500 fund for 2 months and then move them back to the TSM.
grabiner wrote:It is desirable not to buy a fund just before a dividend, but the dividends on these funds are so low that it doesn't matter much. The quarterly dividend is about 0.5%, all qualified, taxed at 15% federal and 5.75% VA, so the tax cost is 0.10%.
If I am selling and buying at the same time, would it make sense to do it after distributions? If I do it in early October, I will also delay paying estimated taxes to January.

Victoria
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Re: Taxable income computation by Vanguard

Post by DSInvestor »

VictoriaF wrote: Vanguard requires a 2-month wait before investing in the same fund. I can keep the funds in the S&P500 fund for 2 months and then move them back to the TSM.
You can avoid the 2 month frequent trading restrictions If you use automatic transactions to sell at Vanguard. I've used them to sell and it works great. If the restriction is already in place, the automatic transaction to buy may allow you to buy back that fund inside that 2 month window.
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Re: Taxable income computation by Vanguard

Post by VictoriaF »

DSInvestor wrote:
VictoriaF wrote: Vanguard requires a 2-month wait before investing in the same fund. I can keep the funds in the S&P500 fund for 2 months and then move them back to the TSM.
You can avoid the 2 month frequent trading restrictions If you use automatic transactions to sell at Vanguard. I've used them to sell and it works great. If the restriction is already in place, the automatic transaction may allow you to buy back inside that 2 month window.
I am not familiar with automatic transactions. Are they used primarily for rebalancing, or this is something I can set up for occasional trades?

Is anything wrong with keeping the funds in S&P500 for two months before moving them back to TSM?

Victoria
Inventor of the Bogleheads Secret Handshake | Winner of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Re: Taxable income computation by Vanguard

Post by DSInvestor »

VictoriaF wrote:
DSInvestor wrote:
VictoriaF wrote: Vanguard requires a 2-month wait before investing in the same fund. I can keep the funds in the S&P500 fund for 2 months and then move them back to the TSM.
You can avoid the 2 month frequent trading restrictions If you use automatic transactions to sell at Vanguard. I've used them to sell and it works great. If the restriction is already in place, the automatic transaction may allow you to buy back inside that 2 month window.
I am not familiar with automatic transactions. Is it used primarily for rebalancing, or this is something I can set up for one-off trades?

Is anything wrong with keeping the funds in S&P500 for two months before moving them back to TSM?

Victoria
I have used automatic transactions to buy for years in IRA and taxable accounts. My mom uses automatic transactions to sell and transfer cash to her bank. They can be used to exchange from Fund A to Fund B and I use this to rebalance without triggering restrictions. Automatic transactions can be used for one off trades. Today is Wed AUG 29. Vanguard will not allow you to create an auto transaction to trade today but will allow you to set one up for tomorrow AUG 30. When setting up the transaction, you will be asked for the fund(s) you want to trade, when you want the trades to happen, frequency (weekly, monthly, quarterly, annually etc) and an end date. If you ask for an annual transaction starting AUG 30, 2015 and set an end date of SEP 01, 2015 (any date before the second scheduled transaction) the trade will execute on AUG 30 and the auto transaction is cancelled on SEP 01, 2015.

Make sure that you select the correct funds and accounts. If you accidentally select to exchange from a fund in taxable to a fund in IRA, that's a IRA contribution. Similarly an exchange from Traditional IRA fund to Roth IRA fund is a Roth conversion.

When I first TLHd out of TSM in Nov 2008, I bought S&P500/Extended Market Index funds but was prepared to hold it forever if it shot up afterwards. As it turned out, market fell more and in March 2009, I TLH'd out of S&P 500/Extended Market to buy TSM back.
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