Plans in case FIFO requirement is revived

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Counterpoint
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Plans in case FIFO requirement is revived

Post by Counterpoint » Mon Jan 01, 2018 5:23 pm

I’m looking for some feedback on simple strategies I could adopt now in case there is a FIFO requirement in the future (as was discussed during the recent tax bill deliberations but fortunately shelved). Hopefully this is an unlikely event, so I'd undertake something different only if it's very simple.

Background: Spouse and I are in our 50s, retired and fortunate to have a defined-benefit pension that’s sufficient for our needs. We have all our investment assets with Vanguard - they’re 100% in equity index funds (other than a MM account for cash flows), much of it in VTSAX (Total Market Index) in a joint account and the rest in international equity index. We continue to save into these index funds each quarter through an automatic investment plan. We are Flagship clients in case that makes a difference to any of the options below.

We are likely to have some expenditures in about 10-15 years for which we’d sell part of our holdings at that time. I’m concerned about the capital gains taxes + NIIT if the idea of requiring FIFO is brought back in the future, given that we have shares dating back over 15 years. I’d like to find a way to continue to make the same investments in the future in VTSAX or its equivalent (and ideally also with the international index fund), but do them in a different account so we can use the new account and its higher cost basis when we need to sell. (I assume the simplest solution - have a separate VTSAX fund in the same joint account - is not possible.)

As I see it our options are:
1. Invest in VTSAX via a non-Vanguard brokerage platform. Have never gone outside Vanguard before. Not sure if we can view consolidated holdings and asset allocation as easily within Vanguard's Portolio Watch, and whether our costs would increase.
2. Invest in the ETF equivalent with Vanguard. But apparently we cannot do automatic investment. We travel a lot, so I’d very much prefer to have auto-investment.
3. Could invest in a mkt cap weighted combo of S&P500 Index and Extended Market Index. More of a pain to keep track of asset allocation - will need to occasionally monitor relative performance of these two and possibly adjust new investments to rebalance. And we couldn't do this with the international equity index fund.
4. Current account is a joint account with my spouse. We could open the new account in one of our individual names. Am not concerned about issues of marital control, and we have Full Agent authorization for each other (as well as Financial POA) in case one of us gets incapacitated.

Any thoughts on pros and cons of the above, or other feedback? With what I know so far, I’m least keen on #2 (ETFs), #1 or #4 seem simplest, so any thoughts on #1 or #4 in particular would be much appreciated - thanks.

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samsoes
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Re: Plans in case FIFO requirement is revived

Post by samsoes » Mon Jan 01, 2018 5:28 pm

Methinks this a violation of forum rules. We're only allowed to discuss/advise on active, in-force legislation and regulations, not on speculated changes.
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Hyperborea
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Re: Plans in case FIFO requirement is revived

Post by Hyperborea » Mon Jan 01, 2018 5:45 pm

Counterpoint wrote:
Mon Jan 01, 2018 5:23 pm
2. Invest in the ETF equivalent with Vanguard. But apparently we cannot do automatic investment. We travel a lot, so I’d very much prefer to have auto-investment.
If the FIFO rule was put in for mutual funds then the Vanguard structure allowing you to convert to the equivalent ETF would give you an out at that time. You could convert then and deal with the slightly less simple re-investment. I don't see the FIFO rule being instituted for any kind of stock investment as that would negatively impact those who paid for those who implemented the new tax rules.
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Counterpoint
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Re: Plans in case FIFO requirement is revived

Post by Counterpoint » Mon Jan 01, 2018 5:52 pm

samsoes wrote:
Mon Jan 01, 2018 5:28 pm
Methinks this a violation of forum rules. We're only allowed to discuss/advise on active, in-force legislation and regulations, not on speculated changes.
Hmmm. That never occurred to me, since the substance of the post is not about speculating on legislative changes, but rather assessing alternate investment vehicles to protect against a change (in a similar way that people may want to adapt their strategies to hedge against future tax rate changes in a generic manner).

As a newbie, I’m not sure how to contact a moderator on this….

Longdog
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Re: Plans in case FIFO requirement is revived

Post by Longdog » Mon Jan 01, 2018 6:01 pm

Maybe convert the low cost basis shares to the ETF share class VTI. So you’d have low cost basis shares of VTI and higher cost basis shares of VTSAX.
Steve

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Counterpoint
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Re: Plans in case FIFO requirement is revived

Post by Counterpoint » Mon Jan 01, 2018 6:02 pm

Hyperborea wrote:
Mon Jan 01, 2018 5:45 pm
Counterpoint wrote:
Mon Jan 01, 2018 5:23 pm
2. Invest in the ETF equivalent with Vanguard. But apparently we cannot do automatic investment. We travel a lot, so I’d very much prefer to have auto-investment.
If the FIFO rule was put in for mutual funds then the Vanguard structure allowing you to convert to the equivalent ETF would give you an out at that time. You could convert then and deal with the slightly less simple re-investment.
Thanks, Hyperborea. Maybe I'm not understanding fully what you're saying, but I would think that even if we converted our mutual fund to an equivalent ETF, we would have to keep the original cost basis.

And just to be on the safe side based on what samsoes said, I would request that any replies only address the investment vehicle related issues, and not comment on the probability of future legislation (let's take the uncertainty of that as a given).

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Counterpoint
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Re: Plans in case FIFO requirement is revived

Post by Counterpoint » Mon Jan 01, 2018 6:08 pm

Longdog wrote:
Mon Jan 01, 2018 6:01 pm
Maybe convert the low cost basis shares to the ETF share class VTI. So you’d have low cost basis shares of VTI and higher cost basis shares of VTSAX.
So we can convert just part of the VTSAX holding to VTI, and specify which lots? If yes, then that's brilliant and I think that should address it. And even better, we'd need to do it only in the future if it became necessary. So to take a hypothetical example, if I had $1MM in VTSAX and wanted to sell $600K, I would convert $400K of the lowest-cost basis lots to VTI, and then just sell the remaining $600K VTSAX?

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Hyperborea
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Re: Plans in case FIFO requirement is revived

Post by Hyperborea » Mon Jan 01, 2018 6:11 pm

Counterpoint wrote:
Mon Jan 01, 2018 6:02 pm
Hyperborea wrote:
Mon Jan 01, 2018 5:45 pm
Counterpoint wrote:
Mon Jan 01, 2018 5:23 pm
2. Invest in the ETF equivalent with Vanguard. But apparently we cannot do automatic investment. We travel a lot, so I’d very much prefer to have auto-investment.
If the FIFO rule was put in for mutual funds then the Vanguard structure allowing you to convert to the equivalent ETF would give you an out at that time. You could convert then and deal with the slightly less simple re-investment.
Thanks, Hyperborea. Maybe I'm not understanding fully what you're saying, but I would think that even if we converted our mutual fund to an equivalent ETF, we would have to keep the original cost basis.

And just to be on the safe side based on what samsoes said, I would request that any replies only address the investment vehicle related issues, and not comment on the probability of future legislation (let's take the uncertainty of that as a given).
Basically, I'm saying that there are enough people with a lot of investment in Congress who would be hurt financially by having the FIFO rules implemented for stocks that they wouldn't allow those rules to be implemented. Just look at very recent history. Maybe it might happen for mutual funds, who knows. However, the structure of Vanguard funds is different from most other funds in that they have an equivalent ETF that you can convert into freely (one way only). If such a FIFO rule were ever implemented for mutual funds then you could convert them to an ETF and sell them like stocks.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

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Re: Plans in case FIFO requirement is revived

Post by LadyGeek » Mon Jan 01, 2018 7:27 pm

This thread has run its course and is locked (proposed legislation). Here's why we don't permit these discussions: Subject: Political comments and proposed tax plan remain off-topic
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