Help Selling Stock to Diversify

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multiham
Posts: 160
Joined: Sun Jan 08, 2017 11:28 am

Help Selling Stock to Diversify

Post by multiham » Sun May 20, 2018 10:16 am

Over the years, I have acquired stock in the company I work for. Some of the shares go back to 1990 when I first started working for them. I have always known that I shouldn't have a high percentage of my net worth in the same company that I rely on for my job. My plan is to sell some each year over the next few years to get it to an amount that I am ok with. I will invest the proceeds into my existing mutual funds at both Schwab and Vanguard.

Some facts on me:

Age:52
Married
Planning to retire in either 2020 or 2021
I maxed all of my deferred options
24% tax bracket
3.1% state tax bracket
Will not be able to itemize in 2018
Most likely, this will be the only investment sale I have in 2018
The stock in question is in a taxable account and the proceeds will be invested as mentioned above in taxable accounts. These accounts are going to bridge me between the age of 55 and 57/58 as my pension gets higher if I delay taking it. Also would like to delay taking funds out of my 401K so that it can continue to grow. If all goes as planned, my only income during my first 2 or 3 years will be me selling taxable investments to get the $ I need to live off of.

Would like help from a financial planning and tax perspective. Would I be better off in 2018 and long term:

A. Selling shares that will generate a small ($1,500) short term loss
B. Selling shares that will generate a long term loss ($250) and some short term loss
C. Selling shares that will generate a long term gain (I have long term shares with a cost basis ranging from $30 to $110 while the stock is selling for over $120)
D. Combination of above

Appreciate the help!

abner kravitz
Posts: 301
Joined: Tue May 05, 2015 7:42 am
Location: Beaufort County, SC

Re: Help Selling Stock to Diversify

Post by abner kravitz » Sun May 20, 2018 10:22 am

Go for the biggest loss. You can deduct $3K in capital losses each year. Assuming your tax rates are not going to increase in retirement, its better to harvest the losses IMO.

retiredjg
Posts: 32726
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Selling Stock to Diversify

Post by retiredjg » Sun May 20, 2018 10:37 am

The goal is to reduce your individual stock. To do that, I'd sell all the losses, sell enough in gains to offset the losses, and sell even more to reduce the total amount you have. The only cost would be taxes on the "even more" amount. It appears that would be taxed at 15% (only the gains, not the whole amount) up to NIIT and 18.8% on whatever is over the NIIT threshold.

In your tax bracket, you may already be over the NIIT threshold though. However, if the individual stock is a high percentage of your portfolio, you should just do it and pay extra to reduce the risk.

multiham
Posts: 160
Joined: Sun Jan 08, 2017 11:28 am

Re: Help Selling Stock to Diversify

Post by multiham » Sun May 20, 2018 12:24 pm

Thank you both for the help. I am going to read up on the Net Investment Tax. I have to remember to not let the tax implications make all of my decision.

retiredjg
Posts: 32726
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Selling Stock to Diversify

Post by retiredjg » Sun May 20, 2018 12:48 pm

If you are already over NIIT ($250k for a couple), I'd just sell a lot but definitely stay under the $479,000 threshold where the 15% cap gain changes to 20%.

If you are over NIIT, you will pay 18.8% on the long term gains no matter how much you sell (if you stay under $479k). There is no financial benefit to spreading it out over several years.

Good luck!

multiham
Posts: 160
Joined: Sun Jan 08, 2017 11:28 am

Re: Help Selling Stock to Diversify

Post by multiham » Sun May 20, 2018 1:08 pm

retiredjg wrote:
Sun May 20, 2018 12:48 pm
If you are already over NIIT ($250k for a couple), I'd just sell a lot but definitely stay under the $479,000 threshold where the 15% cap gain changes to 20%.

If you are over NIIT, you will pay 18.8% on the long term gains no matter how much you sell (if you stay under $479k). There is no financial benefit to spreading it out over several years.

Good luck!
Thank you! No where near that threshold.

Do have one additional question for the group. Is there a consensus on selling before the ex-dividend date? The stock in question has an ex-dividend date the week of the 28th. I know in theory, the stock price should decline by the amount of the dividend. Should I wait the 2 weeks to qualify for the dividend or doesn't it really matter?

manedark
Posts: 241
Joined: Sun Apr 22, 2018 2:05 pm

Re: Help Selling Stock to Diversify

Post by manedark » Sun May 20, 2018 2:52 pm

retiredjg wrote:
Sun May 20, 2018 10:37 am
The goal is to reduce your individual stock. To do that, I'd sell all the losses, sell enough in gains to offset the losses, and sell even more to reduce the total amount you have. The only cost would be taxes on the "even more" amount. It appears that would be taxed at 15% (only the gains, not the whole amount) up to NIIT and 18.8% on whatever is over the NIIT threshold.

In your tax bracket, you may already be over the NIIT threshold though. However, if the individual stock is a high percentage of your portfolio, you should just do it and pay extra to reduce the risk.
He has to also consider if his state taxes the capital gains too, right?

manedark
Posts: 241
Joined: Sun Apr 22, 2018 2:05 pm

Re: Help Selling Stock to Diversify

Post by manedark » Sun May 20, 2018 2:59 pm

multiham wrote:
Sun May 20, 2018 10:16 am
A. Selling shares that will generate a small ($1,500) short term loss
B. Selling shares that will generate a long term loss ($250) and some short term loss
C. Selling shares that will generate a long term gain (I have long term shares with a cost basis ranging from $30 to $110 while the stock is selling for over $120)
D. Combination of above
I am not sure if you refer to the shares for the "same stock" in A, B and C. Because going by C it looks like you only have "gains" with that stock, right - cost basis upto $110 and current price over $120. More in A and B you are referring to actual capital gains when you mention $1500 and $250 - they seem so small if that is the case.

What you really need to think about and maybe mention here is how much does the single company stock contribute to the overall percentage of your entire savings - this is crucial - and it looks like since you are investing from 1990 it might be a big percentage. In any case as you yourself admit you should be moving out of risk you are taking by being invested in a single stock.

multiham
Posts: 160
Joined: Sun Jan 08, 2017 11:28 am

Re: Help Selling Stock to Diversify

Post by multiham » Sun May 20, 2018 4:45 pm

manedark wrote:
Sun May 20, 2018 2:59 pm
multiham wrote:
Sun May 20, 2018 10:16 am
A. Selling shares that will generate a small ($1,500) short term loss
B. Selling shares that will generate a long term loss ($250) and some short term loss
C. Selling shares that will generate a long term gain (I have long term shares with a cost basis ranging from $30 to $110 while the stock is selling for over $120)
D. Combination of above
I am not sure if you refer to the shares for the "same stock" in A, B and C. Because going by C it looks like you only have "gains" with that stock, right - cost basis upto $110 and current price over $120. More in A and B you are referring to actual capital gains when you mention $1500 and $250 - they seem so small if that is the case.

What you really need to think about and maybe mention here is how much does the single company stock contribute to the overall percentage of your entire savings - this is crucial - and it looks like since you are investing from 1990 it might be a big percentage. In any case as you yourself admit you should be moving out of risk you are taking by being invested in a single stock.
Thank you for your thoughts!

Yes, all 3 scenario's are for the same stock, just different lots. The numbers are small because I was not selling many shares and I was using specific lot identification.
Living in PA, we definitely do get taxed on capital gains, but we do have a flat tax rate of about 3.1%.

I was planning on selling the stock down to a % of my portfolio that I am happy with. I may look at a scenario where I sell most of it this year.

retiredjg
Posts: 32726
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help Selling Stock to Diversify

Post by retiredjg » Sun May 20, 2018 4:51 pm

manedark wrote:
Sun May 20, 2018 2:52 pm
He has to also consider if his state taxes the capital gains too, right?
Yes.

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