Minimizing Capital Gains Tax When Transferring to Vanguard

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magnificent
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Minimizing Capital Gains Tax When Transferring to Vanguard

Post by magnificent »

I'm preparing to transfer in kind from Ameriprise to Vanguard. What is the most tax-advantaged way to move assets? I'm in the 22% tax bracket. Do I have to move assets from Ameriprise joint to Vanguard joint and from Ameriprise Roth IRA to Vanguard Roth IRA? Or can I "criss cross"?

Ameriprise is full of things I want to sell in exchange for Vanguard index funds. In our joint taxable account, the term is Long (technically "Multiple" but most have been held over 1 year except for dividend reinvestments):
  • NBIAX — FEDERATED MUN & STOCK ADVANTAGE CL C — 7% Unrealized Gain
  • FMUCX — COLUMBIA CAP ALLOC MODERATE AGGRESSIVE CL A — 6% Unrealized Gain
  • SMLLX — WESTERN ASSET INTERMEDIATE TERM MUN CL C — 3% Unrealized Loss (value is < 10% of the 2 others combined)
In our Roth IRAs, the term is Short:
  • IVV — ISHARES CORE S&P 500 ETF — 4% Unrealized Gain
I want to follow the strategy outlined in Tax-efficient fund placement on the wiki, but I'm not clear how constrained I am by my current unrealized gains and how my assets are currently allocated between tax-free and taxable accounts.
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retiredjg
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by retiredjg »

magnificent wrote: Sat Aug 18, 2018 5:13 pm I'm preparing to transfer in kind from Ameriprise to Vanguard. What is the most tax-advantaged way to move assets? I'm in the 22% tax bracket. Do I have to move assets from Ameriprise joint to Vanguard joint and from Ameriprise Roth IRA to Vanguard Roth IRA? Or can I "criss cross"?
You cannot criss cross. In fact, I'm not sure you can move funds (as opposed to dollars) in a Roth IRA in kind. Did they say you can?

Ameriprise is full of things I want to sell in exchange for Vanguard index funds. In our joint taxable account, the term is Long (technically "Multiple" but most have been held over 1 year except for dividend reinvestments):
  • NBIAX — FEDERATED MUN & STOCK ADVANTAGE CL C — 7% Unrealized Gain
  • FMUCX — COLUMBIA CAP ALLOC MODERATE AGGRESSIVE CL A — 6% Unrealized Gain
  • SMLLX — WESTERN ASSET INTERMEDIATE TERM MUN CL C — 3% Unrealized Loss (value is < 10% of the 2 others combined)
Percentages don't mean anything when talking about gains and losses. Only dollars. So there is no answer to this question as presented. In general, you can offset gains with losses. This will reduce your potential taxes.


In our Roth IRAs, the term is Short:
  • IVV — ISHARES CORE S&P 500 ETF — 4% Unrealized Gain
There are not short term or long term gains inside a Roth IRA. It is just a total dollar amount. I'm not sure if you can move that ETF as it is directly to a new Roth IRA at another location. If you can, do that for now and worry about selling later.

I want to follow the strategy outlined in Tax-efficient fund placement on the wiki, but I'm not clear how constrained I am by my current unrealized gains and how my assets are currently allocated between tax-free and taxable accounts.
You will need to present what you have and what you want in order to get an answer to this question. See the link at the bottom of this message for how to ask this kind of question. It is some work, but the closer you follow the link, the more you will learn and the better help people can offer you.
Iorek
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by Iorek »

You should separate out the question of which firm has custody of your assets and what those assets are.

I would assume the first step is to transfer the assets over-- that should not incur any capital gains tax but would simply be a change in which firm is custodian of the assets. You can't transfer assets from taxable to Roth as part of that process.

Once Vanguard has the assets you can decide if you want to sell any at a gain and invest the proceeds in something new. Assets in your taxable brokerage account will (as the name suggests) be subject to capital gains tax. You could consider timing that those gains-- maybe take some this year and some next-- depending on your other income and tax brackets. Assets in your IRA will not incur any tax when you sell them at a gain and buy something new.
Topic Author
magnificent
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by magnificent »

I received a helpful PM that got to the heart of my question, which was about timing. I'll paraphrase and illustrate here.

Expense ratio of FMUCX (1.75%) > My income tax rate (22%) * Capital gains on my FMUCX (6%) + Expense ratio of new fund
.0175 > .22 * .06 + .001
.0175 > .0132 + .001
.0175 > .0142

In dollars, say I had $10000 in FMUCX and left it there for another year. Whatever I gain, I pay $175 in fees. Whereas when I cash out FMUCX and buy a fund with an expense ratio of .1%, I pay $132 in capital gains tax and $10 in fees. That's $142 total, or $33 less than the price of staying in FMUCX.

And that's just the benefit in the first year! Subsequent years look even better, because I'll only get taxed on dividends.

So in terms of timing, the sooner the better. Capital gains are inconsequential for me compared to the massive expense ratios of these funds (1.75%, 1.15%, 1.33% for FMUCX, NBIAX, and SMLLX respectively). The comparison is most dramatic for FMUCX, but by the 2nd or 3rd year, a low-fee index fund is much cheaper to own than any of them.
Charlieville
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by Charlieville »

If you are charitable set up a donor advised fund. Transfer appreciated assets into that fund and then give appreciated assets from that fund. You receive a tax break up front under new law and avoid paying capital gain taxes. Basically change they way you give for a few years while avoiding capital gains.
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Earl Lemongrab
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by Earl Lemongrab »

You have to find out if the receiving custodian can accept those mutual funds. If they can't, then you have to sell, incur the CG hit, and move cash. Otherwise you can transfer in-kind and decide later.

The ETF in Roth is no problem. There are no taxes involved with selling an asset inside any kind of IRA, plus Vanguard will be able to take that ETF. You can move in-kind.

This is all assuming Amerprise doesn't have any odd rules.
Topic Author
magnificent
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by magnificent »

Earl Lemongrab wrote: Sun Aug 19, 2018 4:17 pm You have to find out if the receiving custodian can accept those mutual funds.
They can.
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Earl Lemongrab
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by Earl Lemongrab »

magnificent wrote: Sun Aug 19, 2018 4:21 pm
Earl Lemongrab wrote: Sun Aug 19, 2018 4:17 pm You have to find out if the receiving custodian can accept those mutual funds.
They can.
Rereading your original, if the question is whether you can move the mutual funds with gains into a Roth, then no. You can do a custodian transfer of assets already in a Roth in-kind.
Topic Author
magnificent
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by magnificent »

Earl Lemongrab wrote: Sun Aug 19, 2018 4:36 pm Rereading your original, if the question is whether you can move the mutual funds with gains into a Roth, then no. You can do a custodian transfer of assets already in a Roth in-kind.
Yes, that was one of my questions. Thank you! (I knew "criss cross" was a vague phrase to use—you captured what I meant better than my OP.)
Topic Author
magnificent
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by magnificent »

magnificent wrote: Sun Aug 19, 2018 2:04 pm I received a helpful PM that got to the heart of my question, which was about timing. I'll paraphrase and illustrate here.

Expense ratio of FMUCX (1.75%) > My income tax rate (22%) * Capital gains on my FMUCX (6%) + Expense ratio of new fund
.0175 > .22 * .06 + .001
.0175 > .0132 + .001
.0175 > .0142

In dollars, say I had $10000 in FMUCX and left it there for another year. Whatever I gain, I pay $175 in fees. Whereas when I cash out FMUCX and buy a fund with an expense ratio of .1%, I pay $132 in capital gains tax and $10 in fees. That's $142 total, or $33 less than the price of staying in FMUCX.

And that's just the benefit in the first year! Subsequent years look even better, because I'll only get taxed on dividends.

So in terms of timing, the sooner the better. Capital gains are inconsequential for me compared to the massive expense ratios of these funds (1.75%, 1.15%, 1.33% for FMUCX, NBIAX, and SMLLX respectively). The comparison is most dramatic for FMUCX, but by the 2nd or 3rd year, a low-fee index fund is much cheaper to own than any of them.
Actually 15% would be closer to the correct tax rate to apply—capital gains rate not income tax rate. There are probably some non-qualified bond dividends in the taxable account. In any case, a lower tax rate only makes the point stronger. I should sell these assets in favor of low-fee assets sooner rather than later.
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Earl Lemongrab
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Re: Minimizing Capital Gains Tax When Transferring to Vanguard

Post by Earl Lemongrab »

magnificent wrote: Sun Aug 19, 2018 5:07 pm
Earl Lemongrab wrote: Sun Aug 19, 2018 4:36 pm Rereading your original, if the question is whether you can move the mutual funds with gains into a Roth, then no. You can do a custodian transfer of assets already in a Roth in-kind.
Yes, that was one of my questions. Thank you! (I knew "criss cross" was a vague phrase to use—you captured what I meant better than my OP.)
Yeah, I thought maybe. You can't escape capital gains by moving assets into an IRA. Just as you can't use an existing mutual fund in taxable to make your yearly contribution. Many come up with that idea (yours truly included) and get shot down.
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