Switched from Edward Jones - Need advice on selling equities

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nshous3
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Joined: Fri Jul 06, 2018 7:54 pm

Switched from Edward Jones - Need advice on selling equities

Post by nshous3 » Tue Sep 11, 2018 5:03 pm

Hi,

I discovered Bogleheads at the beginning of this year. Since then, I've switched from Edward Jones, and I'm trying to build a good four-fund portfolio. I'd like advice on how to proceed further, especially for how to deal with some individual stocks EJ had in a taxable account.

32yo, married, no children (but trying), living in a rental apartment, very low COL area, want to buy a home in the next 2-3 years, generally clueless about investments and taxes but trying hard to learn

Annual household income: typically $120k but will be about $100k this year

Current 401k: $18,700 in 2050 target fund
Old 401k: $76,150 in 2050 target fund
IRA (rolled over from another old 401k): $137k
Taxable account: $336k

My portfolio distribution is roughly:
11% bonds in a US total bond index fund
51% US stocks, mostly in a total market index fund, but $51k of individual stocks remains in the taxable account
30% international index fund
8% in a REIT ETF

As much as practical, I've concentrated the stocks into the taxable account. The REIT and bonds fund are in the rollover IRA.

I've already sold all the individual stocks that Edward Jones had in the IRA, and I've sold a few from the taxable account, but I'm nervous to sell more because I'm afraid of the tax implications (although I admit I'm quite confused, so perhaps my fear is baseless?).

Any advice on selling the stocks in the taxable account? Or other advice, perhaps something my inexperience is causing me to overlook? Anything else I should be doing? I live way beneath my means, so the money piles up.

Thanks!

Saving$
Posts: 1609
Joined: Sat Nov 05, 2011 8:33 pm

Re: Switched from Edward Jones - Need advice on selling equities

Post by Saving$ » Tue Sep 11, 2018 7:53 pm

Look at your last EJ statement for each asset's basis and current value. The difference between those is your gain, which is taxable. Try to make sure you have held most of that asset for at least a year by checking a year old EJ statement to make sure you owned close to the same number of shares a year ago.

Maybe start by selling the asset with the lowest gain. Do your taxes this year and you will understand the implication of the sale on your taxes, and you can act accordingly next year.

HEDGEFUNDIE
Posts: 628
Joined: Sun Oct 22, 2017 2:06 pm

Re: Switched from Edward Jones - Need advice on selling equities

Post by HEDGEFUNDIE » Tue Sep 11, 2018 11:50 pm

You don't *have* to sell the individual stocks, you can transfer the shares out of EJ to Vanguard (or any other broker). Call Vanguard and ask them about it.

And $50k in individual stocks in a $500k portfolio is no big deal. If you like the individual companies' long term prospects, I would keep them instead of taking the tax hit.

Edit: Perhaps I misinterpreted your post. If so ignore the first part of what I wrote.

nshous3
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Joined: Fri Jul 06, 2018 7:54 pm

Re: Switched from Edward Jones - Need advice on selling equities

Post by nshous3 » Mon Sep 17, 2018 9:52 am

Thanks for the advice!

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BL
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Re: Switched from Edward Jones - Need advice on selling equities

Post by BL » Mon Sep 17, 2018 10:25 am

Did the cost basis transfer from EJ? If so, you should be able to find the unrealized gains on V website for each stock. Sell all with losses (short term is fine), then lowest gainers (held over a year) or large single holdings until you have equal amount of gains to off-set losses. After that you decide how much you want to pay CG tax on each year, or whether you would prefer to keep them instead. Perhaps donate some in lieu of cash charitable donations. Check for losses each year or when the market drops a lot so you can sell off more.

cas
Posts: 308
Joined: Wed Apr 26, 2017 8:41 am

Re: Switched from Edward Jones - Need advice on selling equities

Post by cas » Mon Sep 17, 2018 10:31 am

nshous3 wrote:
Tue Sep 11, 2018 5:03 pm

Annual household income: typically $120k but will be about $100k this year

I've already sold all the individual stocks that Edward Jones had in the IRA, and I've sold a few from the taxable account, but I'm nervous to sell more because I'm afraid of the tax implications (although I admit I'm quite confused, so perhaps my fear is baseless?).
Depending exactly what you mean by a $100K "household income" this year, you may have some space to realize some long term capital gains (sell stock) this year at 0% tax. (Rhetorical questions you'll eventually need to answer for yourself: By "household income", do you mean household salary (or salaries) before deductions such as 401k contributions and employee health insurance premiums? Or do you mean the part of salary that actually lands in your checking account (i.e. after various deductions)? Or do you mean salary + dividends/interest from taxable account (i.e. adjusted gross income (AGI) as it appears on your IRS 1040)? Or do you mean taxable income (AGI - deductions) as it appears on the IRS 1040? )

You may find these two articles helpful in determining whether you can sell any of your stock at a 0% tax rate. (Well - first - do you understand how to figure out how big your unrealized capital gains are on each stock, and whether the unrealized capital gains are currently long term or short term? That's what the previous poster was writing about.) Once you've got the amounts and types of unrealized capital gains sorted out, these two articles give two different graphical ways of understanding how the capital gains would be taxed if you "realized" them (sold one or more stocks). For me, the graphical way of showing how long term capital gains are taxed makes it easier to understand the tax implications of selling a stock. (Slight warning: both articles are a few years old, so the exact boundaries between tax brackets and amounts of various deductions/exemptions you can take on the IRS 1040 have changed a bit.) You may find it helpful to have your 1040 from 2017 sitting in front of you when you read this articles, so you can fill your own numbers in on the graphs.

"Reset Cost Basis Higher By Realizing Capital Gains" Harry Sit (The Finance Buff) https://thefinancebuff.com/reset-cost-b ... gains.html (focus on understanding the bar chart and how long term capital gains and qualified dividends "float on top" of ordinary income when their tax rate is determined)

"Mechanics Of The 0% Long-Term Capital Gains Tax Rate" Michael Kitces https://www.kitces.com/blog/understandi ... -in-basis/ (focus mostly on the examples and accompanying graphical pictures, again to see how it is determine whether long term capital gains (and any qualified dividends you get from the stocks) are taxed at (possibly) 0%, then possibly phasing into 15%.)

keepingitsimple
Posts: 138
Joined: Sun Mar 18, 2018 8:20 pm

Re: Switched from Edward Jones - Need advice on selling equities

Post by keepingitsimple » Mon Sep 17, 2018 10:39 am

I recommend consulting a CPA. They'll be able to give accurate insight into your specific tax situation. Our CPA has been an invaluable resource.

MichCPA
Posts: 192
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Re: Switched from Edward Jones - Need advice on selling equities

Post by MichCPA » Mon Sep 17, 2018 10:56 am

A good answer requires more detail. I would agree with others that you will need to figure out what the gains on your stocks are and use any losses to offset gains. I would probably allow 10-15% of your stock allocation to be diversified individual stocks IF it is too expensive to sell them off AND you can substantially reduce that percentage within 2 years with new funds/gains/dividends . Don't reinvest dividends on stocks. Definitely not the preference but I think to makes sense in this situation.

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