Pay CGs now to move into Index, or hold?

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ndnboy
Posts: 81
Joined: Tue Apr 17, 2018 5:16 am

Pay CGs now to move into Index, or hold?

Post by ndnboy » Tue Oct 16, 2018 11:03 am

Hello again, Ive made changes since finding BHs but still trying to figure out if its worth paying Capital gains now on taxable TRowe funds and stocks to then invest in lower cost Index funds/ETFs. At what point can todays tax bill break even with the lower cost moving forward? CGs would be in the $120K range.

We are high earners, $250K a yr with 2 incomes and pension coming in now. We also were hit with the being over the NIT and increased on tax due last year, so CGs on sale is a concern with that as well.

So sell now and pay CGs Or is it best to just hold Trowe positions, and sell later, after retirement when income is only pension at $65K a yr?


Thank you.

Dottie57
Posts: 4655
Joined: Thu May 19, 2016 5:43 pm

Re: Pay CGs now to move into Index, or hold?

Post by Dottie57 » Tue Oct 16, 2018 11:09 am

How far away is retirement? If ten years away, think about small amounts each year.

Also consider we have lower tax rates now.

ndnboy
Posts: 81
Joined: Tue Apr 17, 2018 5:16 am

Re: Pay CGs now to move into Index, or hold?

Post by ndnboy » Tue Oct 16, 2018 11:17 am

Dottie57 wrote:
Tue Oct 16, 2018 11:09 am
How far away is retirement? If ten years away, think about small amounts each year.

Also consider we have lower tax rates now.
Currently 50, we talk of potentially retiring in 5-7 years or going part time, which could stretch it to 10 yrs. Thx

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Watty
Posts: 14375
Joined: Wed Oct 10, 2007 3:55 pm

Re: Pay CGs now to move into Index, or hold?

Post by Watty » Tue Oct 16, 2018 11:44 am

There are lots of details about your tax rates and surcharges that could be important but if the old funds are OK except for the expense ratio then they would have to be pretty high to make paying the capital gains tax now worthwhile just to get a lower expense ration.

The problem is that if you pay $20,000 in capital gains tax now then that could have been left invested and even at 5% it would grow by $1,000 a year.

You need to compare that to what you are paying in the higher expense ratio now. If you have a million dollars in those funds with a 1.5% expense ratio then moving them ASAP is an easy choice. If it is $300K with a 0.5% ER then the choice would be less clear.

SRenaeP
Posts: 760
Joined: Tue Jan 19, 2010 9:05 pm

Re: Pay CGs now to move into Index, or hold?

Post by SRenaeP » Tue Oct 16, 2018 11:47 am

Do you make any significant charitable contributions? If so, donate the appreciated shares to avoid CG taxes then use the cash to buy into the desired index funds.

ndnboy
Posts: 81
Joined: Tue Apr 17, 2018 5:16 am

Re: Pay CGs now to move into Index, or hold?

Post by ndnboy » Tue Oct 16, 2018 11:58 am

Watty wrote:
Tue Oct 16, 2018 11:44 am
There are lots of details about your tax rates and surcharges that could be important but if the old funds are OK except for the expense ratio then they would have to be pretty high to make paying the capital gains tax now worthwhile just to get a lower expense ration.

The problem is that if you pay $20,000 in capital gains tax now then that could have been left invested and even at 5% it would grow by $1,000 a year.

You need to compare that to what you are paying in the higher expense ratio now. If you have a million dollars in those funds with a 1.5% expense ratio then moving them ASAP is an easy choice. If it is $300K with a 0.5% ER then the choice would be less clear.
The funds and stocks are listed below:

TRowe brokerage = (approx $35K in CG)
CSCO
MSFT
EBAY
PYPL

TRowe mutual funds = (approx $80K in CG)
TRBCX - Blue Chip Growth (.72)
RPMGX - Mid Gap Growth (.77)

ndnboy
Posts: 81
Joined: Tue Apr 17, 2018 5:16 am

Re: Pay CGs now to move into Index, or hold?

Post by ndnboy » Tue Oct 16, 2018 12:00 pm

SRenaeP wrote:
Tue Oct 16, 2018 11:47 am
Do you make any significant charitable contributions? If so, donate the appreciated shares to avoid CG taxes then use the cash to buy into the desired index funds.
I havent to that extent but thx for the info.

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ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Pay CGs now to move into Index, or hold?

Post by ruralavalon » Tue Oct 16, 2018 5:25 pm

ndnboy wrote:
Tue Oct 16, 2018 11:03 am
Hello again, Ive made changes since finding BHs but still trying to figure out if its worth paying Capital gains now on taxable TRowe funds and stocks to then invest in lower cost Index funds/ETFs. At what point can todays tax bill break even with the lower cost moving forward? CGs would be in the $120K range.

We are high earners, $250K a yr with 2 incomes and pension coming in now. We also were hit with the being over the NIT and increased on tax due last year, so CGs on sale is a concern with that as well.

So sell now and pay CGs Or is it best to just hold Trowe positions, and sell later, after retirement when income is only pension at $65K a yr?


Thank you.
ndnboy wrote:
Tue Oct 16, 2018 11:17 am
Dottie57 wrote:
Tue Oct 16, 2018 11:09 am
How far away is retirement? If ten years away, think about small amounts each year.

Also consider we have lower tax rates now.
Currently 50, we talk of potentially retiring in 5-7 years or going part time, which could stretch it to 10 yrs. Thx
Wiki article, "Paying a tax cost to switch funds". That wiki article contains a spreadsheet you could use.

"If you decide not to switch, or will take some time deciding, do not reinvest any dividends or capital gains in the old fund; you do not want to buy more shares of a fund which is costing you in taxes."
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

ndnboy
Posts: 81
Joined: Tue Apr 17, 2018 5:16 am

Re: Pay CGs now to move into Index, or hold?

Post by ndnboy » Wed Oct 17, 2018 5:18 am

ruralavalon wrote:
Tue Oct 16, 2018 5:25 pm
ndnboy wrote:
Tue Oct 16, 2018 11:03 am
Hello again, Ive made changes since finding BHs but still trying to figure out if its worth paying Capital gains now on taxable TRowe funds and stocks to then invest in lower cost Index funds/ETFs. At what point can todays tax bill break even with the lower cost moving forward? CGs would be in the $120K range.

We are high earners, $250K a yr with 2 incomes and pension coming in now. We also were hit with the being over the NIT and increased on tax due last year, so CGs on sale is a concern with that as well.

So sell now and pay CGs Or is it best to just hold Trowe positions, and sell later, after retirement when income is only pension at $65K a yr?


Thank you.
ndnboy wrote:
Tue Oct 16, 2018 11:17 am
Dottie57 wrote:
Tue Oct 16, 2018 11:09 am
How far away is retirement? If ten years away, think about small amounts each year.

Also consider we have lower tax rates now.
Currently 50, we talk of potentially retiring in 5-7 years or going part time, which could stretch it to 10 yrs. Thx
Wiki article, "Paying a tax cost to switch funds". That wiki article contains a spreadsheet you could use.

"If you decide not to switch, or will take some time deciding, do not reinvest any dividends or capital gains in the old fund; you do not want to buy more shares of a fund which is costing you in taxes."
Thx for the link, I took a look at spreadsheet. How do I show the diff between the Trowe fee of .72 vs a Vanguard at .05 (7.5% vs 8.1%)? And do the lower fees outweigh the higher returns seen by the TRowe fund vs going to a VTI?

One of the changes I made after finding BHs was to stop the reinvestment's to help with cost basis tracking and fees, Thx again for the info.

Return
TRBCX
YTD18.92%15.64%
1-Month0.32%0.36%
3-Month6.43%7.54%
1-Year27.25%23.18%
3-Year21.68%17.68%
5-Year17.57%14.02%
10-Year15.50%12.60%


Return
VTI
YTD10.48%7.50%
1-Month0.20%-0.25%
3-Month7.07%3.20%
1-Year17.64%13.45%
3-Year17.09%10.14%
5-Year13.42%15.76%
10-Year12.09%7.33%

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