Another Tax Loss Harvesting Questions, from a beginner

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RetiredArtist
Posts: 39
Joined: Wed Aug 26, 2015 4:38 pm

Another Tax Loss Harvesting Questions, from a beginner

Post by RetiredArtist » Sat Oct 27, 2018 4:27 pm

My fee-only once-a-year advisor is retiring, and says I know enough to manage my investments myself. A new advisor might want to fit my portfolio into a template, and be annoyed that I was not obedient. I like figuring things out for myself. I am frugal, and have a do-it-yourself ethos.
My finances were blessed, as well as complicated, by a recent inheritance. My goal is to simplify, sell individual holdings as taxes allow, then invest in funds.
My career of 50 years was in art & production. I did have to do estimates/budgets, and taught myself excel. I am learning about investing--reading investment books, posts, wikis. This website is a great resource; thank you to everyone who shares knowledge!

My question: is it bogle-ish to tinker, in order to tax loss harvest, as highlighted in yellow below? I would welcome any feedback.

Here is my summary, in your format (was there a way to post my Excel sheet??)
Emergency funds: yes, part of my fixed income allocation
Debt: None
Tax Filing Status: Single, 2017 Tax Rate: 32% Federal, 9.3% State (California)
Age: 72, Retired. I get Social Security, no pension, 403b’s were rolled over into IRA.
$90,000 in a pre-tax medical expense account that I use to pay Medigap & other medical expenses.
I own my home; my mortgage is paid off. My kid is launched, no student debt, great job, owns a house.
Goals- educate myself about investing, simplify-for me as I age, & for my heirs, help family as needed, donate money intelligently, minimize taxes, 

Retirement accounts: Grand total = $1,078,400
Multiple 403b’s led to me having 12 mutual funds in my retirement accounts.

Traditional IRA Total is $904,000
Stock:
VFIAX- Vanguard 500 Index Admiral-- $120,000
VVIAX- Vanguard Value Index Admiral--$88,000
VSMAX- Vanguard Small Cap Index--$55,000
DODFX- Dodge & Cox International--$140,000
Fixed Income:
VTAPX- Vanguard Inflation Protected Securities Adm--$66,000
VFSUX- Vanguard Short Term Investment Grade Adm--$137,000
VTBLX- Vanguard Total Bond Index Adm (includes 2 inherited IRAs) - $147,000
VTABX- Vanguard Total International Bond Adm- $102,000
VMFXX- Vanguard Federal Money Market-- $49,000 (I will soon donate $33,000 to charities, as my 2018 RMD)

Roth IRA Total is $127,000
VTSAX- Vanguard Total Stock Market Adm--$72,000
VTIAX- Vanguard Total International Stock--$44,000 Last dividend paid 9/25/18. OK to sell VTIAX in my taxable account, while avoiding wash sale?
VGSLX- Vanguard REIT Index Adm--$11,000
___________________________________________________________________________________________

Taxable Account (On 7/12/18, I changed all holdings to Specific ID, & directed dividends/interest to Settlement Fund)
I recently inherited about 100 individual stocks & bonds, often with low cost bases. Many of the bonds have been called. I have been selling the stocks as taxes allow, to buy Vanguard funds.

Stocks (including Preferred Stocks) = $3,306,000 or 63% of total taxable portfolio (eventual target is 50%)

Large Cap US= $1,559,000 or 30.4% of taxable portfolio (30% target)
One inherited stock, at $366,000, is 7% of my taxable portfolio (very low cost basis; I use it for donations)
11 S&P 500 stocks, at total of $659,000, have medium cost bases; long term goal is to sell, put $ in VTSAX
VTSAX Vanguard Total Stock Market- $445,000
Franklin Growth Fund- $89,000 (very low cost basis)

Mid and Small Cap= $578,000 or 11% of taxable portfolio (target is 10%)
95% of this is in VSMAX- Vanguard Small Cap Adm
5% is in individual stocks

International Stocks= $754,000 or 14.7% of taxable portfolio (target is 10-15%)
5% of this is in 3 individual stocks
95% of this is in VTIAX- Vanguard Total International Stock (any problems if I sell one batch- $550,000 worth- to harvest $60,000 long term capital loss, then buy back in 1 month?)

Preferred stock= $156,000 or 3.5% of taxable portfolio (eventual target is 0%)
7 individual holdings, all related to financial industry (could be sold any time, tiny capital gain)

Fixed Income= $2,126,000 or 41.8% of total taxable portfolio (target is 45-50%)
$520,000 in VCADX- Vanguard CA Tax Free Intermediate Adm (sell all to get $15,000 LTCL, buy back after 1 month?)
$38,000 in eight CA muni bonds (they continue to be called, no need to sell)
$198,000 in VMLUX- Vanguard Limited Term Tax Exempt Adm (sell all to get $4000 LTCL, buy back after 1 month?)
$96,000 in four individual corporate bonds (could be sold anytime, tiny capital loss)
$147,000 in VFSUX- Vanguard Short Term Investment Grade Adm
$65,000 in VBTLX- Vanguard Total Bond Admiral
$342,000 in BNDX- Vanguard Total International Bond Adm
$720,000 in VMFXX- Vanguard Federal Money Market --this includes Emergency Fund
I plan to invest in CD ladder or bond funds-I am still reading up on bond funds- TEY, different kinds of risk, etc.

JW-Retired
Posts: 7000
Joined: Sun Dec 16, 2007 12:25 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by JW-Retired » Sat Oct 27, 2018 4:35 pm

I recently inherited about 100 individual stocks & bonds, often with low cost bases. Many of the bonds have been called. I have been selling the stocks as taxes allow, to buy Vanguard funds.
That "low cost basis" doesn't seem right. An inherited stock should have had the cost basis reset to the value of the stock when the deceased passed.

You said the inheritance was recent. How was this different?
JW
Retired at Last

CRTR
Posts: 157
Joined: Sat Apr 11, 2015 1:15 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by CRTR » Sat Oct 27, 2018 4:56 pm

JW-Retired wrote:
Sat Oct 27, 2018 4:35 pm
I recently inherited about 100 individual stocks & bonds, often with low cost bases. Many of the bonds have been called. I have been selling the stocks as taxes allow, to buy Vanguard funds.
That "low cost basis" doesn't seem right. An inherited stock should have had the cost basis reset to the value of the stock when the deceased passed.

You said the inheritance was recent. How was this different?
JW
+1
inherited equities (and other property, including real property) receive a "step-up" in basis to FMV on DOD. The sooner you unload them, the lower the tax consequence. On the other hand, since the market corrected recently, you have an opportunity to sell some for a loss and use that loss (long term capital loss) to offset gains in your existing holdings.

RetiredArtist
Posts: 39
Joined: Wed Aug 26, 2015 4:38 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by RetiredArtist » Sat Oct 27, 2018 7:32 pm

CRTR wrote:
Sat Oct 27, 2018 4:56 pm
JW-Retired wrote:
Sat Oct 27, 2018 4:35 pm
I recently inherited about 100 individual stocks & bonds, often with low cost bases. Many of the bonds have been called. I have been selling the stocks as taxes allow, to buy Vanguard funds.
That "low cost basis" doesn't seem right. An inherited stock should have had the cost basis reset to the value of the stock when the deceased passed.

You said the inheritance was recent. How was this different?
JW
+1
inherited equities (and other property, including real property) receive a "step-up" in basis to FMV on DOD. The sooner you unload them, the lower the tax consequence. On the other hand, since the market corrected recently, you have an opportunity to sell some for a loss and use that loss (long term capital loss) to offset gains in your existing holdings.
I should have explained: The very low-cost-basis stocks were either a gift (in which I took the donor's tax cost basis) or an investment I made decades ago.
Some of the recently inherited medium-cost-basis stocks came from a marital bypass trust, so their step up date was some time back.

JW-Retired
Posts: 7000
Joined: Sun Dec 16, 2007 12:25 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by JW-Retired » Sun Oct 28, 2018 9:31 am

RetiredArtist wrote:
Sat Oct 27, 2018 7:32 pm
I should have explained: The very low-cost-basis stocks were either a gift (in which I took the donor's tax cost basis) or an investment I made decades ago.
Some of the recently inherited medium-cost-basis stocks came from a marital bypass trust, so their step up date was some time back.
OK, gift not inheritance explains it.

As to your tax loss harvesting question, sure harvest the $60k loss by selling the VTIAX. But I wouldn't recommend waiting to buy back in a month. Exchange it for another very similar fund like VFWAX. Then you could just keep that if buying VTIAX back isn't looking profitable.

I did a TLH swap of VFWAX for VTIAX just a few days ago, but no plans to buy back. I'm OK with either one of them.
JW
Retired at Last

CRTR
Posts: 157
Joined: Sat Apr 11, 2015 1:15 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by CRTR » Sun Oct 28, 2018 1:54 pm

Thanks for the clarification.

There's a lot going on in your portfolio. Some of the potential moves will have effects on others (see #3 below for ex). It would be behoove you to crunch the tax numbers of each anticipated move before you make them . . . . .OK, here are my thoughts, in no particular order . . . .

1. It IS very Bogle-ish to tinker and TLH. Why pay tax when you don't have to??
2. As JW-Retired already mentioned, there is no need to sit out of the market for 30 days when you can purchase another investment product immediately without violating wash sale rules. For example, sell the VTIAX and buy Ishares IXUS . They are from different fund companies and track a different index (FTSE vs MSCI). As an aside, IXUS is more tax efficient and arguable a better choice in your taxable account. Another example would be to sell VCAIX and buy Ishares CMF. They have similar durations although because the Ishares fund ER is 0.07 higher, you might want to trade back in 30 d.
3. I like your idea of using the low basis equities for charitable giving. Another thing you may wish to consider is making Qualified Charitable Contributions from your tIRA. You can donate up to $100k/year (double check this) and they count toward your RMD. Conceivably, this might drop your tax bracket and allow even more rapid elimination of your "problem" holdings. In addition, you might even be able to do some Roth conversions to fill up any room in your tax bracket . . .
4. I'd try to keep my taxable bond holdings in the tIRA if possible.
5. If you feel like tinkering further, my last rec would be to simplify your portfolio. It will make things easier on you and your heirs. I'd get rid of all individual holding and I've added some portfolio recs/ideas for you to target as your tax situation allows . . .I assumed your desired AA (30% LC, 10% SC, 15% Int, 45% fixed income). The dollar amounts are rough estimates . . . .

tIRA:
$100K LC (either VFIAX, VTSAX)
$100k Int (VTIAX)
Remainder in 50/50 VBTLX/VTABX

Roth IRA:
$60k LC (VFIAX or VTSAX)
$60k Int (VTIAX)

Taxable:
$1500K VTCLX (given your tax bracket, my choice for LC taxable account) or VTSAX
$500k VTMSX (my choice for SC taxable) or VSMAX
$500K IXUS (my international choice) or VTIAX
Remainder in VCADX, VMLUX and, if needed/desired VBTLX/VTABX
Emergency fund in VMFXX or VCTXX depending on your tax status

Enjoy your retirement. You are in the enviable position of having financial security!

JW-Retired
Posts: 7000
Joined: Sun Dec 16, 2007 12:25 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by JW-Retired » Sun Oct 28, 2018 7:20 pm

Another thread here suggested this tax Loss Harvesting article...... looks pretty good based on my skim.

https://www.physicianonfire.com/tax-los ... =198528535
JW
Retired at Last

RetiredArtist
Posts: 39
Joined: Wed Aug 26, 2015 4:38 pm

Re: Another Tax Loss Harvesting Questions, from a beginner

Post by RetiredArtist » Mon Oct 29, 2018 5:08 pm

Thank you, JW & CRTR!

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