First-time TLH questions (+ interaction with Roth conversions)

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Topic Author
Counterpoint
Posts: 54
Joined: Sun Jun 05, 2016 1:42 pm

First-time TLH questions (+ interaction with Roth conversions)

Post by Counterpoint » Sun Dec 23, 2018 2:51 pm

I’m planning to do my first TLH and would like to check a few things.

Background: This would be with VTSAX i.e. Vanguard Total Stock Market (TSM) in our taxable account: Current losses on the highest-cost lots are about $7K. Sadly given about $2K in TSM dividends received Dec 21 and I believe scheduled to be reinvested tomorrow, my lack of foresight has meant that TLH would not make sense for 2018, so I’d need to wait till Jan. (The taxable accounts's dividends are not reinvested automatically.) I’m planning to exchange TSM into Vanguard’s S&P500 plus the Extended Market Index fund.

Also, many thanks to livesoft and other knowledgeable posters on tax loss harvesting, and for the BH wikis.

My questions:

(1) Apart from the benefits of tax deferral, I believe there is an additional benefit to TLH in our case because it could allow us to increase our amount of Roth conversions. Currently we may not be able to convert all our traditional IRA balances to Roth (while staying within our current tax bracket) in the time window before we hit SS income. Hence the value of the additional space for Roth conversion created by TLH. Am I looking at this correctly or missing something? (The estimated benefits of additional Roth conversion in our case far exceed the tax deferral benefits.)

(2) We don’t have capital gains and don’t foresee any (no sales likely in the next few years, all holdings are Vanguard index funds). Is there any time limitation to the carryforward of losses to offset ordinary income at $3K per year? For instance if we generate $75K of TLH, can we carry forward for 25 years?

(3) Wanted to check that the following implementation plan is ok: We have several IRAs with TSM holdings. I’m planning to make dividend reinvestment in TSM manual for all of these, and add the Federal MM to the IRA accounts to park the dividends. In case the market goes down further, I would roundtrip from the S&P+Extended Market combo to TSM, preferably waiting at least 61 days to avoid any QDI issues.

(4) I see that the $2K in TSM dividends in our IRAs were received Dec 21 but have not yet been reinvested - presumably will be reinvested tomorrow. Perhaps there is a long shot of changing the reinvestment to manual to stop the reinvestment from happening tomorrow, so I can do TLH for 2018? (I may need to call in to Vanguard, since the Federal MM accounts have not yet been set up for the alternate disposition of the dividends - we have the old mutual fund accounts with no automatic settlement account).

(5) What’s the simplest source for getting info on the approx relative market caps of the S&P500 vs Extended Market?

(6) Anything else for me to keep in mind?

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: First-time TLH questions (+ interaction with Roth conversions)

Post by livesoft » Sun Dec 23, 2018 3:41 pm

Your Vanguard account should already show for your IRAs if the VTSAX dividends were reinvested because the web site says it has happened and the spouse's IRA that I can look at shows that it has happened already.

So what does it look like when you check? It should show shares purchased. If no shares are purchased, then you may have avoided any reinvesting. The "payable date" is when the cash (that was not reinvested) will show up the settlement account.
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Topic Author
Counterpoint
Posts: 54
Joined: Sun Jun 05, 2016 1:42 pm

Re: First-time TLH questions (+ interaction with Roth conversions)

Post by Counterpoint » Sun Dec 23, 2018 8:46 pm

livesoft wrote:
Sun Dec 23, 2018 3:41 pm
So what does it look like when you check? It should show shares purchased.
Thanks, livesoft. I went back and looked more closely at my Vanguard account and you’re correct that the dividend reinvestment already happened on Dec 21. In the old mutual fund platform (for our IRAs), the dividend payment and reinvestment are combined under the Transaction Type “Dividend Received”. The brokerage platform (which I can see in another holding) is much clearer and separates them into “Dividend” and “Reinvestment”. Maybe another nudge from Vanguard to convert us to brokerage accounts :wink:

In any case, it makes it clear that I don’t have to scramble to try and get TLH done for 2018.
Btw I saw in your famous tutorial post on “how a wash sale works” the headache of dealing with the ramifications of a wash sale involving an IRA. Is that still the case or have you discovered a clever way to handle inadvertent wash sales involving IRAs?

More importantly, if you (or anyone else) have time to address my other questions on TLH, that would be much appreciated!

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