Brokerage account and tax loss harvesting

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snowbldr
Posts: 8
Joined: Mon Jan 26, 2015 4:04 pm

Brokerage account and tax loss harvesting

Post by snowbldr » Mon Dec 02, 2019 4:54 pm

Hi All,

I am going to start investing in a taxable account in 2020 and want to try and limit my headaches going forward. I have a couple of questions I am hoping the group can help me sort out:

1. Is it better to invest monthly or periodically (say quarterly)? I am not too worried about the psychological aspect of it as I can set the allotted dollar amount and just make the contribution to my brokerage amount at the specified interval. I am more concerned with the tax implications for tax loss harvesting. I am already planning on not reinvesting the dividends (have them go into MM to reinvest them quarterly). I am curious if it would be easier to just invest the rest of my money quarterly with the dividends to avoid any small tax lots to figure out when tax loss harvesting and to prevent any wash sales when I do TLH. I know this probably will not be often, but anything I can do to reduce the headaches when the time comes would be appreciated. Investing less often (say 1-2x a year) would reduce dollar cost averaging nature of making more regular contributions (theoretically), so I want to make somewhat regular contributions.

2. My 401k's best option is a "Lifecycle" fund from Vanguard that is a split of Total-US, Total Int, and US Bond (I think the 2050 retirement date). I contribute to this on a per-pay-period basis throughout the year. If I try to TLH out of my taxable account, will my regular contributions to this create a wash sale? Is there a way around this as my match is dependent on me making these contributions regularly throughout the year and I do not want to put the contributions on hold as it would cause me to lose out on extra tax-sheltered dollars.

3. I assume Vanguard will give me a form at the end of the year that lets me know my tax liability based on the dividends (and any appreciated shares that I have sold), right?

Any other helpful hints are appreciated. Thanks!

BogleMelon
Posts: 2171
Joined: Mon Feb 01, 2016 11:49 am

Re: Brokerage account and tax loss harvesting

Post by BogleMelon » Mon Dec 02, 2019 5:04 pm

1- Invest each time you have money to invest.
2- Wash sale happens when you sell a stock or a fund at one account at loss only to buy it (or something very similar) at another account. You can avoid that by not buying lifestrategy fund in the taxable account in the first place.
3- Yes.
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

ExitStageLeft
Posts: 1641
Joined: Sat Jan 20, 2018 4:02 pm

Re: Brokerage account and tax loss harvesting

Post by ExitStageLeft » Mon Dec 02, 2019 5:11 pm

I'm still a tax-advantaged investor but am also interested in the answers to your questions.

Regarding your first question, I think I will do the same and not reinvest taxable dividends automatically. For me that will be because we will be in retirement and will either be spending or re-investing at re-balance time.

As to your second question, you only risk a wash sale if what you purchase is "substantially identical". As long as you don't own the same index fund in taxable you won't ever be at risk of a wash sale in the 401k. Most folks choose VTSAX and VTIAX or similar funds for tax efficiency in the taxable accounts.

Do a few forum searches on wash sales and you'll lots of advice which tends to suggest making replacement purchases in funds based on different indexes. For example if you sell some VTSAX for a loss then if you buy a S&P 500 index fund instead you aren't going to be at risk of buying something substantially identical.

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