Setting myself to TLH before the end of the year

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avp
Posts: 12
Joined: Sun Aug 13, 2017 9:25 pm

Setting myself to TLH before the end of the year

Post by avp »

Hello, I'm still learning about TLH but am looking for some guidance on how to proceed. I want to set myself up to tax-loss harvest before the end of the year, if the opportunity arises. Obviously, I want to reduce my taxable income this year because I had an large payout from my job this year that put my some of my taxable income into the 24% tax bracket. What would be the next recommended steps to TLH and possibly claim the max $3k realized loss for this year (assuming will markets go down)?

I own a small amount in my taxable brokerage account:
  • FSKAX = $5.7k
  • VTI = $1.4k
  • SPAXX (Gov't Money Market a.k.a. Core Position) = $9.1k
Other accounts that I am still contributing to until the end of the year:
  • Roth IRA = FXIAX (Fidelity 500 Index Fund)
  • 401k = VIIIX (Vanguard Institutional S&P 500 Index Trust)
  • 401k BrokerageLink = FZROX (Fidelity Zero Total Market Index)
  • HSA = FZROX
I've been reading past TLH posts and I've read the TLH wiki, but have a few questions that sway me to make a better decision on what I should do next. I know timing market is frowned upon, but I've been reluctant to invest the money in SPAXX during market highs like it is now, but a part of me thinks that in order to TLH, I need to continue investing. Even though my positions in taxable are small, my current FSKAX and VTI lots are green and it'd probably take another "March 2020 dip" or similar to put those lots in the red since these lots were purchased a while back. With the elections coming up, it makes my decision to put money in the volatile market a little harder. Nonetheless, should I throw my $9.1k into VTI and look out for TLH opportunities?
I plan to move another $10k+ into my taxable very soon as well for long-term investing purposes, so total in SPAXX can be as much as $19.1k very soon. Keeping a lot of money on the sidelines is not optimal, if I want to TLH I believe. What would you do in my position?

Also, I can easily change my future FZROX contributions in HSA and 401k to something else if folks think that wash sale rule may interfere with TLH. I feel it's pretty split on people thinking wash sales rules apply to accounts outside of taxable accounts and IRAs.
Please let me know other info can be useful. Thank you.
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Duckie
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Re: Setting myself to TLH before the end of the year

Post by Duckie »

avp wrote:I can easily change my future FZROX contributions in HSA and 401k to something else if folks think that wash sale rule may interfere with TLH. I feel it's pretty split on people thinking wash sales rules apply to accounts outside of taxable accounts and IRAs.
Even if wash sales do apply to 401k or HSA plans, FSKAX and VTI do not follow the same index, nor do they follow the same indexes as FXIAX, VIIIX, or FZROX. They are not "substantially identical" so you will have no problem if you TLH.
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avp
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Re: Setting myself to TLH before the end of the year

Post by avp »

Duckie wrote: Sat Oct 17, 2020 7:50 pm
avp wrote:I can easily change my future FZROX contributions in HSA and 401k to something else if folks think that wash sale rule may interfere with TLH. I feel it's pretty split on people thinking wash sales rules apply to accounts outside of taxable accounts and IRAs.
Even if wash sales do apply to 401k or HSA plans, FSKAX and VTI do not follow the same index, nor do they follow the same indexes as FXIAX, VIIIX, or FZROX. They are not "substantially identical" so you will have no problem if you TLH.
Interesting! So you're saying I can use any of those funds/ETFs interchangeably as TLH partners? For instance and I may be wrong, but my understanding was FSKAX is Fidelity's version of VTSAX, where VTI is the ETF version, so can you please clarify?

On the other hand, I see that VTI's strategy is to track the performance of the CRSP US Total Market Index.

FSKAX's strategy is to "normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

FZROX's strategy is to "Normally investing at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index."

Is this what you mean when you say the track different indexes? I guess if I go with what you say, I should have no problem. Though, Fidelity (my brokerage) will determine what is a wash sale or not at the end of the day. If the listed tickers are not substantially identical, then this definitely challenges my understanding of what is safe to use as TLH partners. Based on my reading on this forum, the above tickers were similar. :confused
kerfuffle
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Joined: Fri Oct 16, 2020 9:45 am

Re: Setting myself to TLH before the end of the year

Post by kerfuffle »

I am not sure exactly what you are trying to ask but I'll give it a shot.

It's hard for me to see much benefit to TLH when under $20k is invested in taxable, but I tend to only do it when I can harvest a significant enough loss to make the pain and ugliness of TLH worthwhile (multiplying funds, managing wash sale periods, changing automatic reinvestments, etc). For example, if the loss on a lot is a net loss of $15, I just don't bother.

I also have trouble investing cash when the market is at all time highs but volatile. But I don't think I would ever invest high with the hopes to sell low to tax loss harvest. I guess if that softens the blow, psychologically, for you, that's another thing, but wouldn't be my preferred methodology. I would say buy in when you are comfortable. Tax loss harvest when you can get a meaningful loss amount collected. Either TLH or discount purchasing help make market drops more tolerable.
rkhusky
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Re: Setting myself to TLH before the end of the year

Post by rkhusky »

Your brokerage won't flag a wash sale unless it is the same fund in the same account. They won't flag FXAIX and VOO, which both follow the S&P 500, in the same account. They won't flag VTI and VTI across different accounts, e.g. a taxable and 401k/IRA accounts. In these cases, it is up to the taxpayer to report the wash sale.

I agree with the general understanding that there isn't a wash sale between two funds that track different indices. But if you want to be extra cautious and not use two total market funds, that is your prerogative. Note that FSKAX is closer to VTI than is FZROX, if you look at the number of holdings.

I don't TLH unless the loss is greater than $500.
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KingRiggs
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Re: Setting myself to TLH before the end of the year

Post by KingRiggs »

Also, will the additional tax on your payout from your job really be that much? You say it will "put some of your income into the 24% bracket". You realize that ONLY the amount above the top of the 22% bracket will be taxed at 24%? And that that's only 2% higher marginal tax rate than you're currently paying?

You may want to crunch some number through TurboTax or Taxcaster to see just how much extra tax liability you're talking about. You may be getting tied up in knots over not very much actual money...
Advice = noun | Advise = verb | | Roth, not ROTH
UpperNwGuy
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Re: Setting myself to TLH before the end of the year

Post by UpperNwGuy »

Seems to me that tax loss harvesting would not benefit you very much this year, so no point worrying about wash sales.
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Duckie
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Re: Setting myself to TLH before the end of the year

Post by Duckie »

avp wrote:So you're saying I can use any of those funds/ETFs interchangeably as TLH partners? For instance and I may be wrong, but my understanding was FSKAX is Fidelity's version of VTSAX, where VTI is the ETF version, so can you please clarify?
I would not use FXIAX and VIIIX as tax-loss partners of each other as both track the S&P 500 Index, but the others all track different indexes. (Since they two funds are not in taxable it doesn't matter now, but you might change things in the future.)
On the other hand, I see that VTI's strategy is to track the performance of the CRSP US Total Market Index.

FSKAX's strategy is to "normally investing at least 80% of assets in common stocks included in the Dow Jones U.S. Total Stock Market Index, which represents the performance of a broad range of U.S. stocks."

FZROX's strategy is to "Normally investing at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index."

Is this what you mean when you say the track different indexes?
Yes.
Though, Fidelity (my brokerage) will determine what is a wash sale or not at the end of the day.
Fidelity only knows what you hold at Fidelity. Also, if the ticker is different (FXIAX vs VIIIX) it will not report a wash sale.
If the listed tickers are not substantially identical, then this definitely challenges my understanding of what is safe to use as TLH partners. Based on my reading on this forum, the above tickers were similar.
There is a difference between "similar" and "substantially identical". I go by the indexes tracked. Here is a list of possible Tax-Loss Harvest (TLH) retail partners with the indexes they follow:
  • US Total Stock
    • VTSAX (VTI) - CRSP US Total Market Index
    • SCHB - Dow Jones US Broad Market Index
    • ITOT - S&P Total Market Index
    • IWV, VTHR, TIEIX, BKTSX - Russell 3000 Index
    • SWSTX, FSKAX - Dow Jones US Total Stock Market Index
    • FZROX - Fidelity US Total Investable Market Index
    • SPTM - S&P Composite 1500 Index
  • US Large Cap
    • VFIAX (VOO), IVV, SPY, FXAIX, SWPPX - S&P 500 Index
    • VLCAX (VV) - CRSP US Large Cap Index
    • IWB, VONE - Russell 1000 Index
    • SCHX - Dow Jones US Large-Cap Total Stock Market Index
    • SCHK, SNXFX - Schwab 1000 Index
    • FNILX - Fidelity US Large Cap Index
    • MGC - CRSP US Mega Cap Index
  • US Mid/Small Cap (aka Extended Market)
    • VEXAX (VXF) - S&P Completion Index
    • SSMKX - Russell Small Cap Completeness Index
    • FSMAX - Dow Jones U.S. Completion Total Stock Market Index
    • USMIX - Wilshire 4500 Completion Index
  • US Mid Cap
    • VIMAX (VO) - CRSP US Mid Cap Index
    • IVOO, IJH, SPMD - S&P MidCap 400 Index
    • SCHM - Dow Jones US Mid-Cap Total Stock Market Index.
    • FSMDX - Russell Mid Cap Index
  • US Small Cap
    • VSMAX (VB) - CRSP US Small Cap Index
    • IJR, SLY - S&P SmallCap 600 Index
    • SCHA - Dow Jones US Small-Cap Total Stock Market Index
    • FSSNX - Russell 2000 Index
  • International
    • VTIAX (VXUS) - FTSE Global All Cap ex US Index
    • VFWAX (VEU) - FTSE All-World ex US Index
    • FTIHX, IXUS - MSCI ACWI ex USA IMI Index
    • FSGGX - MSCI ACWI ex USA Index
    • FZILX - Fidelity Global ex US Index
    • VTMGX (VEA) - FTSE Developed All Cap ex US Index
    • SCHF - FTSE Developed ex US Index
    • IEFA - MSCI EAFE Investable Market Index
    • EFA, SWISX, FSPSX - MSCI EAFE Index
I agree with the above posters, you don't need to think about tax-loss harvesting at this stage.
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colodane
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Re: Setting myself to TLH before the end of the year

Post by colodane »

You are getting good advice here. Your situation isn't really suited for TLH. As you know, you can only harvest losses in a taxable account and you don't have significant holdings or losses there. TLH typically isn't something you plan for, but rather something that you react to when it happens to be needed. A prime example would be the first part of this year. Like probably many others here, I did some TLH in April or so to get some benefit from the big decline in market valuation after the COVID crash.

Of course there might be another big downturn yet this year, but you will probably be better off overall if there isn't.
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