Need help with Tax Loss Harvesting Fund Selection

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Topic Author
Nearly A Moose
Posts: 1195
Joined: Fri Apr 22, 2016 5:28 pm

Need help with Tax Loss Harvesting Fund Selection

Post by Nearly A Moose »

I’m looking for help in developing my tax loss harvesting strategy. In particular, I need help come up with a stable of funds that I can rotate through in my taxable account without creating wash sales through transactions in our nontaxable accounts, but my head starts spinning each time I try to map out the options. What do folks recommend here?

Below I’ve listed our accounts and the relevant fund(s) we hold. I’m focused only on the stock holdings at this point. We have very broad fund access in all accounts except the TSP, so I haven't listed alternatives - we can basically access anything that Vanguard or Fidelity Brokerage Link offers. We have automatic monthly investments into our 401ks, taxable account, and 529s. For the sake of simplicity, I’d strongly prefer to continue the auto-investing if possible, but I’d be willing to try to carve out one tracked index fund to hold at all 401ks if that helps.

One additional question: the 529s are for our children. Do those need to be considered for TLH purposes?

Accounts and stock funds that we hold:

Taxable: Vanguard (held jointly)
VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares); auto-investing

401k (husband): Fidelity
FXAIX (Fidelity 500 Index Fund); auto-investing
FTIHX (Fidelity Total International Index Fund); auto-investing
(I have access to Brokerage Link in the 401k)

401k (wife): TSP (federal Thrift Savings Plan)
C Fund (S&P 500 tracking fund); auto-investing
(The TSP has very limited fund selection; this is the only general US stock market fund)

Roth IRA (husband): Vanguard
VTSAX (Vanguard Total Stock Market Index Fund Admiral Shares); NOT auto-investing (yearly backdoor Roth)

529 (kid 1): DC 529
ITOT (the fund’s U.S. Total Stock Market Index Portfolio, which is 100% invested in iShares Core S&P Total U.S. Stock Market ETF (ITOT)); auto-investing

529 (kids 2 and 3): Vanguard
VSTSX (the fund’s Vanguard Total Stock Market Portfolio, which is 100% invested in Vanguard Total Stock Market Institutional Select (VSTSX) ); auto-investing

One further wrinkle: We may be moving some or all of our taxable account to Merril Edge to qualify for Bank of America Preferred Rewards status. So I may need to take into account that platform, or I could set and forget the amount at Merril and do my TLH through Vanguard.

Many thanks!
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
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bertilak
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by bertilak »

TLH must consider ALL your holdings, regardless of were held. The IRS doesn't care about that. I'm not sure about kid's accounts but suspect they don't count. Maybe it depends on whether or not you claim them as dependents, or have decision authority over the accounts. Perhaps someone with a more definitive answer will chime in.

You don't need a "stable of funds," just pairs. For total stock's "partner" I use S&P500. Theoretically it is not as well diversified but it is always neck-and-neck with total market. The S&P500 tracks the 500 largest companies and those overwhelm the rest of the market. It is (I think) a holdover from the days it was impractical to track the entire market so the S&P500 was intended to represent the overall market. Seems they did a pretty good job! That's the nature of cap-weighting. For international you could use VFWAX and VTIAX.

You want swapping pairs with similar, low, expense ratios. You don't want to swap into an expensive fund!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Duckie
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by Duckie »

Nearly A Moose wrote: Sun May 16, 2021 6:49 am I need help come up with a stable of funds that I can rotate through in my taxable account without creating wash sales through transactions in our nontaxable accounts, but my head starts spinning each time I try to map out the options. What do folks recommend here?
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
To me, if it follows a different index, it doesn't create a wash sale.
the 529s are for our children. Do those need to be considered for TLH purposes?
No.
livesoft
Posts: 76884
Joined: Thu Mar 01, 2007 8:00 pm

Re: Need help with Tax Loss Harvesting Fund Selection

Post by livesoft »

Why are there not 2 Roth IRAs one for (Husband) and one for (non-Husband spouse)?

Take your Roth IRAs and exchange VTSAX in them to something else like VFIAX or VLCAX or VTCLX.

After doing that, in your taxable account use VTSAX and the non-chosen two from above as tax-loss harvesting triplet.
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Topic Author
Nearly A Moose
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by Nearly A Moose »

Duckie wrote: Sun May 16, 2021 5:00 pm
Nearly A Moose wrote: Sun May 16, 2021 6:49 am I need help come up with a stable of funds that I can rotate through in my taxable account without creating wash sales through transactions in our nontaxable accounts, but my head starts spinning each time I try to map out the options. What do folks recommend here?
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
    [...]
    the 529s are for our children. Do those need to be considered for TLH purposes?
    No.
Thanks, super helpful list. And appreciate you confirming the 529s don't factor in, that simplifies things.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
Topic Author
Nearly A Moose
Posts: 1195
Joined: Fri Apr 22, 2016 5:28 pm

Re: Need help with Tax Loss Harvesting Fund Selection

Post by Nearly A Moose »

livesoft wrote: Sun May 16, 2021 5:16 pm Why are there not 2 Roth IRAs one for (Husband) and one for (non-Husband spouse)?

Take your Roth IRAs and exchange VTSAX in them to something else like VFIAX or VLCAX or VTCLX.

After doing that, in your taxable account use VTSAX and the non-chosen two from above as tax-loss harvesting triplet.
Thanks. Wife has an IRA (all bonds) and a Roth (all REITs), so I didn't include them. We should probably roll her IRA into her TSP so that we can do a backdoor with her, but inertia is a powerful thing...

In writing this all up, and in looking at Duckie's list and your suggestion, it looks like I can disregard the 529s, which simplifies things. And with things simplified, I can set it up so that our tax-preferred accounts to all have funds tracking the same index. Because the TSP is the most limited, I'll have to make sure that our 401k and Roth both hold funds that track the same index as the TSP C-Fund (which I think is the S&P 500). And then I can just pick your list of alternates to cycle through in the taxable account. That way the monthly / biweekly contributions to the 401k and TSP don't create wash sales. Does that seem like it would work?
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
placeholder
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by placeholder »

bertilak wrote: Sun May 16, 2021 9:26 am TLH must consider ALL your holdings, regardless of were held.
The only thing the irs pubs mention are iras in addition to taxable accounts although some people want to extend this without real justification to 401k and other accounts.
I'm not sure about kid's accounts but suspect they don't count. Maybe it depends on whether or not you claim them as dependents, or have decision authority over the accounts. Perhaps someone with a more definitive answer will chime in.
The only people the pubs mention are spouses not any other relatives.

https://www.irs.gov/publications/p550#e ... k100010601
livesoft
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by livesoft »

Nearly A Moose wrote: Sun May 16, 2021 6:32 pm Does that seem like it would work?
Yes.
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bertilak
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by bertilak »

placeholder wrote: Sun May 16, 2021 6:51 pm The only people the pubs mention are spouses not any other relatives.

https://www.irs.gov/publications/p550#e ... k100010601
Perhaps the IRS is lenient on 401(k)s because your employer may not provide enough other funds to give one an adequate choice of investments.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
placeholder
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Re: Need help with Tax Loss Harvesting Fund Selection

Post by placeholder »

bertilak wrote: Sun May 16, 2021 7:11 pm Perhaps the IRS is lenient on 401(k)s because your employer may not provide enough other funds to give one an adequate choice of investments.
It's just plain not mentioned and trying get a reason why the irs does one thing or another isn't always clear unless they issue a revenue ruling specifically on the subject which they did with iras.
Topic Author
Nearly A Moose
Posts: 1195
Joined: Fri Apr 22, 2016 5:28 pm

Re: Need help with Tax Loss Harvesting Fund Selection

Post by Nearly A Moose »

placeholder wrote: Sun May 16, 2021 6:51 pm
bertilak wrote: Sun May 16, 2021 9:26 am TLH must consider ALL your holdings, regardless of were held.
The only thing the irs pubs mention are iras in addition to taxable accounts although some people want to extend this without real justification to 401k and other accounts.
I'm not sure about kid's accounts but suspect they don't count. Maybe it depends on whether or not you claim them as dependents, or have decision authority over the accounts. Perhaps someone with a more definitive answer will chime in.
The only people the pubs mention are spouses not any other relatives.

https://www.irs.gov/publications/p550#e ... k100010601
Thanks, I'll review the pub.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
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