Moving money to index funds

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Topic Author
GoodMonikersAllTaken
Posts: 3
Joined: Sun May 07, 2023 7:44 pm

Moving money to index funds

Post by GoodMonikersAllTaken »

Hello.
I am a newbie to personal finance. I have some money in a Fidelity brokerage account that was originally a UGMA/UTMA account.

I have:
- Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share

- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share


I want to move the money from the first two into index funds. I'm afraid of screwing this up and incurring a tax bill that I can't afford. I've already had some pretty overwhelming tax bills from this.

I bought the FZROX so I could at least stop reinvesting dividends in the same funds and have them invested in FZROX. I don't know if that is a good idea.

I do also have roughly 20k in a TSP account (it's all in the lowest risk bonds), a couple hundred in an old retirement account that I need to rollover, and I just set up contributions to my current employer's plan. If those details are important, I can add them.

I'd be grateful for any advice, or even suggestions for who I should ask. I am worried about asking the people at Fidelity. I'm trying hard to educate myself (reading Bogle's book now). I am just in a phase where I am convinced of the problem and not sure how to fix it!

Thank you so much for your help and for your patience.
--------------------
Editing to add additional information as requested. I don't have all the information from the portfolio questions post and will work on gathering it.

Goal for this money: Use it for eventual retirement.

Emergency funds: Yes.

Debt: None.

Tax Filing Status: Single

Tax Rate: anticipate 22% Federal, xx% State

State of Residence: Oregon

Age: 35

Desired Asset allocation: xx% stocks / xx% bonds
Desired International allocation: xx% of stocks

Please provide an approximate size of your total portfolio: ~210k

Current retirement assets (It's just me, so all of these accounts are mine.)

Taxable
xx% cash (for investing – do not include emergency funds)
xx% fund name (ticker symbol) (expense ratio)
xx% stock company name (ticker symbol)

457(b) Current employer account <-- contributions should start at the end of this month. There's nothing in there yet.
100% LifePath 2050 (expense ratio: I find something that says 0.08% but I think there are probably other fees)
Company match? No

403b
xx% fund name (ticker symbol) (expense ratio)
xx% fund name (ticker symbol) (expense ratio)

TSP
100% G Fund (ticker symbol) (expense ratio)


_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.

Contributions

New annual Contributions
$xx Current employer plan (also specify any employer matching contributions) I just set up 15% contributions.
$xx taxable (for retirement, not short term goals) None

Available funds

Funds available in current employer plan
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)

Funds available in 403(b)
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)
Fund name (ticker symbol) (expense ratio)
Last edited by GoodMonikersAllTaken on Sat May 27, 2023 6:57 am, edited 2 times in total.
wetgear
Posts: 834
Joined: Thu Apr 06, 2017 10:14 am

Re: Moving money to index funds

Post by wetgear »

GoodMonikersAllTaken wrote: Thu May 25, 2023 7:00 pm Hello.
I am a newbie to personal finance. I have some money in a Fidelity brokerage account that was originally a UGMA/UTMA account.

I have:
- Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share

- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share


I want to move the money from the first two into index funds. I'm afraid of screwing this up and incurring a tax bill that I can't afford. I've already had some pretty overwhelming tax bills from this.

I bought the FZROX so I could at least stop reinvesting dividends in the same funds and have them invested in FZROX. I don't know if that is a good idea.

I do also have roughly 20k in a TSP account (it's all in the lowest risk bonds), a couple hundred in an old retirement account that I need to rollover, and I just set up contributions to my current employer's plan. If those details are important, I can add them.

I'd be grateful for any advice, or even suggestions for who I should ask. I am worried about asking the people at Fidelity. I'm trying hard to educate myself (reading Bogle's book now). I am just in a phase where I am convinced of the problem and not sure how to fix it!

Thank you so much for your help, and for your patience.
What are your tax brackets?

What is the intended purpose for this money?

How old are you?
Topic Author
GoodMonikersAllTaken
Posts: 3
Joined: Sun May 07, 2023 7:44 pm

Re: Moving money to index funds

Post by GoodMonikersAllTaken »

Thanks for your reply!

Tax brackets: Last year for federal it was 12%. I think it will be in the next bracket up since I started a new job. My monthly salary is now ~5200.00. I live in Oregon.

Intended purpose: My only financial goal is to be able to cut back on work or to retire at some point. I am not interested in home ownership (unless it serves that goal), don't have kids, etc.

Age: I'm 35. Would that I were younger and could blame youth for my ignorance!
Doctor Rhythm
Posts: 2147
Joined: Mon Jan 22, 2018 2:55 am

Re: Moving money to index funds

Post by Doctor Rhythm »

GoodMonikersAllTaken wrote: Thu May 25, 2023 7:00 pm Hello.
I am a newbie to personal finance. I have some money in a Fidelity brokerage account that was originally a UGMA/UTMA account.

I have:
- Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share

- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share


I want to move the money from the first two into index funds. I'm afraid of screwing this up and incurring a tax bill that I can't afford. I've already had some pretty overwhelming tax bills from this.

I bought the FZROX so I could at least stop reinvesting dividends in the same funds and have them invested in FZROX. I don't know if that is a good idea.

I do also have roughly 20k in a TSP account (it's all in the lowest risk bonds), a couple hundred in an old retirement account that I need to rollover, and I just set up contributions to my current employer's plan. If those details are important, I can add them.

I'd be grateful for any advice, or even suggestions for who I should ask. I am worried about asking the people at Fidelity. I'm trying hard to educate myself (reading Bogle's book now). I am just in a phase where I am convinced of the problem and not sure how to fix it!

Thank you so much for your help, and for your patience.
Howdy and welcome to the forum!

Since this is in a taxable account (not an IRA, 401k/403b/457, or other tax-advantaged account), you may have to pay capital gains tax on any net profit you make from selling fund shares. Here's the quick and dirty:

Capital gains = profit from selling at higher price than you bought at. This is further subdivided into short-term and long-term gains. Short-term gains are from shares held less than a year. Long-term gains are from shares held more than a year. Important difference because short-term gains are taxed at your income tax bracket rate, whereas long-term gains are taxed at a generally more favorable "Long term capital gains tax rate".
Capital loss = loss from selling at lower price than you bought at. Same deal with short- and long-term holdings.
Cost basis = how much you paid to purchase, which is used to calculate gain or loss. This can be calculated based on the average cost of all the shares you purchased, or (And this is important below) you can have this assessed based on each separate purchase transaction you made.
You can ignore share price for now and just look at actual dollars invested.

So...both of your major holdings have capital gains. Depending on your taxable income, tax-filing status (eg, single, married, etc), how much of these funds you sell (how much profit you decide to take), and how much of the profit is short- versus long-term gains, you will potentially face additional taxes when you sell.

Actionable advice if you plan to sell:
1. Turn off automatic reinvestment
2. Change your cost basis method to specific tax lot identification (often called SLID - specific lot I.D.)
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arcticpineapplecorp.
Posts: 13018
Joined: Tue Mar 06, 2012 8:22 pm

Re: Moving money to index funds

Post by arcticpineapplecorp. »

the cost basis just means what you paid originally.

Since the difference between what you paid for FBGRX ($43,965.89) and it's current value ($98,578.39) is $54,612.50, if you'd sell all these shares you'd have a capital gain of $54,612.50. Right now they're unrealized cap gains. If you sell, you realize the cap gains, and have to pay tax on such gains. Assuming these are shares held for more than 1 year, they'd be long term capital gains, which are taxed generally more favorably than short term capital gains which are taxed at ordinary income tax rates.

Simliarly, you' have unrealized capital gains of $16,802.74 from FGRIX

You don't have to sell all at once.

You should have a strategy for how much to sell and why and understand what the tax implication is before you sell. You can run and rerun and rerun different scenarios plugging in and/or changing the numbers with a 1040 tax return calculator to see the impact of more or less capital gains stacked on top of your wages.

You should also either adjust your withholdings from your paychecks (to have more tax withheld which would equal the tax owed on cap gains) or make quarterly estimated payments if you sell your funds incurring cap gains upon which tax is owed.

FZROX is fine but it's not portable so if you plan to stay at Fidelity brokerage, that's not a problem. But if you want to leave or move that money elsewhere, FZROX isn't allowable at other brokerages besides Fidelity.

I suggest you review Asking Portfolio Questions and edit your post so we're covering all angles.

welcome to the group.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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GMCZ71
Posts: 459
Joined: Sat Oct 13, 2018 8:05 am
Location: McMinnville, Or

Re: Moving money to index funds

Post by GMCZ71 »

Welcome to BH, don't get discouraged you have plenty of time. Max your work plan you just set up, hopefully its not Oregonsaves? We are from Oregon also and that plan is high fee. Open a Roth also, I didn't see that in your post. You will have market downturns over your life time and can rid of those funds at a lower tax or zero tax. Have you read Taylors 3 fund thread and book? Do some searching on here about tax loss harvesting. :happy
John | * Friends and family and money | * What you recommend will have periods of underperformance. You will be blamed. | * You avoid the suspicion of "self-serving." by Taylor Larimore
smooth_rough
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Joined: Sat Feb 12, 2022 1:14 pm

Re: Moving money to index funds

Post by smooth_rough »

Phone Fidelity and ask them what is potential capital gain for selling each of those 2 funds. Of course it depends on that day in the market, but that gives you idea if you could pay the cap gains tax. If thats too big number for you, sell off lesser amount(s) gradually over time. It doesn't sound that hard. Those actively managed funds have higher ER, so you are moving in the right direction to indexing. I previously invested in actively managed growth fund (fidelity) that outperformed for years, until it got killed last year and gave up all its gains. Not any better performance than indexing but higher expenses. Its learning experience.
RetiredAL
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Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Moving money to index funds

Post by RetiredAL »

GoodMonikersAllTaken wrote: Thu May 25, 2023 7:00 pm
I have:
- Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share

- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share
If me, I would not be in any hurry to sell the FBGRX, as this has equaled or bettered the SP500.

Conversely, the FGRIX has consistently under performed to the SP500 and would be my choice of where to start in going to towards index funds.

Do understand that that changing your investments does not have to be like an on/off light switch, that doing so over time is fine. Over time often helps with tax strategies.
the_wiki
Posts: 1325
Joined: Thu Jul 28, 2022 11:14 am

Re: Moving money to index funds

Post by the_wiki »

GoodMonikersAllTaken wrote: Thu May 25, 2023 7:00 pm Hello.
I am a newbie to personal finance. I have some money in a Fidelity brokerage account that was originally a UGMA/UTMA account.

I have:
- Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share

- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share

Cost basis is just means that's how much you paid for the stocks. THe difference between the current value and your cost basis would how much profit you have made on those funds if you sold today. That profit is called capital gains and is subject to taxes. You will owe taxes on that money if you sell, based on your capital gains bracket. If you are single and made over $41k (After deductions) you will owe 15% tax, which means taxes in the neighborhood of $10-11K.

If you decide to proceed with moving to different funds, you can pay for those taxes with some of the money you get from selling the funds. So it's not like you'd need it all out of pocket. But it would be a hit to your portfolio balance.
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Duckie
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Re: Moving money to index funds

Post by Duckie »

GoodMonikersAllTaken wrote: Thu May 25, 2023 7:00 pm - Fidelity blue chip growth (FBGRX) current value: $98,578.39 cost basis (I don't really know what this means): $43,965.89 $63.51/share

- Fidelity Growth & Income (FGRIX) current value: $44,640.21 cost basis: $27,837.47 $30.98/share
Since the value of these has roughly doubled, if you sell them you will take a tax-hit. At the very least turn OFF any automatic dividend / distribution reinvestments. That way you don't buy more of them.
- Fidelity Zero Total Market (FZROX) current value: $24.73 cost basis $25.00 $14.59/share
This does not belong in a taxable account because of non-portability. If the current value is $24.73 and the cost basis is $25.00 you could sell and take the loss. But I'm not sure what the $14.59 is. Is that the cost basis?
I bought the FZROX so I could at least stop reinvesting dividends in the same funds and have them invested in FZROX. I don't know if that is a good idea.
FZROX is a decent fund in an IRA but it is not a good idea in taxable. In your taxable account consider putting all new money and any new dividends in (FSKAX) Fidelity Total Market Index Fund (0.015%) instead of FZROX.
I do also have roughly 20k in a TSP account (it's all in the lowest risk bonds),
So it's all in the G Fund?
a couple hundred in an old retirement account that I need to rollover,
Either roll this to the TSP or open a Roth IRA at Fidelity and roll this into the Roth. It will be a taxable conversion but the taxes will be minimal.
and I just set up contributions to my current employer's plan.
Is the current employer's plan the TSP or something else like a 401k?
placeholder
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Re: Moving money to index funds

Post by placeholder »

RetiredAL wrote: Fri May 26, 2023 1:06 pm
Conversely, the FGRIX has consistently under performed to the SP500 and would be my choice of where to start in going to towards index funds.
That's not what I'm seeing over the past five years with morningstar total return charts.
RetiredAL
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Re: Moving money to index funds

Post by RetiredAL »

placeholder wrote: Fri May 26, 2023 7:40 pm
RetiredAL wrote: Fri May 26, 2023 1:06 pm
Conversely, the FGRIX has consistently under performed to the SP500 and would be my choice of where to start in going to towards index funds.
That's not what I'm seeing over the past five years with morningstar total return charts.
https://fundresearch.fidelity.com/fund- ... IX%2CFXAIX

It looks to my eye that most of the 5 year timeline has been with with FXAIX beating FGRIX and in the 10 year timeline, FXAIX is a very clear winner. Is FXAIX exactly SP500? I don't know, but I'm sure it's a damn good "real life" proxy and is as good as anyone's SP500 Fund.
placeholder
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Re: Moving money to index funds

Post by placeholder »

RetiredAL wrote: Fri May 26, 2023 8:17 pm
It looks to my eye that most of the 5 year timeline has been with with FXAIX beating FGRIX and in the 10 year timeline, FXAIX is a very clear winner. Is FXAIX exactly SP500? I don't know, but I'm sure it's a damn good "real life" proxy and is as good as anyone's SP500 Fund.
Which agrees with what I said and I don't disagree that it's probably the place to start.
Topic Author
GoodMonikersAllTaken
Posts: 3
Joined: Sun May 07, 2023 7:44 pm

Re: Moving money to index funds

Post by GoodMonikersAllTaken »

Thanks so much for your replies, everyone. I turned off the reinvesting and started playing around with the calculators. I'm going to try to sell off a bit at a time.
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GMCZ71
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Re: Moving money to index funds

Post by GMCZ71 »

I think you have some room for 0% tax on capital gains each year. Just napkin math.
$62,000 wages
$5000. dividends. just a guess of what those funds throw off
-$13,850 std ded
-$22,500 401k
= $30,650 taxable income

So you have room up to $44,000 in the zero bracket or $13,000 to harvest and switch over..
John | * Friends and family and money | * What you recommend will have periods of underperformance. You will be blamed. | * You avoid the suspicion of "self-serving." by Taylor Larimore
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