Balancing the Same Funds Across Taxable/Tax Deferred Accounts

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coffeecup333
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Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Thu Mar 08, 2018 2:51 pm

After a year of understanding and creating an AA and balancing it across our tax deferred accounts, we've come to a point we can open a taxable and put some money into it monthly. I've spent weeks reading about tax loss harvesting and the international tax credit that's possible with keeping the Total International Stock Index in a taxable and know that both the Total Stock Market Index Fund and the Total International Stock Index are both highly recommended for taxable (which I already have in our Roths). I will be starting with at least the $3000 required for investor shares and will be adding to this amount monthly. I would like to keep my taxable split eventually at some point 50/50 between both the VTIAX and the VTSAX but how can I start doing this without creating wash sales down the road with the tax deferred accounts? Since both of these funds are currently in our Roths, I could exchange out the Roth with the VTIAX into more of the VTSAX, freeing up the Total International Stock Index to go into the taxable but I would be starting with the Investor shares then. The Roths are not big amounts at this point but it doesn't seem to make much sense to go from admiral shares to investor shares just to get to taxable and not create wash sales down the road. Also, we will be filling up our tax deferred buckets first so if there are years we will not be contributing to taxable, I don't want to have our AA go off balance (70% domestic with 30% international, 30% bonds).

Any advice, Bogleheads?

ThriftyPhD
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by ThriftyPhD » Thu Mar 08, 2018 3:04 pm

It's a bit confusing.

Generally, one of the benefits of having, say, all of your VTSAX in Roth and all of your VTIAX in taxable is that you then qualify for the admiral shares. For example, if you have $10k in each, you could have $5k Total Stock, $5k Total International in both accounts, but then you would qualify for investor shares. If you put $10k Total Stock in Roth, $10k Total International in taxable, then you would get admiral shares of both.

So, I'm not sure why you're saying "but I would be starting with the Investor shares then".

As for your question about avoiding the wash sale, whatever you hold in taxable you could still hold in tax advantaged, but you would need to make sure dividend reinvestment is turned off so that you don't accidentally buy during that wash sale period.

Generally once you get to your specific options and numbers, the right choice will become apparent. As an example, assume you have

$10k Roth
$3k Taxable
$100k 401k

If you have something like this, you could then just put your Roth in VTSAX, Taxable in international, and use the 401k to balance the remainder so that you hit your asset allocation, assuming good options for all 3 exist in your 401k.

I would recommend you change your post to match the format in Asking Portfolio Questions so that you'll get better feedback.

livesoft
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by livesoft » Thu Mar 08, 2018 3:07 pm

I'm glad there was no internet when I started investing in a taxable account. I just did it and didn't worry about anything. And it turned out there was nothing to worry about.

Hint: An easy way to never create wash sales down the road is to never sell any shares for a loss in a taxable account. Think about that seriously. How often do you think you will even have to think about selling shares for a loss? I'll give you the answer: Almost never.
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mega317
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by mega317 » Thu Mar 08, 2018 6:16 pm

This feels like several questions.
1. If you don't want to follow livesoft's suggestion, another option is don't buy the same fund in the Roth within 30 days of selling for a loss in taxable.... Another option is to use similar but different funds in each account. Of course you might be wanting to use those funds in your loss-harvesting trades so you'd be back to where you started.
2. Don't worry for 1 second about investor vs admiral shares. The difference is not enough money to care about.

coffeecup333
Posts: 34
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Thu Mar 08, 2018 10:12 pm

ThriftyPhD wrote:
Thu Mar 08, 2018 3:04 pm
It's a bit confusing.

Generally, one of the benefits of having, say, all of your VTSAX in Roth and all of your VTIAX in taxable is that you then qualify for the admiral shares. For example, if you have $10k in each, you could have $5k Total Stock, $5k Total International in both accounts, but then you would qualify for investor shares. If you put $10k Total Stock in Roth, $10k Total International in taxable, then you would get admiral shares of both.

So, I'm not sure why you're saying "but I would be starting with the Investor shares then".

As for your question about avoiding the wash sale, whatever you hold in taxable you could still hold in tax advantaged, but you would need to make sure dividend reinvestment is turned off so that you don't accidentally buy during that wash sale period.

Generally once you get to your specific options and numbers, the right choice will become apparent. As an example, assume you have

$10k Roth
$3k Taxable
$100k 401k

If you have something like this, you could then just put your Roth in VTSAX, Taxable in international, and use the 401k to balance the remainder so that you hit your asset allocation, assuming good options for all 3 exist in your 401k.

I would recommend you change your post to match the format in Asking Portfolio Questions so that you'll get better feedback.
I guess I should clarify a bit better: One Roth is completely in VTIAX and the other one is completely in VTSAX. The 401k is currently all in the S&P 500 and bonds. I was just thinking if I switched over the VTIAX and made it all VTSAX, this would give me the benefit of not having the Total International Stock index anywhere else and leaves it available for the taxable to start with the investor share of VGTSX. But I would be starting with only the minimum and having to work back up if I did this so I will keep it now on second thought. What you said about turning off the dividends makes sense and have gone ahead and did this. So, even if I hold the same fund in the taxable and the tax deferred accounts and turn off the dividend reinvesting, it will not be a problem to TLH? Unfortunately, the 401k option does not have a good international index fund so I would be rebalancing in the Roth if we did not add any extra money for the taxable in some years. Does the idea of rebalancing in the Roth make sense? Sometimes this feels like I'm giving myself a hair cut and in trying to keep all the sides leveled out, I just keep ending up with uneven balances!

coffeecup333
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Joined: Wed May 17, 2017 9:00 pm

Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Thu Mar 08, 2018 10:17 pm

livesoft wrote:
Thu Mar 08, 2018 3:07 pm
I'm glad there was no internet when I started investing in a taxable account. I just did it and didn't worry about anything. And it turned out there was nothing to worry about.

Hint: An easy way to never create wash sales down the road is to never sell any shares for a loss in a taxable account. Think about that seriously. How often do you think you will even have to think about selling shares for a loss? I'll give you the answer: Almost never.
Yes, it is much easier sometimes not knowing what we don't know but in the case of the IRS getting involved, I would rather avoid it. I am planning to keep these accounts forever so TLH will probably be in the picture at some point. I've read your posts on TLH and enjoy your insights on this board. Glad to see you chiming in!

marcopolo
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by marcopolo » Thu Mar 08, 2018 11:27 pm

livesoft wrote:
Thu Mar 08, 2018 3:07 pm
I'm glad there was no internet when I started investing in a taxable account. I just did it and didn't worry about anything. And it turned out there was nothing to worry about.

Hint: An easy way to never create wash sales down the road is to never sell any shares for a loss in a taxable account. Think about that seriously. How often do you think you will even have to think about selling shares for a loss? I'll give you the answer: Almost never.
Don't you still have like a $1M of carry over losses? I thought that was a big part of your pay zero taxes strategy! :wink:
Once in a while you get shown the light, in the strangest of places if you look at it right.

livesoft
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by livesoft » Fri Mar 09, 2018 6:47 am

marcopolo wrote:
Thu Mar 08, 2018 11:27 pm
Don't you still have like a $1M of carry over losses? I thought that was a big part of your pay zero taxes strategy! :wink:
Well, not anymore. But I'm in the 0% long-term capital gains tax range now.
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livesoft
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by livesoft » Fri Mar 09, 2018 6:53 am

coffeecup333 wrote:
Thu Mar 08, 2018 10:17 pm
I am planning to keep these accounts forever so TLH will probably be in the picture at some point.
OK, but that's not a problem. When I sell to tax-loss harvest, I can simply look to see if there will be a wash sale which takes less than a few seconds to determine. And if there will be a wash sale, then I can decide at that time whether to create the wash sale or wait to sell at a loss or do something extra to avoid the wash sale. In the meantime (that is, when I am not thinking about selling at a loss), life goes on its merry way without worries.

There is just way too much unnecessary drama about tax-loss harvesting.
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coffeecup333
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Fri Mar 09, 2018 7:32 am

livesoft wrote:
Fri Mar 09, 2018 6:53 am
coffeecup333 wrote:
Thu Mar 08, 2018 10:17 pm
I am planning to keep these accounts forever so TLH will probably be in the picture at some point.
OK, but that's not a problem. When I sell to tax-loss harvest, I can simply look to see if there will be a wash sale which takes less than a few seconds to determine. And if there will be a wash sale, then I can decide at that time whether to create the wash sale or wait to sell at a loss or do something extra to avoid the wash sale. In the meantime (that is, when I am not thinking about selling at a loss), life goes on its merry way without worries.

There is just way too much unnecessary drama about tax-loss harvesting.
Your experience and knowledge are what give you the comfort to make those decisions. For all of us starting on this and wanting to get informed are in another stage and hoping to get to where you are. Thank you for the feedback!

coffeecup333
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Joined: Wed May 17, 2017 9:00 pm

Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Fri Mar 09, 2018 7:41 am

mega317 wrote:
Thu Mar 08, 2018 6:16 pm
This feels like several questions.
1. If you don't want to follow livesoft's suggestion, another option is don't buy the same fund in the Roth within 30 days of selling for a loss in taxable.... Another option is to use similar but different funds in each account. Of course you might be wanting to use those funds in your loss-harvesting trades so you'd be back to where you started.
2. Don't worry for 1 second about investor vs admiral shares. The difference is not enough money to care about.
So it sounds like all I have to do is turn off the dividend reinvestment option, continue contributing to all accounts. When I see a TLH opportunity since the dividend reinvesting is already off, I can go ahead with it and find a matching fund-waiting the 30 days on either side to buy and sell back in (if I wish). Meanwhile the amounts that accumulate in the MMF, just use these to rebalance or buy more shares. Am I summarizing this correctly? I was just about to move the funds into VGTSX in my taxable account today but realized it may be the time of quarterly dividends. Would this affect me? Thank you for the clarifications!

mega317
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by mega317 » Fri Mar 09, 2018 3:06 pm

coffeecup333 wrote:
Fri Mar 09, 2018 7:41 am
I was just about to move the funds into VGTSX in my taxable account today but realized it may be the time of quarterly dividends. Would this affect me?
Not sure I totally understand the question but yeah, if you sell something for a loss now and then reinvest dividends in the same fund this month it will be a wash.

rkhusky
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Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by rkhusky » Fri Mar 09, 2018 3:35 pm

You could look for similar, but not identical, funds to put in each account. For example, you could use Vanguard FTSE All-World ex-US (VFWIX) in Taxable, since you have Total Int'l in the Roth IRA. You already have S&P 500 in the 401K and Total Stock in the Roth IRA.

Also note that a dividend doesn't necessarily wash out an entire loss, just the amount of overlap. But avoiding them probably reduces paperwork a bit.

coffeecup333
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Joined: Wed May 17, 2017 9:00 pm

Re: Balancing the Same Funds Across Taxable/Tax Deferred Accounts

Post by coffeecup333 » Tue Mar 13, 2018 10:46 am

rkhusky wrote:
Fri Mar 09, 2018 3:35 pm
You could look for similar, but not identical, funds to put in each account. For example, you could use Vanguard FTSE All-World ex-US (VFWIX) in Taxable, since you have Total Int'l in the Roth IRA. You already have S&P 500 in the 401K and Total Stock in the Roth IRA.

Also note that a dividend doesn't necessarily wash out an entire loss, just the amount of overlap. But avoiding them probably reduces paperwork a bit.
Yes, VFWIX is a great equivalent. Thanks for the suggestion and feedback!

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