I've spent a dozen of hours reading this thread, the wiki (https://www.bogleheads.org/wiki/Tax_loss_harvesting
), and fairmark for insights on TLH. I currently have $0 in taxable accounts, but plan on dollar cost averaging several hundred thousand into taxable accounts in the near future. Thanks to AMT and state income taxes, my effective marginal tax rate is 45%. As a result, I have a huge incentive to TLH (45%*3k=$1,350/year).
I understand the mechanics of TLH are simple, but there are nuances that can get people into trouble.
In my hours of reading I believe I've synthesized all information into the following set of rules, which are perhaps a bit more simple or clear than the one highlighted in the beginning of this thread. Take as a base scenario a 2-fund target portfolio (70% VTSAX and 30% VTIAX) that is replicated across my taxable, my Roth IRA, and my wife's Roth IRA. My holdings in my 403b/401a/457 can be ignored for reasons discussed in previous threads.
Step 0. Turn off dividend reinvestments in all accounts (taxable + Roths x 2).
Step 1. Not required for TLH, but a good best practice to avoid non-qualified dividends is to buy shares in the 30-day window after a dividend is paid (https://www.bogleheads.org/wiki/Timing_ ... tributions
). Let's assume that all purchases fall within the 30-day window after dividends, which will guarantee that any funds will be held >60 days before distribution. Given my high tax rate, I would prefer to avoid non-qualified dividends. Aside from a good best-practice, it makes the example easier to follow.
Step 2. Check for TLH opportunities once per quarter after a dividend is paid out. Why quarterly? Stocks drop after dividends are paid out, thereby maximizing the potential tax loss. If the current price is less than the purchase price, sell and harvest the loss. Following the assumption in Step 1 above, we know that the most recent purchase was well over 30 days before, so no issue there.
Step 3. Once sold, we have a few options. The simplest is to sit in a money market fund for 30 days then rebuy the same fund, though this is unsettling to those who hate being out of the market (like myself). A more complicated option is to buy a fund that is "not substantially identical", which I understand can be funds that track different indices. For domestic, sell VTSAX and buy VFIAX (or vice versa if harvesting a loss on VFIAX). For international, sell VTIAX and buy VFWAX (or vice versa if harvesting a loss on VFWAX).
Step 4. If a loss was not harvested in Step 2, manually reinvest dividends immediately in Roth IRA. If a loss was not harvested in Step 2, manually reinvest dividends in Roth IRA 30-60 days after distribution (closer to 30 the better, of course).
Step 5. Rinse and repeat Steps 2-4 once per quarter, immediately after the dividend is paid out. Since VTSAX and VTIAX pay dividends on the same date, this is easy to manage 4x/year. If I recently harvested VTSAX to purchase VFIAX and I care to continue to DCA this quarter, I'd resume my regularly scheduled DCA programming by buying more VFIAX in lieu of VTSAX. This flexible and arbitrary switching of target funds is key to the strategy.
Am I missing something? Seems just about as well as one could do and much simpler than what has been described previously. And it only requires you to check for opportunities 4x/year.
Doing the above will essentially lock in the cost basis for each share at it's minimum, maximizing the tax loss in the harvest.