Tax Gain Harvesting and Dividend Schedule

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Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 9:20 am

Overview: When is the best time to sell, then buy, shares to Tax Gain Harvest?

Question: Should I sell and re-buy immediately before or after Vanguard pays the next dividend, and then reinvest? What would the consequences be of me selling/buying these shares today, as late December is less than 61 days away, which would result in receipt of unqualified dividends?

Dividend Issue: Vanguard typically pays out a dividend on VTSAX in late December. If I were to sell today (November 11), and repurchase $26,222 of VTI, I would receive an unqualified dividend for all shares in the amount of $113.00. However, If I waited until the day after the dividend is paid out, I would have held the VTI long enough for it to receive a qualified dividend in March, when Vanguard disburses the next dividend.

Background: I am married and we will be in the 12% bracket this year after deductions. Our taxable income after the standard deduction will be approx. $69,750. Therefore, I am interested in Tax Gain Harvesting. I can sell those shares of VTSAX I have held for one year or more (purchased for $23,873 and sold for $26,222) for a gain of $2,350. I would then immediately reinvest the $26,222 into VTI, since ETFs are more tax-efficient than mutual funds. This capital gain would still put us under the $78,751 threshold for capital gains taxes. Note: We do not have any state taxes.

I realize these are not large numbers and will not impact my financial situation dramatically, however I find the process itself helpful in making decisions moving forward. I really appreciate your feedback.

Admiral
Posts: 2463
Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by Admiral » Mon Nov 11, 2019 9:36 am

LIGuy82 wrote:
Mon Nov 11, 2019 9:20 am
Overview: When is the best time to sell, then buy, shares to Tax Gain Harvest?

Question: Should I sell and re-buy immediately before or after Vanguard pays the next dividend, and then reinvest? What would the consequences be of me selling/buying these shares today, as late December is less than 61 days away, which would result in receipt of unqualified dividends?

Dividend Issue: Vanguard typically pays out a dividend on VTSAX in late December. If I were to sell today (November 11), and repurchase $26,222 of VTI, I would receive an unqualified dividend for all shares in the amount of $113.00. However, If I waited until the day after the dividend is paid out, I would have held the VTI long enough for it to receive a qualified dividend in March, when Vanguard disburses the next dividend.

Background: I am married and we will be in the 12% bracket this year after deductions. Our taxable income after the standard deduction will be approx. $69,750. Therefore, I am interested in Tax Gain Harvesting. I can sell those shares of VTSAX I have held for one year or more (purchased for $23,873 and sold for $26,222) for a gain of $2,350. I would then immediately reinvest the $26,222 into VTI, since ETFs are more tax-efficient than mutual funds. This capital gain would still put us under the $78,751 threshold for capital gains taxes. Note: We do not have any state taxes.

I realize these are not large numbers and will not impact my financial situation dramatically, however I find the process itself helpful in making decisions moving forward. I really appreciate your feedback.
VTI is not appreciably more tax efficient than VTSAX (and anyway at these amounts it's almost irrelevant.) This does not strike me as a good reason to swap your shares. Unless you need the money for some reason (which clearly you don't, since you're reinvesting it) I would not bother moving in and out of this position.

Longdog
Posts: 1366
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: Tax Gain Harvesting and Dividend Schedule

Post by Longdog » Mon Nov 11, 2019 9:47 am

I think you meant to say that index funds are more tax efficient than actively managed funds. However, both VTI and VTSAX are index funds, one the ETF version and one the mutual fund version of the exact same index. The only difference between them is 0.01% of Expense Ratio, so an investment of $26,222 will result in $2.62 more of expenses paid per year - so one more Starbucks Venti coffee per year!
Steve

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 9:58 am

Admiral wrote:
Mon Nov 11, 2019 9:36 am
LIGuy82 wrote:
Mon Nov 11, 2019 9:20 am
Overview: When is the best time to sell, then buy, shares to Tax Gain Harvest?

Question: Should I sell and re-buy immediately before or after Vanguard pays the next dividend, and then reinvest? What would the consequences be of me selling/buying these shares today, as late December is less than 61 days away, which would result in receipt of unqualified dividends?

Dividend Issue: Vanguard typically pays out a dividend on VTSAX in late December. If I were to sell today (November 11), and repurchase $26,222 of VTI, I would receive an unqualified dividend for all shares in the amount of $113.00. However, If I waited until the day after the dividend is paid out, I would have held the VTI long enough for it to receive a qualified dividend in March, when Vanguard disburses the next dividend.

Background: I am married and we will be in the 12% bracket this year after deductions. Our taxable income after the standard deduction will be approx. $69,750. Therefore, I am interested in Tax Gain Harvesting. I can sell those shares of VTSAX I have held for one year or more (purchased for $23,873 and sold for $26,222) for a gain of $2,350. I would then immediately reinvest the $26,222 into VTI, since ETFs are more tax-efficient than mutual funds. This capital gain would still put us under the $78,751 threshold for capital gains taxes. Note: We do not have any state taxes.

I realize these are not large numbers and will not impact my financial situation dramatically, however I find the process itself helpful in making decisions moving forward. I really appreciate your feedback.
VTI is not appreciably more tax efficient than VTSAX (and anyway at these amounts it's almost irrelevant.) This does not strike me as a good reason to swap your shares. Unless you need the money for some reason (which clearly you don't, since you're reinvesting it) I would not bother moving in and out of this position.
Point taken. I remembered reading ETFs were more tax efficient than mutual funds, but I think paying the one basis point for the ease of reinvesting dividends is worth it. Any thoughts on the timing of Tax Gain Harvesting?

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 10:00 am

Longdog wrote:
Mon Nov 11, 2019 9:47 am
I think you meant to say that index funds are more tax efficient than actively managed funds. However, both VTI and VTSAX are index funds, one the ETF version and one the mutual fund version of the exact same index. The only difference between them is 0.01% of Expense Ratio, so an investment of $26,222 will result in $2.62 more of expenses paid per year - so one more Starbucks Venti coffee per year!
I make coffee at home. Any thoughts on Tax Gain Harvesting and when is the best time to execute?

increment
Posts: 188
Joined: Tue May 15, 2018 2:20 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by increment » Mon Nov 11, 2019 10:05 am

LIGuy82 wrote:
Mon Nov 11, 2019 9:20 am
Dividend Issue: Vanguard typically pays out a dividend on VTSAX in late December. If I were to sell today (November 11), and repurchase $26,222 of VTI, I would receive an unqualified dividend for all shares in the amount of $113.00
...if you sell the VTI before mid-January. "You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date" is the IRS description of the holding-period requirement.

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 10:10 am

If I were going to do this, I would probably:
Check vanguard site for estimated record date for dividends.
Sell fund day before record date (not sure whether selling day of record date avoids the dividend, try and see!)
Buy back fund on ex-dividend date (not sure what happens if you buy between record date and ex dividend date. Try and see!)
Presumably Q1 dividends will be qualified.

As you note, these are small numbers so probably not going to hurt or help much if you do it right or wrong... and you’ll learn the mechanics.

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 10:34 am

RubyTuesday wrote:
Mon Nov 11, 2019 10:10 am
If I were going to do this, I would probably:
Check vanguard site for estimated record date for dividends.
Sell fund day before record date (not sure whether selling day of record date avoids the dividend, try and see!)
Buy back fund on ex-dividend date (not sure what happens if you buy between record date and ex dividend date. Try and see!)
Presumably Q1 dividends will be qualified.

As you note, these are small numbers so probably not going to hurt or help much if you do it right or wrong... and you’ll learn the mechanics.
This was very helpful. Thank you. Just to make sure I understand, I will use December 2018 as an example. Assuming I was doing the same thing a year ago, would you advise that I sell on December 19 (REC date -1) and buy back on December 21 (Ex date)? I assume I'm better off selling before the dividend and buying back after the post-dividend dip...from a strictly tax-perspective?

Decl Date: Dec. 20, 2018
Ex Date: Dec. 21, 2018
Rec Date: Dec. 20, 2018
Pay Date: Dec. 24, 2018

Admiral
Posts: 2463
Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by Admiral » Mon Nov 11, 2019 10:47 am

You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 10:58 am

Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:

Admiral
Posts: 2463
Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by Admiral » Mon Nov 11, 2019 11:03 am

LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am
Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
I don't think it's condescension: I already pointed out that you were in error in your thinking and your understanding of the tax treatment of these investments. Hopefully your time is more valuable than the few bucks you might save with this transaction, hence my post. Perhaps not. But yes, I grant you that if it's important for you to understand the vagaries of dividend and ex-dividend dates, IRS regs regarding reinvestment, and holding periods, then you've come to the right place!

Good luck!

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 11:12 am

LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am
Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 12:29 pm

RubyTuesday wrote:
Mon Nov 11, 2019 11:12 am
LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am
Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.
I understand how they are different. I’m trying to figure out when is a preferable date at the end of the year to sell shares with regard to dividend schedules. I’d you have insight, I welcome hearing it.

Admiral
Posts: 2463
Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by Admiral » Mon Nov 11, 2019 12:37 pm

If you sell before the ex-dividend date, you will not receive the dividend. If you buy before the next dividend, you will receive it, BUT the price will go down to reflect the dividend paid, once paid. (And, of course the price of the fund may--likely will be--higher or lower.)

Does that answer your question?

BTW one of the key differences b/w TGH and TLH is the wash sale rule. All of this is covered in the Wiki.

https://www.bogleheads.org/wiki/Tax_loss_harvesting

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 12:42 pm

Admiral wrote:
Mon Nov 11, 2019 12:37 pm
If you sell before the ex-dividend date, you will not receive the dividend. If you buy before the next dividend, you will receive it, BUT the price will go down to reflect the dividend paid, once paid. (And, of course the price of the fund may--likely will be--higher or lower.)

Does that answer your question?

BTW one of the key differences be TGH and TLH is the wash sale rule. All of this is covered in the Wiki.

https://www.bogleheads.org/wiki/Tax_loss_harvesting
So better off not getting the dividend and buying at the reduced price from a tax standpoint, even though it’s a very small amount. Wash sale, as I understand it, does not allow immediate repurchase of funds sold at a loss and does not apply to tax gain harvesting. Can you think of any reason to not tax gain harvest and reset the cost basis?

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 12:46 pm

LIGuy82 wrote:
Mon Nov 11, 2019 12:29 pm
RubyTuesday wrote:
Mon Nov 11, 2019 11:12 am
LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am
Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.
I understand how they are different. I’m trying to figure out when is a preferable date at the end of the year to sell shares with regard to dividend schedules. I’d you have insight, I welcome hearing it.
With respect to gain harvesting, I answered previously what I think is optimal. That said I don’t really think it matters very much. If you were anticipating large dividends, just be careful not to buy the dividend on the repurchase in a way that makes the dividend not qualified. So I would rebuy ex dividend.

With respect to future tax loss harvesting, timing would depend on several things... how are you avoiding wash sale? are you harvesting to cash or are you buying a similar fund to stay invested? What’s the timing of dividends for the similar fund? Will those be qualified dividends? Many threads here on TLH.

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 12:54 pm

LIGuy82 wrote:
Mon Nov 11, 2019 12:42 pm
Admiral wrote:
Mon Nov 11, 2019 12:37 pm
If you sell before the ex-dividend date, you will not receive the dividend. If you buy before the next dividend, you will receive it, BUT the price will go down to reflect the dividend paid, once paid. (And, of course the price of the fund may--likely will be--higher or lower.)

Does that answer your question?

BTW one of the key differences be TGH and TLH is the wash sale rule. All of this is covered in the Wiki.

https://www.bogleheads.org/wiki/Tax_loss_harvesting
So better off not getting the dividend and buying at the reduced price from a tax standpoint, even though it’s a very small amount. Wash sale, as I understand it, does not allow immediate repurchase of funds sold at a loss and does not apply to tax gain harvesting. Can you think of any reason to not tax gain harvest and reset the cost basis?
If you have some room for 0% LTCG harvest, sure go for it. Note you could get a surprise if your ordinary income bumps your capital gains from 0-15... your taxes would go up at a higher marginal rate due to the tax on that extra dollar of ordinary income plus a dollar of cap gains pushed from 0-15%. So the effective marginal rate on that dollar would be ordinary income rate plus cap gains rate...

Kitces has writeups about this...

Navigating The Capital Gains Bump Zone: When Ordinary Income Crowds Out Favorable Capital Gains Rates

Admiral
Posts: 2463
Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by Admiral » Mon Nov 11, 2019 12:56 pm

LIGuy82 wrote:
Mon Nov 11, 2019 12:42 pm
Admiral wrote:
Mon Nov 11, 2019 12:37 pm
If you sell before the ex-dividend date, you will not receive the dividend. If you buy before the next dividend, you will receive it, BUT the price will go down to reflect the dividend paid, once paid. (And, of course the price of the fund may--likely will be--higher or lower.)

Does that answer your question?

BTW one of the key differences be TGH and TLH is the wash sale rule. All of this is covered in the Wiki.

https://www.bogleheads.org/wiki/Tax_loss_harvesting
So better off not getting the dividend and buying at the reduced price from a tax standpoint, even though it’s a very small amount. Wash sale, as I understand it, does not allow immediate repurchase of funds sold at a loss and does not apply to tax gain harvesting. Can you think of any reason to not tax gain harvest and reset the cost basis?
Yes, I can. It's a lot of effort to accomplish almost nothing. As I posted earlier, I think you should do nothing. It's very difficult to game the dividend system. Mostly it's luck. And, we're dealing with the law of small numbers here. The price of the stock could drop (or rise) such that any potential difference is wiped out in a day or two. Remember December of 2018?

If you think that next year you will be in a marginal tax bracket that requires taxes on your gains, and you want to lock in your gains this year, then sell the stock and buy it back next year.

If this is not the case, then I would...do nothing.

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 12:57 pm

Here’s a chart from Kitces showing bumb zones
Image

increment
Posts: 188
Joined: Tue May 15, 2018 2:20 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by increment » Mon Nov 11, 2019 1:25 pm

RubyTuesday wrote:
Mon Nov 11, 2019 12:46 pm
If you were anticipating large dividends, just be careful not to buy the dividend on the repurchase in a way that makes the dividend not qualified. So I would rebuy ex dividend
... if you want to keep option the option of selling before 61 days. But if you hold the replacement fund (VTI) for the long term (longer than two months), when you purchase doesn't in and of itself affect the "qualified" status of the dividend.

rkhusky
Posts: 7549
Joined: Thu Aug 18, 2011 8:09 pm

Re: Tax Gain Harvesting and Dividend Schedule

Post by rkhusky » Mon Nov 11, 2019 1:40 pm

Tax gain harvesting with 0% LTCG and 0% state tax makes good sense. However, you can also sell and buy VTSAX in order to TGH, although there is the issue with Vanguard's frequent trading policies, but I've heard that they can be avoided with a scheduled transaction. Or you could do a buy and then sell action, which doesn't trigger the frequent trading policies, if you have some money in a fund that doesn't have the restrictions (MM or short bond).

It is not clear to me why VTI is better than VTSAX for reinvesting dividends. VTI and VTSAX are essentially the same. I also don't see the point of TGH around the dividend payment dates - it shouldn't matter.

Hopefully, OP knows that buying ETF's and mutual funds are different. With ETF's you need to deal with bid/ask spreads and limit orders and such, and you can only buy whole numbers of shares. So, rather than purchasing even dollar amounts of mutual fund shares, you will be buying even numbers of shares. ETF's do give you the ability to buy/sell throughout the day, if you are into that. And then there is that 0.01% ER difference between VTI and VTSAX.
Last edited by rkhusky on Mon Nov 11, 2019 1:54 pm, edited 2 times in total.

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 1:48 pm

RubyTuesday wrote:
Mon Nov 11, 2019 12:46 pm
LIGuy82 wrote:
Mon Nov 11, 2019 12:29 pm
RubyTuesday wrote:
Mon Nov 11, 2019 11:12 am
LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am
Admiral wrote:
Mon Nov 11, 2019 10:47 am
You're potentially jumping thru all these hoops over a dividend of $113, before taxes? :oops:
I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.
I understand how they are different. I’m trying to figure out when is a preferable date at the end of the year to sell shares with regard to dividend schedules. I’d you have insight, I welcome hearing it.
With respect to gain harvesting, I answered previously what I think is optimal. That said I don’t really think it matters very much. If you were anticipating large dividends, just be careful not to buy the dividend on the repurchase in a way that makes the dividend not qualified. So I would rebuy ex dividend.

With respect to future tax loss harvesting, timing would depend on several things... how are you avoiding wash sale? are you harvesting to cash or are you buying a similar fund to stay invested? What’s the timing of dividends for the similar fund? Will those be qualified dividends? Many threads here on TLH.
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example, if VTSAX's ex-date is Monday, December 23, 2019, I would sell on Friday the 20th, then buy back in on Monday the 23rd (ex-date) using unsettled funds with the knowledge I cannot sell them (no plans to sell anyway, as they would be short term for the next 364 days).

Once tax loss harvesting becomes an option, I would just move between VTSAX and VTI to stay invested. If it were internationals I would move between VXUS and VTIAX.

Anything wrong with this approach?

Topic Author
LIGuy82
Posts: 160
Joined: Mon Apr 16, 2018 12:51 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 1:55 pm

rkhusky wrote:
Mon Nov 11, 2019 1:40 pm
Tax gain harvesting with 0% LTCG and 0% state tax makes good sense. However, you can also sell and buy VTSAX in order to TGH.

It is not clear to me why VTI is better than VTSAX for reinvesting dividends. VTI and VTSAX are essentially the same. I also don't see the point of TGH around the dividend payment dates - it shouldn't matter.

Hopefully, OP knows that buying ETF's and mutual funds are different. With ETF's you need to deal with bid/ask spreads and limit orders and such, and you can only buy whole numbers of shares. So, rather than purchasing even dollar amounts of mutual fund shares, you will be buying even numbers of shares. ETF's do give you the ability to buy/sell throughout the day, if you are into that. And then there is that 0.01% ER difference between VTI and VTSAX.
Thanks very much. I had been using MFs for several years and started with ETFs this year. I like being able to look at the price when I buy - I do so every two weeks like clockwork, but if there is a big day dip intra-day, I like having the opportunity to throw more money in than my standard biweekly contribution. It's not life-changing, but I enjoy it. That said, I plan to keep my biweekly contributions in VTSAX, and would immediately buy it back after selling in December. I will make the sale/purchase in December so that there are more than 60 days before the next dividend distribution, which will make that dividend qualified rather than unqualified. I get we're talking about small amounts of money, but there's no better way to learn how something works than doing it (in a low-stakes environment in this case). Please let me know what you think.

RubyTuesday
Posts: 251
Joined: Fri Oct 19, 2012 11:24 am

Re: Tax Gain Harvesting and Dividend Schedule

Post by RubyTuesday » Mon Nov 11, 2019 1:56 pm

LIGuy82 wrote:
Mon Nov 11, 2019 1:48 pm
RubyTuesday wrote:
Mon Nov 11, 2019 12:46 pm
LIGuy82 wrote:
Mon Nov 11, 2019 12:29 pm
RubyTuesday wrote:
Mon Nov 11, 2019 11:12 am
LIGuy82 wrote:
Mon Nov 11, 2019 10:58 am


I'm interested in learning how it all works, rather than the tax-savings from resetting my cost basis or handling the dividend timing correctly. Getting this right will also help me make the correct moves on Tax Loss Harvesting in the future.

Most come to Bogleheads to learn. Many come to share their knowledge. Fortunately, only few come to condescend. :mrgreen:
FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.
I understand how they are different. I’m trying to figure out when is a preferable date at the end of the year to sell shares with regard to dividend schedules. I’d you have insight, I welcome hearing it.
With respect to gain harvesting, I answered previously what I think is optimal. That said I don’t really think it matters very much. If you were anticipating large dividends, just be careful not to buy the dividend on the repurchase in a way that makes the dividend not qualified. So I would rebuy ex dividend.

With respect to future tax loss harvesting, timing would depend on several things... how are you avoiding wash sale? are you harvesting to cash or are you buying a similar fund to stay invested? What’s the timing of dividends for the similar fund? Will those be qualified dividends? Many threads here on TLH.
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example, if VTSAX's ex-date is Monday, December 23, 2019, I would sell on Friday the 20th, then buy back in on Monday the 23rd (ex-date) using unsettled funds with the knowledge I cannot sell them (no plans to sell anyway, as they would be short term for the next 364 days).

Once tax loss harvesting becomes an option, I would just move between VTSAX and VTI to stay invested. If it were internationals I would move between VXUS and VTIAX.

Anything wrong with this approach?
VTI and VTSAX are different share classes of the same exact fund, similarly VXUS and VTIAX are the same fund respectively. You would create a wash sale. Suggest something like S&P for Total Stock Market, though there are others.

Search the forum for VTI tax loss harvest TLH and you find other suggestions. Develop a list (plan) of acceptable assets to TLH into in advance for each of your holdings.

rkhusky
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Re: Tax Gain Harvesting and Dividend Schedule

Post by rkhusky » Mon Nov 11, 2019 2:02 pm

LIGuy82 wrote:
Mon Nov 11, 2019 1:55 pm
rkhusky wrote:
Mon Nov 11, 2019 1:40 pm
Tax gain harvesting with 0% LTCG and 0% state tax makes good sense. However, you can also sell and buy VTSAX in order to TGH.

It is not clear to me why VTI is better than VTSAX for reinvesting dividends. VTI and VTSAX are essentially the same. I also don't see the point of TGH around the dividend payment dates - it shouldn't matter.

Hopefully, OP knows that buying ETF's and mutual funds are different. With ETF's you need to deal with bid/ask spreads and limit orders and such, and you can only buy whole numbers of shares. So, rather than purchasing even dollar amounts of mutual fund shares, you will be buying even numbers of shares. ETF's do give you the ability to buy/sell throughout the day, if you are into that. And then there is that 0.01% ER difference between VTI and VTSAX.
Thanks very much. I had been using MFs for several years and started with ETFs this year. I like being able to look at the price when I buy - I do so every two weeks like clockwork, but if there is a big day dip intra-day, I like having the opportunity to throw more money in than my standard biweekly contribution. It's not life-changing, but I enjoy it. That said, I plan to keep my biweekly contributions in VTSAX, and would immediately buy it back after selling in December. I will make the sale/purchase in December so that there are more than 60 days before the next dividend distribution, which will make that dividend qualified rather than unqualified. I get we're talking about small amounts of money, but there's no better way to learn how something works than doing it (in a low-stakes environment in this case). Please let me know what you think.
Let us know how it all works out and whether it's worth the effort.

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LIGuy82
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Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 2:23 pm

RubyTuesday wrote:
Mon Nov 11, 2019 1:56 pm
LIGuy82 wrote:
Mon Nov 11, 2019 1:48 pm
RubyTuesday wrote:
Mon Nov 11, 2019 12:46 pm
LIGuy82 wrote:
Mon Nov 11, 2019 12:29 pm
RubyTuesday wrote:
Mon Nov 11, 2019 11:12 am


FWIW, I didn’t find Admiral’s comment to be condescending, but on forums I try to interpret comments in the most generous light,

That said, TLH is actually quite different than gains harvesting. Really nothing much in common beyond the word “harvesting” :D though obviously gains and losses in the same year interact...

You won’t learn much to help with future TLH by executing this gain harvest.
I understand how they are different. I’m trying to figure out when is a preferable date at the end of the year to sell shares with regard to dividend schedules. I’d you have insight, I welcome hearing it.
With respect to gain harvesting, I answered previously what I think is optimal. That said I don’t really think it matters very much. If you were anticipating large dividends, just be careful not to buy the dividend on the repurchase in a way that makes the dividend not qualified. So I would rebuy ex dividend.

With respect to future tax loss harvesting, timing would depend on several things... how are you avoiding wash sale? are you harvesting to cash or are you buying a similar fund to stay invested? What’s the timing of dividends for the similar fund? Will those be qualified dividends? Many threads here on TLH.
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example, if VTSAX's ex-date is Monday, December 23, 2019, I would sell on Friday the 20th, then buy back in on Monday the 23rd (ex-date) using unsettled funds with the knowledge I cannot sell them (no plans to sell anyway, as they would be short term for the next 364 days).

Once tax loss harvesting becomes an option, I would just move between VTSAX and VTI to stay invested. If it were internationals I would move between VXUS and VTIAX.

Anything wrong with this approach?
VTI and VTSAX are different share classes of the same exact fund, similarly VXUS and VTIAX are the same fund respectively. You would create a wash sale. Suggest something like S&P for Total Stock Market, though there are others.

Search the forum for VTI tax loss harvest TLH and you find other suggestions. Develop a list (plan) of acceptable assets to TLH into in advance for each of your holdings.
Thanks - so VTSAX would become VFIAX and VTIAX would become a different international index. Thanks for saving me that research a year or two from now.

the way
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Re: Tax Gain Harvesting and Dividend Schedule

Post by the way » Mon Nov 11, 2019 2:30 pm

LIGuy82 wrote:
Mon Nov 11, 2019 1:48 pm
Sell fund day before record date (not sure whether selling day of record date avoids the dividend, try and see!)
Buy back fund on ex-dividend date (not sure what happens if you buy between record date and ex dividend date. Try and see!)
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example,
I think you want to sell and rebuy before the div. That way you maximize the usage of your 0% LTCG space by getting both the LTCG of your sale + the QDiv the next day. (In your method, you only get the LTCG). By rebuying the same day, you also lock in a higher basis - this is generally what you want to do when you TGH and have 0% space (NOTE: the answer would be different if you were trying to use up a capital loss instead of 0% space, since divs would not offset a loss).

btw, a Div becomes qualified as long as you hold for 61 days before-during-and-after the purchase of the stock. So don't sell your shares too early, but (as seems to be implied in the OP) you don't have to worry about holding it a full 61 days before the div to qualify.

Topic Author
LIGuy82
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Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 2:32 pm

the way wrote:
Mon Nov 11, 2019 2:30 pm
LIGuy82 wrote:
Mon Nov 11, 2019 1:48 pm
Sell fund day before record date (not sure whether selling day of record date avoids the dividend, try and see!)
Buy back fund on ex-dividend date (not sure what happens if you buy between record date and ex dividend date. Try and see!)
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example,
I think you want to sell and rebuy before the div. That way you maximize the usage of your 0% LTCG space by getting both the LTCG of your sale + the QDiv the next day. (In your method, you only get the LTCG). By rebuying the same day, you also lock in a higher basis - this is generally what you want to do when you TGH and have 0% space (NOTE: the answer would be different if you were trying to use up a capital loss instead of 0% space, since divs would not offset a loss).

btw, a Div becomes qualified as long as you hold for 61 days before-during-and-after the purchase of the stock. So don't sell your shares too early, but (as seems to be implied in the OP) you don't have to worry about holding it a full 61 days before the div to qualify.
Thanks! One more thing I learned today.

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Re: Tax Gain Harvesting and Dividend Schedule

Post by Longdog » Mon Nov 11, 2019 3:01 pm

LIGuy82 wrote:
Mon Nov 11, 2019 10:00 am
Longdog wrote:
Mon Nov 11, 2019 9:47 am
I think you meant to say that index funds are more tax efficient than actively managed funds. However, both VTI and VTSAX are index funds, one the ETF version and one the mutual fund version of the exact same index. The only difference between them is 0.01% of Expense Ratio, so an investment of $26,222 will result in $2.62 more of expenses paid per year - so one more Starbucks Venti coffee per year!
I make coffee at home. Any thoughts on Tax Gain Harvesting and when is the best time to execute?
Not a strong opinion on that question, since VTSAX is a stock index fund that predominantly distributes qualified dividends. If it were an actively traded fund that was likely to distribute short-term capital gains and/or interest from the bond portion of its portfolio, and if you held the fund more than a year, I'd suggest doing it prior to the distributions and moving it to something different, because in that case you'd be avoiding a tax obligation on those distributions at at your full marginal tax rate. But that is not the scenario you described, so I defer to others.
Steve

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Re: Tax Gain Harvesting and Dividend Schedule

Post by Nestegg_User » Mon Nov 11, 2019 4:09 pm

the way wrote:
Mon Nov 11, 2019 2:30 pm
LIGuy82 wrote:
Mon Nov 11, 2019 1:48 pm
Sell fund day before record date (not sure whether selling day of record date avoids the dividend, try and see!)
Buy back fund on ex-dividend date (not sure what happens if you buy between record date and ex dividend date. Try and see!)
Thanks - very helpful. In order to tax gain harvest, I would sell before the ex-date and re-buy on the ex-date. For example,
I think you want to sell and rebuy before the div. That way you maximize the usage of your 0% LTCG space by getting both the LTCG of your sale + the QDiv the next day. (In your method, you only get the LTCG). By rebuying the same day, you also lock in a higher basis - this is generally what you want to do when you TGH and have 0% space (NOTE: the answer would be different if you were trying to use up a capital loss instead of 0% space, since divs would not offset a loss).

btw, a Div becomes qualified as long as you hold for 61 days before-during-and-after the purchase of the stock. So don't sell your shares too early, but (as seems to be implied in the OP) you don't have to worry about holding it a full 61 days before the div to qualify.
Why would you rebuy before the ex-dividend day.... makes no sense. The OP would then just get more dividends at their nominal tax rate, would be closer to the cliff to loose the zero rate, and certainly wouldn't help themselves AFA future tax loss harvest since in either case the basis would have been the same ( number post dividend would be pre-dividend less dividend).... the OP merely would be "buying the dividend" (and paying the associated tax) which is NOT WHAT YOU WANT TO DO

for me, I usually will either buy a different index or will wait a short while (two weeks plus) before I would consider buying the same index.... I have already done my "tax gain harvesting", but I don't cut it too close since most funds provide an estimate before year end but don't always hit the same number (and I'd prefer the zero gain... or otherwise would have altered my strategy for the period)

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LIGuy82
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Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Mon Nov 11, 2019 4:52 pm

Why would you rebuy before the ex-dividend day.... makes no sense. The OP would then just get more dividends at their nominal tax rate, would be closer to the cliff to loose the zero rate, and certainly wouldn't help themselves AFA future tax loss harvest since in either case the basis would have been the same ( number post dividend would be pre-dividend less dividend).... the OP merely would be "buying the dividend" (and paying the associated tax) which is NOT WHAT YOU WANT TO DO

for me, I usually will either buy a different index or will wait a short while (two weeks plus) before I would consider buying the same index.... I have already done my "tax gain harvesting", but I don't cut it too close since most funds provide an estimate before year end but don't always hit the same number (and I'd prefer the zero gain... or otherwise would have altered my strategy for the period)
Just to make sure I understand - I should sell the business day before the ex date and buy back in afterwards to avoid receiving the dividend, but instead buy at the lower, post-dividend price. Regarding waiting two weeks, I would appreciate it if you could elaborate - I didn’t quite understand.

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Re: Tax Gain Harvesting and Dividend Schedule

Post by Nestegg_User » Mon Nov 11, 2019 5:08 pm

I said I would wait.... I like to make sure that there's a clear separation... especially at end of year where there might be a possible "tax loss harvest" in the next year (especially if it occurs earlier in the year) {otherwise the dividend would fall under wash sale rules if the IRS doesn't look close to see it just beyond the ex-dividend date but before the payment date [hence the couple of weeks], and I try to make my life easier in retirement..}. .... I'm not as concerned about having ALL my funds invested at all times { I'm retired/ have wr below 2%/ and have a 45% equities allocation.... so my considerations are very likely different than yours}

rkhusky
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Re: Tax Gain Harvesting and Dividend Schedule

Post by rkhusky » Mon Nov 11, 2019 6:16 pm

There is not much of a reason for OP to avoid dividends, since VTSAX dividends will be either 95% or 100% qualified, and OP is in 0% LTCG/QDI bracket. Unless OP has less room in 0% bracket than cap gains to harvest. Plus VTSAX distributes quarterly, so the dividend is smaller than it would be, for example, for a tax inefficient fund like Wellington.

Does Vanguard allow transferring directly from mutual fund to ETF? Or do you have to sell, send proceeds to the settlement account, and then buy the next day? (Which is probably what OP was considering anyway to avoid the dividend.)

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Re: Tax Gain Harvesting and Dividend Schedule

Post by grabiner » Tue Nov 12, 2019 10:28 pm

LIGuy82 wrote:
Mon Nov 11, 2019 9:58 am
I remembered reading ETFs were more tax efficient than mutual funds, but I think paying the one basis point for the ease of reinvesting dividends is worth it.
Non-Vanguard ETFs are more tax-efficient than mutual funds because the ETF structure allows funds to reduce the capital gains they would distribute. At Vanguard, the ETF is a share class of the mutual fund, so they are equally tax-efficient. The only return difference between an ETF and a mutual fund at Vanguard is the expense difference (reduced by the taxes on that difference, since the difference is in the dividend yield).
Wiki David Grabiner

the way
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Re: Tax Gain Harvesting and Dividend Schedule

Post by the way » Sat Nov 16, 2019 2:11 pm

Nestegg_User wrote:
Mon Nov 11, 2019 4:09 pm
Why would you rebuy before the ex-dividend day.... makes no sense. The OP would then just get more dividends at their nominal tax rate, would be closer to the cliff to loose the zero rate, and certainly wouldn't help themselves AFA future tax loss harvest since in either case the basis would have been the same ( number post dividend would be pre-dividend less dividend).... the OP merely would be "buying the dividend" (and paying the associated tax) which is NOT WHAT YOU WANT TO DO
Since OP has 0% space to spare, he should maximize his LTCG and QDivs. Selling before the div maximizes his LTCG. He should also "buy the dividend" since he'll get that tax-free too (as long as it's qualified). That way his new shares have a higher basis (compared to buying post dividend and assuming he has divs reinvested) which is beneficial when he sells later.

Example: buying 10k which has a 1k div

if buy post-div:
  • basis is 10k, no divs no taxes
if buy pre-div:
  • starting basis is 10k
  • 1k QDivs the next day (no taxes due to 0% space, must hold 61 days)
  • reinvest 1k
  • basis on all shares is 11k
He ends up with the same number of shares either way, but his basis is 1k higher! btw, this should have been the first answer on this thread, given the nature of this board and the question that was asked.

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LIGuy82
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Re: Tax Gain Harvesting and Dividend Schedule

Post by LIGuy82 » Sun Nov 17, 2019 10:47 am

He ends up with the same number of shares either way, but his basis is 1k higher! btw, this should have been the first answer on this thread, given the nature of this board and the question that was asked.
Thank you very much for a concise and clear answer. Much appreciated.

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Re: Tax Gain Harvesting and Dividend Schedule

Post by boomer_techie » Mon Nov 18, 2019 3:57 am

the way wrote:
Sat Nov 16, 2019 2:11 pm
Since OP has 0% space to spare, he should maximize his LTCG and QDivs. Selling before the div maximizes his LTCG. He should also "buy the dividend" since he'll get that tax-free too (as long as it's qualified). That way his new shares have a higher basis (compared to buying post dividend and assuming he has divs reinvested) which is beneficial when he sells later.
If the OP has more investment gain than 0% space, it shouldn't matter when the OP trades: Sell/buy just before a dividend vs. sell/buy just after a dividend.

Both options result in a dividend which, with a sufficiently long holding period, we'll assume is qualified. That removes it from consideration.

The first option updates a smaller number of shares to a higher new basis. The second option updates a larger number of shares to a lower new basis. In the long run, these should balance.

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