Does selling shares of a fund within a year trigger a Capital Gain?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 6:12 am

If I rebalance in taxable will that trigger a short term capital gain? Does it matter when I've only accrued $195 in my taxable and I'm in the 15% tax bracket? I've only had my Fidelity account for 3 months as of today.

I want to put next years $6k for my Roth into the taxable and then transfer it to the Roth in a year. Is that ok? I figured I could put it in a Freedom fund to generate a little appreciation before transferring it to my Roth. I'll have to wait over a year though to avoid a short term gain, correct?

Thanks

User avatar
JoeRetire
Posts: 4856
Joined: Tue Jan 16, 2018 2:44 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by JoeRetire » Wed Feb 12, 2020 7:12 am

"A short-term gain is a profit realized from the sale, transfer or other disposition of personal or investment property known as a capital asset that has been held for one year or less. A short-term capital gain occurs when an investment is sold that's been held for less than one year such as a stock."

https://www.investopedia.com/terms/s/sh ... m-gain.asp
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

rkhusky
Posts: 8199
Joined: Thu Aug 18, 2011 8:09 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by rkhusky » Wed Feb 12, 2020 7:55 am

Short term gains (1 year or less) are taxed at your income tax rate.

Long term gains (more than 1 year) are taxed at the long term capital gains rate (LTCG).

You mean you are in the 15% LTCG rate bracket? That would mean your income tax rate is 22%+.

There are also short term and long term losses.

Stocks and bonds held in a taxable account are also taxed on yearly dividends and capital gain distributions, regardless of whether you sell.

If you hold the Roth contribution in a savings account, you will be taxed on the interest.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 8:08 am

rkhusky wrote:
Wed Feb 12, 2020 7:55 am
Short term gains (1 year or less) are taxed at your income tax rate.

Long term gains (more than 1 year) are taxed at the long term capital gains rate (LTCG).

You mean you are in the 15% LTCG rate bracket? That would mean your income tax rate is 22%+.

There are also short term and long term losses.

Stocks and bonds held in a taxable account are also taxed on yearly dividends and capital gain distributions, regardless of whether you sell.

If you hold the Roth contribution in a savings account, you will be taxed on the interest.
No I don't make a lot. My income tax rate is 15%.

rkhusky
Posts: 8199
Joined: Thu Aug 18, 2011 8:09 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by rkhusky » Wed Feb 12, 2020 8:10 am

thelateinvestor43 wrote:
Wed Feb 12, 2020 8:08 am
No I don't make a lot. My income tax rate is 15%.
There is no 15% rate. It changed to 12% a few years ago. And, if you are in the 12% income tax bracket, the LTCG rate is 0%.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 8:10 am

But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 8:11 am

rkhusky wrote:
Wed Feb 12, 2020 8:10 am
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:08 am
No I don't make a lot. My income tax rate is 15%.
There is no 15% rate. It changed to 12% a few years ago. And, if you are in the 12% income tax bracket, the LTCG rate is 0%.
Yeah, sorry I'm in 12% bracket.

student
Posts: 4521
Joined: Fri Apr 03, 2015 6:58 am

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by student » Wed Feb 12, 2020 8:12 am

thelateinvestor43 wrote:
Wed Feb 12, 2020 8:10 am
But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?
If you are only selling some, you can use specific shares, that is, telling them which shares to sell. So if you are selling those that you have hold for more than a year, then it will be long term capital gain.

rkhusky
Posts: 8199
Joined: Thu Aug 18, 2011 8:09 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by rkhusky » Wed Feb 12, 2020 8:13 am

thelateinvestor43 wrote:
Wed Feb 12, 2020 8:10 am
But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?
The shares held for 1 year or less will be taxed at your income tax rate, if there is a gain on those shares.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 8:15 am

I'm just wondering how I'm going to transfer my $6k that I build up in my taxable in a fund to my Roth without getting a CG. Does adding shares to a mutual fund start the whole 1 year count down to LTCG again or is it from when you purchase the original mutual fund?

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 8:16 am

student wrote:
Wed Feb 12, 2020 8:12 am
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:10 am
But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?
If you are only selling some, you can use specific shares, that is, telling them which shares to sell. So if you are selling those that you have hold for more than a year, then it will be long term capital gain.
How can i sell certain shares? I've never heard of that at Fidelity, but I'm still new to this. Does it show under PURCHASE HISTORY AND LOTS? It says something about "Brokerages are required to report adjusted basis ...... and shows TERM short?

student
Posts: 4521
Joined: Fri Apr 03, 2015 6:58 am

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by student » Wed Feb 12, 2020 8:24 am

thelateinvestor43 wrote:
Wed Feb 12, 2020 8:16 am
student wrote:
Wed Feb 12, 2020 8:12 am
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:10 am
But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?
If you are only selling some, you can use specific shares, that is, telling them which shares to sell. So if you are selling those that you have hold for more than a year, then it will be long term capital gain.
How can i sell certain shares? I've never heard of that at Fidelity, but I'm still new to this.
It is call specific shares method. https://scs.fidelity.com/webxpress/help ... ares.shtml

MotoTrojan
Posts: 8222
Joined: Wed Feb 01, 2017 8:39 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by MotoTrojan » Wed Feb 12, 2020 9:15 am

If the alternative is leaving it in cash, then just pay the taxes and be happy you made money.

You need to make sure you understand wash sales though because it’s likely that you’ll have a loss at some point and if you sell at a loss in taxable you cannot buy the same fund in your Roth within 30 days (past or future), and that includes automatic dividend reinvestments.

mega317
Posts: 3290
Joined: Tue Apr 19, 2016 10:55 am

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by mega317 » Wed Feb 12, 2020 9:22 am

MotoTrojan wrote:
Wed Feb 12, 2020 9:15 am
if you sell at a loss in taxable you cannot buy the same fund in your Roth within 30 days (past or future)
Sure you can. You might have the loss disallowed which isn't ideal but it's not like anything else gets messed up.

I love OPs idea. Most would hold the contribution in a savings account or similar, but better to pay taxes on made money than make none at all. And yes a loss can have a benefit too if you do it right. Just buy now in taxable whatever you'd buy in the Roth.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

MotoTrojan
Posts: 8222
Joined: Wed Feb 01, 2017 8:39 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by MotoTrojan » Wed Feb 12, 2020 9:32 am

mega317 wrote:
Wed Feb 12, 2020 9:22 am
MotoTrojan wrote:
Wed Feb 12, 2020 9:15 am
if you sell at a loss in taxable you cannot buy the same fund in your Roth within 30 days (past or future)
Sure you can. You might have the loss disallowed which isn't ideal but it's not like anything else gets messed up.

I love OPs idea. Most would hold the contribution in a savings account or similar, but better to pay taxes on made money than make none at all. And yes a loss can have a benefit too if you do it right. Just buy now in taxable whatever you'd buy in the Roth.
Disallowed loss is money left on the table. Why would you not push OP to learn how to keep that in their pocket?

Dottie57
Posts: 7867
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by Dottie57 » Wed Feb 12, 2020 10:41 am

student wrote:
Wed Feb 12, 2020 8:24 am
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:16 am
student wrote:
Wed Feb 12, 2020 8:12 am
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:10 am
But if I have a mutual fund and hold it for a year and throughout the year buy more shares and then sell SOME or all of it to put $6k in the Roth, will that be a short term capital gain?
If you are only selling some, you can use specific shares, that is, telling them which shares to sell. So if you are selling those that you have hold for more than a year, then it will be long term capital gain.
How can i sell certain shares? I've never heard of that at Fidelity, but I'm still new to this.
It is call specific shares method. https://scs.fidelity.com/webxpress/help ... ares.shtml
Great link. I’ve been looking for this info too!

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Wed Feb 12, 2020 3:27 pm

Thanks guys! All this wash and disallowed, etc is above my puny brain right now! :shock:

I was thinking of getting a Freedom index fund (maybe 50/50) or something and dumping all my new "savings" for this year in that (Trying to save $800 a month) and then selling $6k of it when the time comes to put it in the Roth next year. I'd have to wait over 12 months though, right? Or is it better to just put it in a money market mutual fund?

The only reason I want to put my new savings in a separate fund is it would be easier to remember what I've saved this year. Yes, I could just write it down, but seeing another fund with NEW savings going in could keep me motivated, although I plan to stay motivated and HAVE TO! Also I like that part of my new contributions would be automagically divided amongst bond and international also (although Inter. not doing well at the moment).

You don't pay CG's on selling from a money market mutual fund do you?

Thanks for the Fidelity link on selling certain shares!! :shock:

Are short term Capital Gains really that bad, come to think of it? Isn't it just like paying income tax on newly earned money? And the gain is only on the appreciation, which shouldn't be much on $10k?



time for a :sharebeer

mhalley
Posts: 7914
Joined: Tue Nov 20, 2007 6:02 am

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by mhalley » Wed Feb 12, 2020 7:21 pm

Short term gains are bad in the sense that in most cases, people pay higher taxes on regular income than the capital gains tax rate. It is best not to use blended funds (stocks AND bonds) in taxable accounts as you lose out on the ability of tax loss harvesting. I would not put money that is to be used in a year (in this case, put in a roth) in stock funds as there is too much risk. Money that is to be used within 5 years should generally be saved, not invested. CDs, high interest savings, mm accounts, etc.
MM funds keep their price at one dollar, so there are no cap gains when selling them.

mortfree
Posts: 2070
Joined: Mon Sep 12, 2016 7:06 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by mortfree » Wed Feb 12, 2020 7:40 pm

With the numerous threads you continue to exemplify the tell tale signs of a trader and not an investor.

Why are you selling now for the 2021 Roth? Market timing at its finest.

At least you keep it entertaining around here.

MitchL
Posts: 106
Joined: Tue Feb 20, 2007 7:36 pm
Location: Minneapolis

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by MitchL » Wed Feb 12, 2020 8:03 pm

thelateinvestor43 wrote:
Wed Feb 12, 2020 8:15 am
I'm just wondering how I'm going to transfer my $6k that I build up in my taxable in a fund to my Roth without getting a CG. Does adding shares to a mutual fund start the whole 1 year count down to LTCG again or is it from when you purchase the original mutual fund?
Why don't you just leave that money in the Fidelity Freedom fund? No sale, no wash, no CG.
Then in 2021 contribute monthly (or whatever) directly to your 2021 Roth until you reach $6000?

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Thu Feb 13, 2020 6:23 am

mortfree wrote:
Wed Feb 12, 2020 7:40 pm
With the numerous threads you continue to exemplify the tell tale signs of a trader and not an investor.

Why are you selling now for the 2021 Roth? Market timing at its finest.

At least you keep it entertaining around here.
Who said I'm selling? I wanted to invest the money that I'm currently saving towards next years Roth contribution. Thanks, I'm glad I'm entertaining you.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Thu Feb 13, 2020 6:27 am

What about selling my long term shares after one year in my FSKAX Total Market and then buying into the FSKAX that I have in my Roth? Is that a no-no?

Or should I rather be putting my $800 a month savings into my taxable and then next year contributing throughout the year to the 2021 Roth. Is that what I should be doing?

Sorry, confused.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Thu Feb 13, 2020 6:29 am

MitchL wrote:
Wed Feb 12, 2020 8:03 pm
thelateinvestor43 wrote:
Wed Feb 12, 2020 8:15 am
I'm just wondering how I'm going to transfer my $6k that I build up in my taxable in a fund to my Roth without getting a CG. Does adding shares to a mutual fund start the whole 1 year count down to LTCG again or is it from when you purchase the original mutual fund?
Why don't you just leave that money in the Fidelity Freedom fund? No sale, no wash, no CG.
Then in 2021 contribute monthly (or whatever) directly to your 2021 Roth until you reach $6000?
Thanks. I think that's a good idea!

rascott
Posts: 1433
Joined: Wed Apr 15, 2015 10:53 am

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by rascott » Thu Feb 13, 2020 9:51 am

Honestly just ignore the taxes and be happy if you make money. Don't let the tax tail wag ther dog.

You should be able to sell specific shares that have the least gain to minimize, but if that's too complicated for you, just ignore it.

The amount of tax we are potentially talking about in your situation is minuscule.

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Thu Feb 13, 2020 9:57 am

rascott wrote:
Thu Feb 13, 2020 9:51 am
Honestly just ignore the taxes and be happy if you make money. Don't let the tax tail wag ther dog.

You should be able to sell specific shares that have the least gain to minimize, but if that's too complicated for you, just ignore it.

The amount of tax we are potentially talking about in your situation is minuscule.
Right, its not like its a million dollars! But, I think I'll just contribute directly to the Roth next year like above mentioned.

Jack FFR1846
Posts: 11136
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by Jack FFR1846 » Thu Feb 13, 2020 10:08 am

How about this: Sell nothing. Contribute towards your 2020 Roth as you have money to contribute. If by April of 2021, you have not filled up your Roth, THEN sell some of your funds. Why? By then, they will be well over a year old and you'll pay zero cap gain, assuming you're in the 12% bracket still. Why the heck do you need to fund your 2020 Roth now? I plan to fund my 2019 Roth and my wife's 2019 Roth after we do our taxes. So likely mid March. Why the rush?
Bogle: Smart Beta is stupid

User avatar
grabiner
Advisory Board
Posts: 25832
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by grabiner » Thu Feb 13, 2020 10:31 pm

thelateinvestor43 wrote:
Thu Feb 13, 2020 6:27 am
What about selling my long term shares after one year in my FSKAX Total Market and then buying into the FSKAX that I have in my Roth? Is that a no-no?
It is fine to do this if you have a capital gain, although it may not be the best strategy if you will have a tax bill on that gain.

If you have a capital loss, doing this would create a wash sale, and you would not be able to deduct the capital loss. To avoid a wash sale, buy in your Roth only 31 days before or after you sell for a capital loss, or buy something in your Roth which is not substantially identical to the fund you sold.
Wiki David Grabiner

Topic Author
thelateinvestor43
Posts: 527
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by thelateinvestor43 » Fri Feb 14, 2020 1:29 am

Jack FFR1846 wrote:
Thu Feb 13, 2020 10:08 am
How about this: Sell nothing. Contribute towards your 2020 Roth as you have money to contribute. If by April of 2021, you have not filled up your Roth, THEN sell some of your funds. Why? By then, they will be well over a year old and you'll pay zero cap gain, assuming you're in the 12% bracket still. Why the heck do you need to fund your 2020 Roth now? I plan to fund my 2019 Roth and my wife's 2019 Roth after we do our taxes. So likely mid March. Why the rush?
My 2020 Roth is FULLY funded. I had $6k in savings that I put in. I'm talking about 2021 Roth. But I'll just contribute to it during 2021.

vipertom1970
Posts: 296
Joined: Fri Jun 21, 2019 7:06 pm

Re: Does selling shares of a fund within a year trigger a Capital Gain?

Post by vipertom1970 » Sat Feb 15, 2020 2:54 am

thelateinvestor43 wrote:
Fri Feb 14, 2020 1:29 am
Jack FFR1846 wrote:
Thu Feb 13, 2020 10:08 am
How about this: Sell nothing. Contribute towards your 2020 Roth as you have money to contribute. If by April of 2021, you have not filled up your Roth, THEN sell some of your funds. Why? By then, they will be well over a year old and you'll pay zero cap gain, assuming you're in the 12% bracket still. Why the heck do you need to fund your 2020 Roth now? I plan to fund my 2019 Roth and my wife's 2019 Roth after we do our taxes. So likely mid March. Why the rush?
My 2020 Roth is FULLY funded. I had $6k in savings that I put in. I'm talking about 2021 Roth. But I'll just contribute to it during 2021.
Did you fund 2019 Roth ?
Invest what you have now in taxable account based on your AA and LEAVE IT ALONE then contribute $800 per month into Roth starting January 1st 2021 and LEAVE IT ALONE.

Post Reply