TLH question DODBX to VWENX

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spartanap
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TLH question DODBX to VWENX

Post by spartanap »

I have some Dodge and Cox Balanced DODBX in my taxable account that I'd like to TLH and move to Wellington VWENX. Would you consider it “substantially identical”? It looks pretty close, but thought I would ask. Thanks.
dh
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Re: TLH question DODBX to VWENX

Post by dh »

spartanap wrote: Sun Mar 22, 2020 9:23 pm I have some Dodge and Cox Balanced DODBX in my taxable account that I'd like to TLH and move to Wellington VWENX. Would you consider it “substantially identical”? It looks pretty close, but thought I would ask. Thanks.
I looked at the top ten holdings for each, and they do not appear to be "substantially identical" I believe (correct me if I am wrong), something substantially identical would be selling Fidelity's S&P 500 Index and buying Vanguard's S&P 500 Index.
student
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Re: TLH question DODBX to VWENX

Post by student »

They are not substantially identical. In general, I don't see how two actively managed funds from different companies can be considered substantially identical.
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grabiner
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Re: TLH question DODBX to VWENX

Post by grabiner »

More of an issue than the TLH is that Wellington (VWENX) is not particularly tax-friendly; it sells stocks for capital gains and has relatively high-yielding corporate bonds. If you like Wellington, you would be better off holding it in your IRA, and using index funds for any stocks you hold in your taxable account.
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Re: TLH question DODBX to VWENX

Post by dbr »

As the many threads on TLH mention, there is not any actual mechanism implemented today for there to exist a wash sale for anything except actually identical replacement shares of mutual funds and ETFs. The only nuance is that share classes of the same fund are identical.

A person can hypothesize as much as they want what the rule would be if a rule were ever set out, or that the IRS is going to track down and disallow previous hypothetical wash sales, or that you will eventually be audited and have to correct your tax return, or that taxpayers are under a legal theory of being responsible to correctly interpret the law. If a person is concerned about that sort of thing a simple expedient is to wait out the +/-30 day period and replace the shares with what you sold.
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Re: TLH question DODBX to VWENX

Post by rkhusky »

dbr wrote: Mon Mar 23, 2020 10:35 am The only nuance is that share classes of the same fund are identical.
Any reports where Vanguard has flagged an ETF <-> mutual fund wash sale?
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Re: TLH question DODBX to VWENX

Post by dbr »

rkhusky wrote: Mon Mar 23, 2020 10:50 am
dbr wrote: Mon Mar 23, 2020 10:35 am The only nuance is that share classes of the same fund are identical.
Any reports where Vanguard has flagged an ETF <-> mutual fund wash sale?
Good question. An issue is that if the broker does not flag a wash sale and continues to keep basis data without all the correcting, what is the obligation of the taxpayer to revise everything in his tax returns. I also am not aware where the IRS says that share classes of the same fund are identical, we just know that is so, don't we.

The practical advice, as always, is don't sell the fund and buy the ETF if a wash sale would be involved just because somehow it might not be flagged by the broker.
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Re: TLH question DODBX to VWENX

Post by grabiner »

dbr wrote: Mon Mar 23, 2020 10:54 am
rkhusky wrote: Mon Mar 23, 2020 10:50 am
dbr wrote: Mon Mar 23, 2020 10:35 am The only nuance is that share classes of the same fund are identical.
Any reports where Vanguard has flagged an ETF <-> mutual fund wash sale?
Good question. An issue is that if the broker does not flag a wash sale and continues to keep basis data without all the correcting, what is the obligation of the taxpayer to revise everything in his tax returns.
Your obligation as a taxpayer is to certify that the tax forms, as submitted, are correct to the best of your knowledge; you sign such a statement on your form. Therefore, if you have income which was not reported, or receive a 1099 which you know to be incorrect, you must enter the correct numbers yourself.

When you do, or do not, report a particular transaction as a wash sale, then you are making a sworn statement that to the best of your knowledge, two securities are, or are not, substantially identical.
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spartanap
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Re: TLH question DODBX to VWENX

Post by spartanap »

Thanks for the replies. I am retiring in a couple months (Great timing :( ) and stopped reinvesting the divs/cap gain in DODBX at the start of this year. My thought is that the divs/cap gains will adequately supplement my pension to the extent that I will not have to, hopefully, touch my investments for non-discretionary spending. FYI: I do have Wellington in my Roth IRA.
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Re: TLH question DODBX to VWENX

Post by dbr »

spartanap wrote: Mon Mar 23, 2020 7:04 pm Thanks for the replies. I am retiring in a couple months (Great timing :( ) and stopped reinvesting the divs/cap gain in DODBX at the start of this year. My thought is that the divs/cap gains will adequately supplement my pension to the extent that I will not have to, hopefully, touch my investments for non-discretionary spending. FYI: I do have Wellington in my Roth IRA.
Spending dividends and capital gains is touching your investments. The reason why is that projections of how well a portfolio will support retirement withdrawals are based on what the expected returns are and expected returns include all the distributions. That said, if those distributions are small enough to keep you under a safe withdrawal rate, then that works just fine. For example, Wellington distributed about 5% of its value last year, which may or may not be a safe amount to spend -- it might be on the margin. About half of that distribution was a long term capital gains distribution.Total stock fund, on the other hand, distributed a little less than 2% That is certainly very safe, but actually less than a person might spend. Some people are happy to spend dividends but not capital gains distributions, which in the case of Wellington makes a big difference in a particular year.
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spartanap
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Re: TLH question DODBX to VWENX

Post by spartanap »

dbr wrote: Mon Mar 23, 2020 7:27 pm
spartanap wrote: Mon Mar 23, 2020 7:04 pm Thanks for the replies. I am retiring in a couple months (Great timing :( ) and stopped reinvesting the divs/cap gain in DODBX at the start of this year. My thought is that the divs/cap gains will adequately supplement my pension to the extent that I will not have to, hopefully, touch my investments for non-discretionary spending. FYI: I do have Wellington in my Roth IRA.
Spending dividends and capital gains is touching your investments. The reason why is that projections of how well a portfolio will support retirement withdrawals are based on what the expected returns are and expected returns include all the distributions. That said, if those distributions are small enough to keep you under a safe withdrawal rate, then that works just fine. For example, Wellington distributed about 5% of its value last year, which may or may not be a safe amount to spend -- it might be on the margin. About half of that distribution was a long term capital gains distribution.Total stock fund, on the other hand, distributed a little less than 2% That is certainly very safe, but actually less than a person might spend. Some people are happy to spend dividends but not capital gains distributions, which in the case of Wellington makes a big difference in a particular year.
My portfolio is currently in the $1.5M range and based on the amount of VWENX I plan to purchase, the div/cap gains would be far, far below the 4% threshold.
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