Sell expensive Hartford funds?

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dan7800
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Joined: Wed Apr 07, 2021 5:49 am

Sell expensive Hartford funds?

Post by dan7800 »

I am 38 years old, married and financially comfortable in the US. 15 years ago I foolishly purchased expensive front loaded Hartford funds for my Roth and taxable accounts. I plan on selling the funds in my Roth account (since it will not incur a taxable event), but I am wondering if it would make sense to also sell the funds in my taxable account (for a mixture of VTAX, VXUS). I know that I will incur a large tax hit, which is why I am wondering if I should just pay the fees for the next ~20 years, or sell and incur the large tax hit. Here is the information for my taxable account.

Image


Ticker Total Cost basis Unrealized Expense
HGHAX 8,698.62 5,716.37 1.27
HDVAX 9,611.86 4,335.39 0.99
HGOAX 28,925.36 18,767.18 1.1
HSLAX 13,766.21 10,781.45 1.26
IHGIX 8,771.60 3,431.18 1
69,773.65 43,031.57

Thank you very much
-Dan
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

Welcome to Bogeheads!

I would definitely sell these funds in taxable and move to low cost diversified funds. However, I would encourage you to model the tax consequences of selling all or a portion of them as the long term gains are taxed at favorable capital gain rates. It could be that doing this over two tax years may result in less of a tax burden. If that were the case then do the first sale now and the rest in January 2022.

If you donate to charity you could also use some of these holdings to support that effort and then invest the cash you would have contributed to charity into your desired taxable funds.

Cheers
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CyclingDuo
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Re: Sell expensive Hartford funds?

Post by CyclingDuo »

dan7800 wrote: Wed Apr 07, 2021 5:59 am I am 38 years old, married and financially comfortable in the US. 15 years ago I foolishly purchased expensive front loaded Hartford funds for my Roth and taxable accounts. I plan on selling the funds in my Roth account (since it will not incur a taxable event), but I am wondering if it would make sense to also sell the funds in my taxable account (for a mixture of VTAX, VXUS). I know that I will incur a large tax hit, which is why I am wondering if I should just pay the fees for the next ~20 years, or sell and incur the large tax hit. Here is the information for my taxable account.

Image


Ticker Total Cost basis Unrealized Expense
HGHAX 8,698.62 5,716.37 1.27
HDVAX 9,611.86 4,335.39 0.99
HGOAX 28,925.36 18,767.18 1.1
HSLAX 13,766.21 10,781.45 1.26
IHGIX 8,771.60 3,431.18 1
69,773.65 43,031.57

Thank you very much
-Dan
Beyond the original front load you paid, the expenses are high on those funds and robbing you of returns over the long haul.

Step one, Dan, is to take all the dividends that your funds in taxable are throwing off and invest them in VTI/VXUS, rather than back into more shares of the same high cost funds. All new contributions would go to VTI/VXUS in taxable as well as part of this step.

Step two would be to mitigate the tax hit in any given year, and sell off a portion each year in taxable and move to the lower cost efficient funds such as VTI/VXUS. Whether this takes you one, two, three, or four+ years to spread out the capital gains is up to you. Depending on your taxable income and pre-tax retirement account options, you may be able to mitigate some of that if you can keep the taxable income down as low as possible to be in the 0% cap gains rate, or the 15% cap gains rate if it must be.

MJF window ledge for the 0% capital gains on LTCG is taxable income of $80,800.

How to Possibly Pay 0% in Taxes on Your Taxable Investment Gains
https://www.kiplinger.com/taxes/tax-pla ... %20couples.

We use the sweet spot in our household to accomplish this with dividends/LTCG (tax harvest gains), but also have three plans plus a mandatory pension contribution to utilize so we can accomplish that (401k, 403b, 457b, pension plan). Since we are over age 50, that means we can stuff $26K X 3 into the pre-tax retirement accounts plus the pension pre-tax contribution in years we want to mitigate our current taxes. Of course, the sweet spot trick requires that you also have enough left over in take home pay to cover your household expenses. :beer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Topic Author
dan7800
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Joined: Wed Apr 07, 2021 5:49 am

Re: Sell expensive Hartford funds?

Post by dan7800 »

CyclingDuo wrote: Wed Apr 07, 2021 7:08 am Beyond the original front load you paid, the expenses are high on those funds and robbing you of returns over the long haul.

Step one, Dan, is to take all the dividends that your funds in taxable are throwing off and invest them in VTI/VXUS, rather than back into more shares of the same high cost funds. All new contributions would go to VTI/VXUS in taxable as well as part of this step.

Step two would be to mitigate the tax hit in any given year, and sell off a portion each year in taxable and move to the lower cost efficient funds such as VTI/VXUS. Whether this takes you one, two, three, or four+ years to spread out the capital gains is up to you. Depending on your taxable income and pre-tax retirement account options, you may be able to mitigate some of that if you can keep the taxable income down as low as possible to be in the 0% cap gains rate, or the 15% cap gains rate if it must be.

MJF window ledge for the 0% capital gains on LTCG is taxable income of $80,800.

How to Possibly Pay 0% in Taxes on Your Taxable Investment Gains
https://www.kiplinger.com/taxes/tax-pla ... %20couples.

We use the sweet spot in our household to accomplish this with dividends/LTCG (tax harvest gains), but also have three plans plus a mandatory pension contribution to utilize so we can accomplish that (401k, 403b, 457b, pension plan). Since we are over age 50, that means we can stuff $26K X 3 into the pre-tax retirement accounts plus the pension pre-tax contribution in years we want to mitigate our current taxes. Of course, the sweet spot trick requires that you also have enough left over in take home pay to cover your household expenses. :beer

CyclingDuo
Thank you very much for your help.

- Step #1 is complete and I have seen the "light" of the VTI/VXUS.
- I will unlikely be able to use the 0% trick, as my wife and I have a combined income of ~180 (we both max out our 401k and Roth each year into VG index funds)
- It sounds like my "task" will be to make sure that I don't sell off so much that I increase my tax bracket?
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CyclingDuo
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Re: Sell expensive Hartford funds?

Post by CyclingDuo »

dan7800 wrote: Wed Apr 07, 2021 7:43 am Thank you very much for your help.

- Step #1 is complete and I have seen the "light" of the VTI/VXUS.
- I will unlikely be able to use the 0% trick, as my wife and I have a combined income of ~180 (we both max out our 401k and Roth each year into VG index funds)
- It sounds like my "task" will be to make sure that I don't sell off so much that I increase my tax bracket?
Got it. Sometimes posters have a job or two in the household within fields that also includes a 457 plan or two and salaries in the sweet spot to be able to harvest some capital gains/dividends at 0%. Sounds like you are doing all you can with the plans you have. Do you have any carryover long term capital losses?

You can run your numbers in a tax program (Turbo, H&R Block, online sites, etc...) to see the difference if you sold the Hartford funds in taxable all at once vs. selling off say $10K of cap gains per year to get an idea. I would probably lean to the latter even with the high ER fees since the rest of your portfolio is now focused on lower cost investments. The current $69K in the taxable Hartford funds of an eventual much, much larger overall portfolio will continue to become a smaller and smaller percentage and cost drag even if left as is, so I wouldn't be losing too much sleep over it in the greater scheme.

A correction or market swoon might come along where your current capital gains would be lower allowing you to sell with less gain to harvest and move that capital into lower cost investments. You could also calculate out what it would cost you to keep the Hartford funds in your taxable over the next 20 or so years with the higher fees and capital gain distributions those funds make until you reach the sweet spot between retirement and RMD's/SS begins to harvest capital gains on the share prices at the lowest rate compared to paying taxes on doing that now. That way you could figure out a guesstimate of where the break even point is for the payoff to have made it worthwhile. It's always a tough conundrum, not to mention the constant reminder of an investment decision you made years ago.

Regarding that last point of the constant reminder, suffice it to say that you are in good company with nearly every member here on the Bogleheads forum. We have all made investment decisions in the past that could have been better.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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Stinky
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Re: Sell expensive Hartford funds?

Post by Stinky »

Silk McCue wrote: Wed Apr 07, 2021 6:52 am
If you donate to charity you could also use some of these holdings to support that effort and then invest the cash you would have contributed to charity into your desired taxable funds.
Dan, welcome to the Forum!

I just wanted to second the motion of donating some of the funds to charity, if you are so inclined. By doing so, you will avoid paying the capital gains tax, and get a tax deduction for the full current market value (assuming that all of the donated amounts qualify for long-term gain treatment).

Instead of donating directly to a charity, you could set up a donor-advised fund (DAF), and donate the shares to it. The Fidelity DAF is one that is spoken of positively on the Forum, and I have a Fidelity DAF. A DAF would allow you to make distributions to your desired charities over time, rather than all at once.
It's a GREAT day to be alive! - Travis Tritt
JBTX
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Re: Sell expensive Hartford funds?

Post by JBTX »

Your capital gains tax will be about $7000 if you sold them all. You will probably save around $1500 a year in expenses. About 4 years to break even.

I'd probably bite the bullet and just sell them. It isn't likely any time soon your taxable income could go low enough to get to 0 cap gains rate. It doesn't seem likely any of those positions will decrease enough to have tax loss harvesting activities. Selling them all at once shouldn't put you in a higher capital gains tax rate.

One thing to be aware of for 2021, is if you didn't get a 2021 stimulus yet, but your 2020 AGI is below $150k, you should be eligible for 2021 stimulus and you wouldn't want cap gains to blow that up.
stimulacra
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Re: Sell expensive Hartford funds?

Post by stimulacra »

I'd sell it one fund at a time… either smallest balance first or highest ER first and work my way through the list.

Have you back-tested those funds against similar index funds? Usually the gap due to fees is what motivates me to make the transition.
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Strifey
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Re: Sell expensive Hartford funds?

Post by Strifey »

I'm 36 and recently went through the same exercise, my uncle convinced me to buy some expensive American Funds in my 20s also.

I ended up making a spreadsheet with the annual ER on my totals against each fund and what I would pay in LTCG.

For me it came out to 8.2 years to break even on my overall taxable portfolio I wanted to exit and simplify into VTI, but the 2021 CG tax would have been quite high.

Instead I ended up exiting funds with the highest ERs first (.8% was my breakpoint, I had one that was as high as 1.3%!) and a couple funds that had minimal capital gains and wouldn't have a large tax hit.

Ultimately this led me to exiting about half of what I wanted to do this year, but the breakeven point on the funds I sold was 6.5 years meaning I got out of the more expensive ones first.

Next year I'll revisit and sell off the remaining. If we do have a market correction and I can do some TLH that also gives me an option to sell at that time.
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

stimulacra wrote: Wed Apr 07, 2021 1:11 pm I'd sell it one fund at a time… either smallest balance first or highest ER first and work my way through the list.

Have you back-tested those funds against similar index funds? Usually the gap due to fees is what motivates me to make the transition.
I would be moving to VTI/VXUS, so here is a backtest against those funds:

https://www.google.com/finance/quote/VT ... &window=5Y

The Health fund has actually performed quite well.
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

Thank you very much everyone for the helpful advice. A few things:
  • Is one thing that is not being considered the tax implications of retaining this actively managed funds? I assume that this would be an argument against keeping them
  • Could I look at it in the sense that I will either be paying these LT gains now, or in ~20-25 years when I retire?
Right now, I am leaning towards biting the bullet and cashing out for VT/VXUS.

A few other questions:
  • I've owned C for a few years and I can sell for a loss (~3k total). I assume that this might be a good time to sell them to help with these earnings
  • I own a gold stock. Let's just say that for argument's sake I sell the gold stock to buy a gold etf. Would this be considered a tax harvest?
Thanks
-Dan
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Wed Apr 07, 2021 8:42 pm Thank you very much everyone for the helpful advice. A few things:
  • Is one thing that is not being considered the tax implications of retaining this actively managed funds? I assume that this would be an argument against keeping them
  • Could I look at it in the sense that I will either be paying these LT gains now, or in ~20-25 years when I retire?
Right now, I am leaning towards biting the bullet and cashing out for VT/VXUS.

A few other questions:
  • I've owned C for a few years and I can sell for a loss (~3k total). I assume that this might be a good time to sell them to help with these earnings
  • I own a gold stock. Let's just say that for argument's sake I sell the gold stock to buy a gold etf. Would this be considered a tax harvest?
Thanks
-Dan
Your first two questions above are easy answers for me without getting into too many details. I’d be getting rid of these holdings as quickly as possible in a tax efficient manner. Therefore I don’t need to explore the tax implications of keeping them or the difference of recognizing gains now or in 25 years.

The next two questions - 1) yes you can offset long term gains against long term losses to reduce taxes owed. 2) your next question is about “tax loss harvesting” and avoiding a Wash Sale. Not certain how that applies to what you are doing here as you are selling to buy disparate holdings which would not have a chance of being a Wash sale. If you are actually talking about a Gold fund I personally wouldn’t hold one.

Cheers
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Stinky
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Re: Sell expensive Hartford funds?

Post by Stinky »

I agree with Silk McCue.

The only thing I’ll add is about the question of paying capital gains taxes today vs holding the current funds and paying taxes in 20 years. I’d rather pay the taxes now and move into low cost, tax efficient funds.

If you hold the current funds, you’ll make less money due to the higher expense ratios and tax drag of the current funds. So you’ll pay less in taxes in 20 years - because you made less money. :twisted:
It's a GREAT day to be alive! - Travis Tritt
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

For conducting the sale in the most tax efficient manner, this is where I am still a bit confused.

- Does this mean I should coordinate the sales to not push me into a higher track?
- Or are we referring to other actions that could be taken (eg charitable donations, coordinating with losses, etc....).

From what I am hearing, it would make the most sense to sell these, bite the bullet and move on.

Thanks again everyone. This is an awesome community.
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Thu Apr 08, 2021 5:31 am For conducting the sale in the most tax efficient manner, this is where I am still a bit confused.

- Does this mean I should coordinate the sales to not push me into a higher track?
- Or are we referring to other actions that could be taken (eg charitable donations, coordinating with losses, etc....).

From what I am hearing, it would make the most sense to sell these, bite the bullet and move on.

Thanks again everyone. This is an awesome community.
If you want to “bite the bullet and move on” based on your assessment of the situation that is a valid choice. I made a bite the bullet Roth conversion decision that pushed $100k into the next higher bracket a couple of years ago but based on my analysis it was the right decision for us.

Cheers
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Stinky
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Re: Sell expensive Hartford funds?

Post by Stinky »

dan7800 wrote: Thu Apr 08, 2021 5:31 am For conducting the sale in the most tax efficient manner, this is where I am still a bit confused.

- Does this mean I should coordinate the sales to not push me into a higher track?
- Or are we referring to other actions that could be taken (eg charitable donations, coordinating with losses, etc....).

From what I am hearing, it would make the most sense to sell these, bite the bullet and move on.

Thanks again everyone. This is an awesome community.
You can “bite the bullet”, and sell all of your high expense mutual funds.

You can reduce the tax “bite” by taking tax losses or by making charitable contributions.

If it were me, I would reduce the tax bite. There’s really no reason not to.
It's a GREAT day to be alive! - Travis Tritt
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

The other fund that I've owned for a while (was gifted to me) is AMECX (ER .57). My LT capital gains on this is ~22k

A backtest doesn't appear too favorable vs VTI - which is what I would convert this to.
https://www.google.com/finance/quote/VT ... &window=5Y

According to this site: https://erwealth.com/podcastblog/will-c ... ax-bracket it doesn't appear that the LT gains from selling my Hartford funds (LT=43) and AMECX (LT=22) will push me to a higher Long-term Capital Gains Tax Bracket, so other than a large tax bill next year then, it doesn't appear as though selling everything at once will adversely impact me?
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Thu Apr 08, 2021 6:52 am The other fund that I've owned for a while (was gifted to me) is AMECX (ER .57). My LT capital gains on this is ~22k

A backtest doesn't appear too favorable vs VTI - which is what I would convert this to.
https://www.google.com/finance/quote/VT ... &window=5Y

According to this site: https://erwealth.com/podcastblog/will-c ... ax-bracket it doesn't appear that the LT gains from selling my Hartford funds (LT=43) and AMECX (LT=22) will push me to a higher Long-term Capital Gains Tax Bracket, so other than a large tax bill next year then, it doesn't appear as though selling everything at once will adversely impact me?
You seem to be asking us our opinion regarding if this will adversely impact you. It appears to me that you have the information you need to make this decision as you understand the tax consequences. If you are comfortable with CG rates you will pay if done this year then I would sell and move on.

Cheers
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dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

Thanks for the help all. One thing that I am currently looking into is if I can gift many of the shares to family members who make <$80K/year. Then they could sell the stocks and not pay LT CG due to them making less than the 80K threshold.
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Fri Apr 09, 2021 4:59 am Thanks for the help all. One thing that I am currently looking into is if I can gift many of the shares to family members who make <$80K/year. Then they could sell the stocks and not pay LT CG due to them making less than the 80K threshold.
That would be very generous of you.

Some people try to avoid paying taxes by making such a move and then having the funds returned to them by the family members. That would be considered a Step Transaction by the IRS and likely tax fraud.

Cheers
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

Silk McCue wrote: Fri Apr 09, 2021 5:34 am
dan7800 wrote: Fri Apr 09, 2021 4:59 am Thanks for the help all. One thing that I am currently looking into is if I can gift many of the shares to family members who make <$80K/year. Then they could sell the stocks and not pay LT CG due to them making less than the 80K threshold.
That would be very generous of you.

Some people try to avoid paying taxes by making such a move and then having the funds returned to them by the family members. That would be considered a Step Transaction by the IRS and likely tax fraud.

Cheers
I will be having my first child soon. What if the family member decided to keep some of the funds for themselves, and then decided to put some of the $$ into a 529 for the child?

Would my rationale of gifting the funds to family members who make <80k and having them immediately sell the funds for their own profit sound like it would result in them paying 0% LT CG? I just want to make sure that I properly understand things.

Thanks
-Dan
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Fri Apr 09, 2021 5:37 am
I will be having my first child soon. What if the family member decided to keep some of the funds for themselves, and then decided to put some of the $$ into a 529 for the child?

Would my rationale of gifting the funds to family members who make <80k and having them immediately sell the funds for their own profit sound like it would result in them paying 0% LT CG? I just want to make sure that I properly understand things.

Thanks
-Dan
Your family member deciding to give to the 529 on their own without you ever suggesting it would be very generous. Any other arrangement would violate the Step Transaction. As is appropriate discussions of illegal activity are strictly forbidden on Bogleheads and that would be illegal.

The family members would receive your tax basis in the gifted stocks. The tax math will bear out 0% LTCG if their current taxable income plus the LTCG gains doesn't push them higher. You need to model the specific numbers you are talking about rather than look for a broad definitive answer.

Cheers
Topic Author
dan7800
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Re: Sell expensive Hartford funds?

Post by dan7800 »

Silk McCue wrote: Fri Apr 09, 2021 6:24 am
dan7800 wrote: Fri Apr 09, 2021 5:37 am
I will be having my first child soon. What if the family member decided to keep some of the funds for themselves, and then decided to put some of the $$ into a 529 for the child?

Would my rationale of gifting the funds to family members who make <80k and having them immediately sell the funds for their own profit sound like it would result in them paying 0% LT CG? I just want to make sure that I properly understand things.

Thanks
-Dan
Your family member deciding to give to the 529 on their own without you ever suggesting it would be very generous. Any other arrangement would violate the Step Transaction. As is appropriate discussions of illegal activity are strictly forbidden on Bogleheads and that would be illegal.

The family members would receive your tax basis in the gifted stocks. The tax math will bear out 0% LTCG if their current taxable income plus the LTCG gains doesn't push them higher. You need to model the specific numbers you are talking about rather than look for a broad definitive answer.

Cheers
Thank you very much. The last thing that I want to do is anything illegal, so this knowledge of what is legal and not legal is extremely beneficial.
Silk McCue
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Re: Sell expensive Hartford funds?

Post by Silk McCue »

dan7800 wrote: Fri Apr 09, 2021 6:28 am
Thank you very much. The last thing that I want to do is anything illegal, so this knowledge of what is legal and not legal is extremely beneficial.
You are certainly welcome.

Cheers
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