What happens if I DON'T tax loss harvest?

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chassis
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
smitcat
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Re: What happens if I DON'T tax loss harvest?

Post by smitcat »

chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
"It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions."
Perhaps for you and even for many others but that does not apply to everyone.
Da5id
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Re: What happens if I DON'T tax loss harvest?

Post by Da5id »

chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
You are making assumptions about things that don't apply to everyone. These assumptions include:
1) how much money $600/year is to an investor. Note that many here aren't wealthy. And also note that the $600 may take 20 minutes work, so the return per hour is quite good compared to other things people may choose to do

2) how much one can get in a year from TLH. One can only offset $3K ordinary income, true. Though that is worth about $1000/year for me (see below) currently. But one can offset any amount of short term gains (taxed at high rates) or other capital gains (taxed at 15% for many). People also gave examples upthread of having very large gains from say a house sale to offset.

3) that one doesn't have visibility into one's future tax burden. For example, I'm currently in the 35% federal due to inherited IRA RMDs. I'll be down at 22% once those RMDs end. Of course the rules can change, but clearly my income will be less.
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spdoublebass
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Re: What happens if I DON'T tax loss harvest?

Post by spdoublebass »

arcticpineapplecorp. wrote: Thu May 12, 2022 8:57 am
spdoublebass wrote: Wed May 11, 2022 10:50 pm
arcticpineapplecorp. wrote: Wed May 11, 2022 7:15 pm

sure they have to make withdrawals in 10 years but they won't be crying over all that tax free money.

I thought trad IRAs have to be used over 10 years.
Not Roth IRAs. Right?
first I referenced inherited accounts. You say trad IRA but I'm talking about an inherited IRA. So just to be clear:

1. trad IRAs can be withdrawn by the original owner of the trad IRA according to life tables at the IRS.
2. Roth IRAs do not need to be drawn down at all by the original owner of the Roth IRA.

Both inherited IRAs and inherited Roth IRAs have to be spent down by beneficiaries by Dec 31st of the 10th year following the year in which the original owner of the IRA or Roth IRA died. Any money not withdrawn from inherited IRA or inherited Roth IRA by Dec 31st of the 10th year following the year in which the original owner of the IRA or Roth IRA died will be subject to a 50% tax.

make sense?
Thank you. I swear I looked into that and completely got it wrong. Glad I asked.
I'm trying to think, but nothing happens
jbinpa59
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Re: What happens if I DON'T tax loss harvest?

Post by jbinpa59 »

JD2775 wrote: Wed May 11, 2022 6:40 pm I admit I know next to nothing about TLH and am afraid I would mess it up....

qoute edited for length

Basically, am I really hurting myself if I just leave it alone?
Short Answer)
In your situation I don't think you're hurting yourself by not TLH
if you're going to continue to hold those same funds long term, I'd only Cap Gains Harvest up to the 0% limit and not TLH at all

Long Answer)
My situation is different, and I think TLH following a previous Cap Gain Harvest can make sense for some people

ie: in Dec of 21 I knew I had some available 0% capital gains space available / 12% fed tax on income
so I sold some funds in taxable and rebought the same funds to Harvest the Cap Gains at 0% and reset the cost basis of those holdings

now in May 22 those same funds have droped enough from that Dec 21 reset cost basis to give me a $3500 paper loss

and as I'm likely to be breaking slightly into the 22% fed tax / 15% cap gains this year due to heavier than normal OT at work this year
and that I'm trying to limit my trad 401k/IRA contributiions in favor of Roth 401K/IRA

PLUS that the holdings sold for TLH were in active managed funds I bought in taxable before I found the BH way
that I was on the fence about rolling out of anyway?

It seemed like a good time to exchange out of them and into passive Index funds instead
since the paper loss was only created by the Basis cost reset which I paid no taxes on , I still have a net gain on the sold funds
and I'll likely save $450-$650 or so in cap gains/income tax in 2022 and/or avoid having to reduce my taxable income via Trad IRA/401K contributions instead

YMMV
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blaugranamd
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Re: What happens if I DON'T tax loss harvest?

Post by blaugranamd »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
On the contrary, you should be tax GAIN harvesting. Sell highly appreciated shares until you use up all the 0% LTCG bracket and immediately repurchase the same shares at the higher price. This will raise your cost basis so if you need to sell at a point when your LTCG rate is > 0% you will owe less taxes. No tax now and less tax later.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---
HeelaMonster
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Re: What happens if I DON'T tax loss harvest?

Post by HeelaMonster »

Da5id wrote: Thu May 12, 2022 12:05 pm
chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
You are making assumptions about things that don't apply to everyone. These assumptions include:
1) how much money $600/year is to an investor. Note that many here aren't wealthy. And also note that the $600 may take 20 minutes work, so the return per hour is quite good compared to other things people may choose to do

2) how much one can get in a year from TLH. One can only offset $3K ordinary income, true. Though that is worth about $1000/year for me (see below) currently. But one can offset any amount of short term gains (taxed at high rates) or other capital gains (taxed at 15% for many). People also gave examples upthread of having very large gains from say a house sale to offset.

3) that one doesn't have visibility into one's future tax burden. For example, I'm currently in the 35% federal due to inherited IRA RMDs. I'll be down at 22% once those RMDs end. Of course the rules can change, but clearly my income will be less.
To extend reason (3), since ROTH CONVERSIONS were also mentioned as small deals....

If we leave the amount we currently have in tax-deferred (traditional IRA and 401k) sitting there and growing for a few more good years, the amount of RMDs we will eventually be forced to take could push us into higher tax brackets than we had while working. Bad enough for MFJ.... crippling for a surviving spouse in her old age.... and an unwelcome present from the grave for heirs. Roth conversions are a valuable tool for managing that scenario.

YMMV. Blanket statements that such tools are not worth using are no more accurate than "everyone should do this, all the time."
Last edited by HeelaMonster on Sat May 14, 2022 10:49 am, edited 1 time in total.
aaaaaa111111
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Re: What happens if I DON'T tax loss harvest?

Post by aaaaaa111111 »

blaugranamd wrote: Sat May 14, 2022 9:11 am On the contrary, you should be tax GAIN harvesting. Sell highly appreciated shares until you use up all the 0% LTCG bracket and immediately repurchase the same shares at the higher price. This will raise your cost basis so if you need to sell at a point when your LTCG rate is > 0% you will owe less taxes. No tax now and less tax later.
The main reason I'm not sure about doing this is that my bracket will likely be 0% or mostly 0% for the rest of my life as well (I'm targeting around $30k expenses/income yearly), and I'm hesitant to do anything that generates more income because it'll wipe out some or all of my ACA credits. Whatever I save on an already low tax bill probably won't offset the couple thousand a year saved on insurance. I'm sure there's some way to calculate a precise breakpoint that's most efficient but doing so is beyond me. So I just try to keep it simple.
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blaugranamd
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Re: What happens if I DON'T tax loss harvest?

Post by blaugranamd »

aaaaaa111111 wrote: Sat May 14, 2022 10:13 am
blaugranamd wrote: Sat May 14, 2022 9:11 am On the contrary, you should be tax GAIN harvesting. Sell highly appreciated shares until you use up all the 0% LTCG bracket and immediately repurchase the same shares at the higher price. This will raise your cost basis so if you need to sell at a point when your LTCG rate is > 0% you will owe less taxes. No tax now and less tax later.
The main reason I'm not sure about doing this is that my bracket will likely be 0% or mostly 0% for the rest of my life as well (I'm targeting around $30k expenses/income yearly), and I'm hesitant to do anything that generates more income because it'll wipe out some or all of my ACA credits. Whatever I save on an already low tax bill probably won't offset the couple thousand a year saved on insurance. I'm sure there's some way to calculate a precise breakpoint that's most efficient but doing so is beyond me. So I just try to keep it simple.
That'll take some calculations to figure out what the right amount would be. But there's no guarantee LTCG won't eventually become a tax target and that 0% will change.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---
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bobcat2
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Re: What happens if I DON'T tax loss harvest?

Post by bobcat2 »

If you TLH today and from your lower basis reap large capital gains in the future, you could be worse off if capital gains tax rates are higher in the future. In general TLH is a good idea but often the benefits are oversold by financial advisers IMO. In the above scenario TLH could make the investor worse off.

BobK
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Nowizard
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Re: What happens if I DON'T tax loss harvest?

Post by Nowizard »

Don't forget that TLH can be paired with sales resulting in profits, reducing taxes by reducing taxable profits.

Tim
chassis
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

HeelaMonster wrote: Sat May 14, 2022 9:30 am
Da5id wrote: Thu May 12, 2022 12:05 pm
chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
You are making assumptions about things that don't apply to everyone. These assumptions include:
1) how much money $600/year is to an investor. Note that many here aren't wealthy. And also note that the $600 may take 20 minutes work, so the return per hour is quite good compared to other things people may choose to do

2) how much one can get in a year from TLH. One can only offset $3K ordinary income, true. Though that is worth about $1000/year for me (see below) currently. But one can offset any amount of short term gains (taxed at high rates) or other capital gains (taxed at 15% for many). People also gave examples upthread of having very large gains from say a house sale to offset.

3) that one doesn't have visibility into one's future tax burden. For example, I'm currently in the 35% federal due to inherited IRA RMDs. I'll be down at 22% once those RMDs end. Of course the rules can change, but clearly my income will be less.
To extend reason (3), since ROTH CONVERSIONS were also mentioned as small deals....

If we leave the amount we currently have in tax-deferred (traditional IRA and 401k) sitting there and growing for a few more good years, the amount of RMDs we will eventually be forced to take could push us into higher tax brackets than we had while working. Bad enough for MFJ.... crippling for a surviving spouse in her old age.... and an unwelcome present from the grave for heirs. Roth conversions are a valuable tool for managing that scenario.

YMMV. Blanket statements that such tools are not worth using are no more accurate than "everyone should do this, all the time."
@HeelaMonster you know I didn’t write that. If you think I mean that, you’re wrong, unfortunately.

It’s the norm that when TLH and Roth conversions are discussed, it’s clear that the investor posting to this site or the fire site has not calculated the lifetime net worth impact of these two chases after the wind.

Roth conversions do benefit some: a very narrow cadre of investors who fit into a narrow window of income and net worth. The net worth benefit this very small group of investors receives over their lifetime is tiny in percentage terms, and the benefit is realized late in life - 80s years of age or even 90s.

When pushed for more explanation, and when a response is given, the posters shift gears and say that Roth conversions are for estate planning reasons. This is an admission that net worth improvement and beating the tax man is not the reason for Roth conversions.

TLH is the same way. The full lifetime net worth impact of TLH is rarely, if ever, noted by posters on this site. Those investors must feel good when they “harvest” the tax loss by selling at a loss. But tell us more about the total lifetime net worth affect of this machination of one’s own accounts.

Lifetime net worth impact for Roth conversions can be evaluated using the RPM spreadsheet or, better yet, with one’s own home grown detailed model. TLH harvesting can be modeled with a little more effort using the RPM tool or one’s own model, using ideas similar to firecalc.
Jimsad
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Re: What happens if I DON'T tax loss harvest?

Post by Jimsad »

Nowizard wrote: Sat May 14, 2022 12:44 pm Don't forget that TLH can be paired with sales resulting in profits, reducing taxes by reducing taxable profits.

Tim
There is an investment property I am planning to sell in a few months and expect to pay about 30k in cap gain taxes .
I am harvesting about 28k losses from total stock index, int term tax exempt and international funds to offset these gains at tax time
100factorial
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Re: What happens if I DON'T tax loss harvest?

Post by 100factorial »

grabiner wrote: Wed May 11, 2022 7:45 pm
The biggest benefit comes from harvesting and never selling. I harvested a lot of losses in 2008-2009, and have donated many of the replacement shares to charity, so I avoided the increased capital gain.
Agreed. A related strategy for those planning on leaving a legacy: hold onto shares with unrealized gains for life to get a step up in basis at death. Any unrealized gains magically evaporate (assuming tax law doesn't change).
HeelaMonster
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Re: What happens if I DON'T tax loss harvest?

Post by HeelaMonster »

chassis wrote: Sat May 14, 2022 5:29 pm
HeelaMonster wrote: Sat May 14, 2022 9:30 am To extend reason (3), since ROTH CONVERSIONS were also mentioned as small deals....
@HeelaMonster you know I didn’t write that. If you think I mean that, you’re wrong, unfortunately.
Cool. We can only go by what you write, and dismissive statements like these...
Don’t TLH. Like Roth conversions, they are a chase after the wind.
It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions.


...didn't appear to leave much room for nuanced understanding or application to individual circumstances. Good to know you allow that Roth conversions may be beneficial for some people under some conditions (...though I'm not sure the cadre is as narrow, or the benefit as small, as you suggest).

Also not sure that "Lifetime Net Worth Impact" is the only metric to consider. By that token, I suppose one could argue that a $6k IRA contribution or $10k I Bond purchase is a tiny percentage in terms of lifetime net worth, so why bother with annual limits that low? I seldom look at net worth, and don't find it very helpful in making decisions or guiding investments; maybe that's why it's rarely mentioned in these discussions(?). However, I do see the cumulative effect of lots of small things adding up over time. If things like Roth Conversions (or TLH, IRA contributions, I bond purchases, IRMAA penalties, low ERs, impact on survivors, or whatever) fit that description of small things that don't make a huge impact on lifetime net worth... so be it. As I said, YMMV.

[ETA: But getting back to the question of the OP, I agree that an individual investor may not be missing out on all that much, if they don't TLH]
Last edited by HeelaMonster on Sun May 15, 2022 1:22 pm, edited 3 times in total.
Iorek
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Re: What happens if I DON'T tax loss harvest?

Post by Iorek »

I know I am in the minority but my feeling is that I put time and energy into selecting the funds I want to be in and I don’t want to be in other funds for what could be a fairly long time.

For me it’s not worth the complication of my portfolio but I recognize that sounds a lot like the people who say they don’t buy ibonds because they don’t like Treasury Direct (which never seemed like a strong reason to me personally).
Da5id
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Re: What happens if I DON'T tax loss harvest?

Post by Da5id »

Iorek wrote: Sun May 15, 2022 12:38 pm I know I am in the minority but my feeling is that I put time and energy into selecting the funds I want to be in and I don’t want to be in other funds for what could be a fairly long time.
If one is picking managed funds that makes lots of sense. But e.g. the difference between VXUS and IXUS doesn't matter to me personally.
TN_Boy
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Re: What happens if I DON'T tax loss harvest?

Post by TN_Boy »

chassis wrote: Sat May 14, 2022 5:29 pm
HeelaMonster wrote: Sat May 14, 2022 9:30 am
Da5id wrote: Thu May 12, 2022 12:05 pm
chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
You are making assumptions about things that don't apply to everyone. These assumptions include:
1) how much money $600/year is to an investor. Note that many here aren't wealthy. And also note that the $600 may take 20 minutes work, so the return per hour is quite good compared to other things people may choose to do

2) how much one can get in a year from TLH. One can only offset $3K ordinary income, true. Though that is worth about $1000/year for me (see below) currently. But one can offset any amount of short term gains (taxed at high rates) or other capital gains (taxed at 15% for many). People also gave examples upthread of having very large gains from say a house sale to offset.

3) that one doesn't have visibility into one's future tax burden. For example, I'm currently in the 35% federal due to inherited IRA RMDs. I'll be down at 22% once those RMDs end. Of course the rules can change, but clearly my income will be less.
To extend reason (3), since ROTH CONVERSIONS were also mentioned as small deals....

If we leave the amount we currently have in tax-deferred (traditional IRA and 401k) sitting there and growing for a few more good years, the amount of RMDs we will eventually be forced to take could push us into higher tax brackets than we had while working. Bad enough for MFJ.... crippling for a surviving spouse in her old age.... and an unwelcome present from the grave for heirs. Roth conversions are a valuable tool for managing that scenario.

YMMV. Blanket statements that such tools are not worth using are no more accurate than "everyone should do this, all the time."
@HeelaMonster you know I didn’t write that. If you think I mean that, you’re wrong, unfortunately.

It’s the norm that when TLH and Roth conversions are discussed, it’s clear that the investor posting to this site or the fire site has not calculated the lifetime net worth impact of these two chases after the wind.

Roth conversions do benefit some: a very narrow cadre of investors who fit into a narrow window of income and net worth. The net worth benefit this very small group of investors receives over their lifetime is tiny in percentage terms, and the benefit is realized late in life - 80s years of age or even 90s.

When pushed for more explanation, and when a response is given, the posters shift gears and say that Roth conversions are for estate planning reasons. This is an admission that net worth improvement and beating the tax man is not the reason for Roth conversions.

TLH is the same way. The full lifetime net worth impact of TLH is rarely, if ever, noted by posters on this site. Those investors must feel good when they “harvest” the tax loss by selling at a loss. But tell us more about the total lifetime net worth affect of this machination of one’s own accounts.

Lifetime net worth impact for Roth conversions can be evaluated using the RPM spreadsheet or, better yet, with one’s own home grown detailed model. TLH harvesting can be modeled with a little more effort using the RPM tool or one’s own model, using ideas similar to firecalc.
chassis,

I agree that Roth conversions and TLH are unlikely to create life-changing amounts of money for those who do them, but I think you are dismissing them too quickly.

Our reduced taxes via TLH are so far worth 10 to 15k -- we were in a high tax bracket earlier, plus avoiding some capital gains distributions. And now when equity is sold, that sale will continue to not (for several years anyway) result in capital gains. Since I find TLH relatively painless, I figure 10k to 15k for perhaps 4 to 6 hours of work over 15 years is thus far a pretty good pay rate. And I'm still doing it, and figure that we will continue to pay little to no taxes (well, no capital gains taxes at all thus far) on withdrawals from the brokerage account. There is no way we will ever be in the same tax bracket we were in for the first major round of TLH we did.

We donate our most appreciated shares to charity, a mechanism to reduce (future) capital gains.

I personally find ROTH conversions somewhat more difficult to justify, because, unlike TLH, there is a guaranteed short term cost, and it is more work. And the long term benefits depend upon lifespan, etc and I think are somewhat hard to compute accurately. That said, even if it is unlikely to make a large positive difference, it is also unlikely to make a large negative difference and while legacy planning is not a major driver of our decisions, it is certainly nicer for those who do inherit to get a ROTH IRA versus a traditional IRA.
lazynovice
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Re: What happens if I DON'T tax loss harvest?

Post by lazynovice »

chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
If the investor dies, the loss can be used by the spouse through the end of the calendar year of death to tax gain harvest on the half of the assets that don’t get a step up in basis. Pretty nice advantage in my opinion.

I am not speculating on future tax increases. I am considering current tax policy that my retirement income will not put me in either the top ordinary or top capital gains rate bracket as I am now.

Is this going to make a huge difference in the long run? No. But you aren’t making a cogent argument not to do it.
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ruralavalon
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Re: What happens if I DON'T tax loss harvest?

Post by ruralavalon »

lazynovice wrote: Sun May 15, 2022 1:18 pm
chassis wrote: Thu May 12, 2022 11:51 am Is TLH a big deal or a small deal?

$3000 limit for MFJ * 20% Federal bracket (assumption) = $600 per year per MFJ couple tax avoided

$600/yr * 30 yrs = $18,000 over that time period. In the ballpark of one year of SS income.

It seems a small deal, like Roth conversions. It’s hard to get excited about TLH, or Roth conversions. What is the lifetime net worth impact of $600 per year? What is the investor doesn’t live for a 30 year period maxing TLH? Even less attractive.

Future tax rate increase is speculation and a good b’head knows that speculation is a bad decision making criteria. So that can’t be a reason to TLH.
If the investor dies, the loss can be used by the spouse through the end of the calendar year of death to tax gain harvest on the half of the assets that don’t get a step up in basis. Pretty nice advantage in my opinion.

I am not speculating on future tax increases. I am considering current tax policy that my retirement income will not put me in either the top ordinary or top capital gains rate bracket as I am now.

Is this going to make a huge difference in the long run? No. But you aren’t making a cogent argument not to do it.
Some investors (me for example) feel that a small benefit may not be worth the time, effort, and trouble. "Why bother?" is a reasonable question to ask myself.

I didn't see the enough benefit for us in tax loss harvesting. I did see the benefit for us in Roth conversion in early retirement.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
chassis
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Re: What happens if I DON'T tax loss harvest?

Post by chassis »

I see lots of common ground here.

@HeelaMonster cumulative effect of lots of small things = lifetime net worth impact in my lexicon. We are on the same page, or maybe in the same paragraph together.

@TN_Boy agreed that TLH and Roth conversions don't produce life-changing effects. I see common ground there.

@lazynovice I do not seek to argue that TLH and Roth conversions are bad medicine. I don't think they hurt the investor. I am arguing that they are not good medicine, or very weak medicine. I don't think they help the investor, and if they help, they help a narrow cohort of investors by a small amount of money on a percentage basis. The realization of the small benefits so this small cohort is very late in life.

@ruralavalon "why bother" is exactly the point in my view. We are aligned.
smitcat
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Re: What happens if I DON'T tax loss harvest?

Post by smitcat »

chassis wrote: Sun May 15, 2022 7:49 pm I see lots of common ground here.

@HeelaMonster cumulative effect of lots of small things = lifetime net worth impact in my lexicon. We are on the same page, or maybe in the same paragraph together.

@TN_Boy agreed that TLH and Roth conversions don't produce life-changing effects. I see common ground there.

@lazynovice I do not seek to argue that TLH and Roth conversions are bad medicine. I don't think they hurt the investor. I am arguing that they are not good medicine, or very weak medicine. I don't think they help the investor, and if they help, they help a narrow cohort of investors by a small amount of money on a percentage basis. The realization of the small benefits so this small cohort is very late in life.

@ruralavalon "why bother" is exactly the point in my view. We are aligned.
"@lazynovice I do not seek to argue that TLH and Roth conversions are bad medicine. I don't think they hurt the investor. I am arguing that they are not good medicine, or very weak medicine. I don't think they help the investor, and if they help, they help a narrow cohort of investors by a small amount of money on a percentage basis. The realization of the small benefits so this small cohort is very late in life."
Choosing a Roth account for those with larger pensions and/or those with likely with a sizable inheritance can yield a sizable gain.
There are 20+ million folks who have pensions and many of them are sizable ....not a narrow cohort.
Iorek
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Re: What happens if I DON'T tax loss harvest?

Post by Iorek »

Da5id wrote: Sun May 15, 2022 12:51 pm
Iorek wrote: Sun May 15, 2022 12:38 pm I know I am in the minority but my feeling is that I put time and energy into selecting the funds I want to be in and I don’t want to be in other funds for what could be a fairly long time.
If one is picking managed funds that makes lots of sense. But e.g. the difference between VXUS and IXUS doesn't matter to me personally.
I recognize this may sound silly and I don’t want to start a debate but if I found two funds that I was indifferent between then I would conclude that was a sign they are substantially similar.
Da5id
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Re: What happens if I DON'T tax loss harvest?

Post by Da5id »

Iorek wrote: Mon May 16, 2022 1:40 pm
Da5id wrote: Sun May 15, 2022 12:51 pm
Iorek wrote: Sun May 15, 2022 12:38 pm I know I am in the minority but my feeling is that I put time and energy into selecting the funds I want to be in and I don’t want to be in other funds for what could be a fairly long time.
If one is picking managed funds that makes lots of sense. But e.g. the difference between VXUS and IXUS doesn't matter to me personally.
I recognize this may sound silly and I don’t want to start a debate but if I found two funds that I was indifferent between then I would conclude that was a sign they are substantially similar.
Two funds that track different indexes (FTSE vs MCSI in this case) aren't considered substantially identical I believe. Though the IRS is perhaps murky on what it means to be substantially identical. I'd be comfortable with this, wouldn't be comfortable with buying different funds that track the same index.
HeelaMonster
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Re: What happens if I DON'T tax loss harvest?

Post by HeelaMonster »

Iorek wrote: Mon May 16, 2022 1:40 pm
Da5id wrote: Sun May 15, 2022 12:51 pm
Iorek wrote: Sun May 15, 2022 12:38 pm I know I am in the minority but my feeling is that I put time and energy into selecting the funds I want to be in and I don’t want to be in other funds for what could be a fairly long time.
If one is picking managed funds that makes lots of sense. But e.g. the difference between VXUS and IXUS doesn't matter to me personally.
I recognize this may sound silly and I don’t want to start a debate but if I found two funds that I was indifferent between then I would conclude that was a sign they are substantially similar.
No, not silly, but what counts is whether the IRS views them as substantially identical. FYI, lots of discussion as to what people use for acceptable TLH partners....

viewtopic.php?t=342162
viewtopic.php?t=283965
viewtopic.php?t=376341
viewtopic.php?t=308283
https://www.vanguard.com/pdf/washfund.pdf
dboeger1
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Re: What happens if I DON'T tax loss harvest?

Post by dboeger1 »

I generally don't TLH even though it would benefit me. I think the people saying it's a nothing-burger or that it's market timing are incorrect. That being said, I do kind of think it can be a slippery slope, at least for me personally. It seems all Bogleheads have little mental tricks they use to stay the course, whether that be not looking at account balances, having a hand-written IPS, etc. (neither of which I do).

My concern with TLH is that it softens the blow of losses by realizing a tax benefit, and that has the potential to cloud people's judgment regarding their own risk tolerance and asset allocation. Saving $600 on taxes in a year is cool I guess, but decades of data indicate that systematic buy-and-hold is what drives retirement success, not TLH. That's not to say they're mutually exclusive, but TLH feels to me like it's violating the spirit of buy-and-hold. If TLH didn't exist and stocks crashed, I would want 1 of 2 things to play out:

1) I don't need the money any time soon, so it shouldn't be scary. I continue to hold and buy stocks through the downturn.
2) I may need the money sooner than I realized, so it should be scary. Before selling stocks low, I should try to use new income to grow my emergency fund and/or bond allocation. I should exhaust all other options for funding my living expenses before resorting to selling stocks low.

Note that I don't think this concern applies equally to everyone. There are certainly Bogleheads who comprehend TLH as a no-brainer tax benefit. But I worry that if I'm on the edge between situations #1 and #2, and TLH is the thing keeping me in situation #1, it might mask the truth that my AA is actually a bit too aggressive for my risk tolerance, and that I may find myself firmly in situation #2 if there's ever a deeper crash. Avoiding TLH forces me to acknowledge the consequences of my AA and adapt accordingly. This current market drop is kind of a perfect example because I was in the process of shifting AA to be more conservative when it started, but I didn't complete that shift due to LTCG timing. We haven't lost income, so it was easy enough for us to use new income to grow our bond position (specifically I-bonds), but if we had lost our jobs, I would have been a bit uncomfortable with our "safe money" at the time. That discomfort is informative for setting my AA allocation further, and I wouldn't want to make light of that very important finding by saving a few hundred dollars on taxes.

Full disclaimer: Despite that explanation, I am strongly considering TLH at this time, mostly because I'm thinking of converting my VTWAX in taxable to VTI+VXUS for the foreign dividend tax credit. If it wasn't for that, I probably wouldn't, but when you pile on the extra costs, it makes optimization that much more enticing.
TN_Boy
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Re: What happens if I DON'T tax loss harvest?

Post by TN_Boy »

chassis wrote: Sun May 15, 2022 7:49 pm I see lots of common ground here.

@HeelaMonster cumulative effect of lots of small things = lifetime net worth impact in my lexicon. We are on the same page, or maybe in the same paragraph together.

@TN_Boy agreed that TLH and Roth conversions don't produce life-changing effects. I see common ground there.

@lazynovice I do not seek to argue that TLH and Roth conversions are bad medicine. I don't think they hurt the investor. I am arguing that they are not good medicine, or very weak medicine. I don't think they help the investor, and if they help, they help a narrow cohort of investors by a small amount of money on a percentage basis. The realization of the small benefits so this small cohort is very late in life.

@ruralavalon "why bother" is exactly the point in my view. We are aligned.
I absolutely agree that TLH and Roth conversations are rarely "life-changing."

I believe reputable financial types have looked at Roth conversions and found them to be a good idea in certain situations.

I'm doing both ... so I obviously think the benefits are worth the cost. Although I have not run it recently (I need to run it again), there are calculators, like i-orp, that take quite a number of variables into account and suggest whether Roth conversions are a good idea or not.

I personally found TLHing a really easy way to put 10k+ into my pocket, which is not life-changing, but an easy 10k is still an easy 10k. And I would not be surprised if the ultimate gain was not a good bit more than that. I'm just confident it is at least 10k over the last 12 years, based on tax brackets alone. If 10k is meaningless to you, then I guess you wouldn't bother to TLH :-).

When I TLH, I go to a "similar but not identical" fund so I'm never not in the market for those monies.
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Wiggums
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Re: What happens if I DON'T tax loss harvest?

Post by Wiggums »

bobcat2 wrote: Sat May 14, 2022 12:35 pm If you TLH today and from your lower basis reap large capital gains in the future, you could be worse off if capital gains tax rates are higher in the future. In general TLH is a good idea but often the benefits are oversold by financial advisers IMO. In the above scenario TLH could make the investor worse off.

BobK
+1

The answer depends on your situation and how the market plays out. People shouldn’t feel bad if they choose to ignore TLH.
Investors need to be better informed about the costs they pay. “High fund fees can be hazardous to your wealth in the same way that high calories can be hazardous for your health.”
placeholder
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Re: What happens if I DON'T tax loss harvest?

Post by placeholder »

I will say that tlh is down the list of useful things I have learned here probably #3 but distantly.
Morik
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Re: What happens if I DON'T tax loss harvest?

Post by Morik »

aaaaaa111111 wrote: Wed May 11, 2022 7:18 pm So since I'm 0% LTCG bracket now and will very likely always be 0% (or at least, have very small amounts subject to the next bracket up) there's really no point to TLH, correct? At least I hope so, as I have no desire to figure out how to do it.

Edit: To clarify, I'm not currently working, and if (more like when, given the current market) I go back to work I don't anticipate going past the 12% ordinary income bracket either so I will owe very little tax.
In your situation you can step up the basis on your holdings free of charge, assuming you weren't doing anything else with the remaining income to stay in the 0% LTCG bracket. I.e., tax gain harvesting.
If you are $10k under the limit for 0%, you could sell holdings to generate $10k in capital gains, then purchase them right back as there is no wash sale rule on capital gains.
Then you have $10k additional basis that won't be taxed again later, even if you do drift up out of the 0% bracket.
75% world stock market | 20% nominal fixed income (EDV/TIAA trad/EE-bonds) | 5% inflation-linked fixed income (LTPZ/I-bonds)
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2pedals
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Re: What happens if I DON'T tax loss harvest?

Post by 2pedals »

Smallish TLH deductions are not life-changing. It's the Sherlock Holmes type of brilliant deductions that might be.
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