Vanguard Tax Harvesting

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JacK 098
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Vanguard Tax Harvesting

Post by JacK 098 »

Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
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Pretzel lover
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Re: Vanguard Tax Harvesting

Post by Pretzel lover »

I don't know the answer to the PAS advisor's statement but you can bank the loss to use later against gains in future years. Plus the loss can be used in the $3K annual deduction
jebmke
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Re: Vanguard Tax Harvesting

Post by jebmke »

JacK 098 wrote: Tue Jun 21, 2022 10:10 am Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
You might get better answers if you list the names of the funds instead of the ticker symbols. I know I don't keep track of symbols at all so I'd have to look all these up. Without the benefit of that info, my first inclination is that you have a lot of bond funds and perhaps combining tax harvesting with simplification can be a two-fer.

In general, I harvest losses when I have them and only take gains when it otherwise makes sense to do so -- e.g. re-balancing or shedding a holding that I have been eager to jettison. That said, the jettison candidates are usually good candidates to donate to a Donor Advised Fund if they have unrealized gains so it would be unusual for me to take gains at all.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Raspberry-503
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Re: Vanguard Tax Harvesting

Post by Raspberry-503 »

Wow that's a lot of bond funds! Why so many? I'm not familiar with all of them so yes listing their full name would help.

I own BNDX and I don't have a suitable alternative either. At least not with an ER I can live with.

It quite possible the funds you list are already alternates for each other, so if you own and want to sell all of them to TLH, it may be hard to find a good alternative.

EDIT: it might ne a good time to consider consolidations into BND+BNDX only, and harvest is just a bonus.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Sorry here the the names with the symbols-

VBTLX Total Bond Market Index Fund
VFIDX intermediate Term Investment Grade Fund
BND Total Bond Market Index Fund ETF
BNDX Total Intl Bond IndexFund ETF
BIV intermediate Term Bond ETF
BLV Long Term Bond Index Fund ETF
BSV Short Term Bond Index Fund ETF
sycamore
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Re: Vanguard Tax Harvesting

Post by sycamore »

JacK 098 wrote: Tue Jun 21, 2022 10:10 am Good morning,

I use Vanguard's Personal Advisor Service and recently I asked about Tax harvesting since the market is down. Their response was my potential loses would be in bond funds and it is to difficult to find matching bond funds to buy. These are the bond funds I have -VBTLX,VFIDX,BND,BNDX,BIV,BLV and BSV.

Do you think his statement is accurate? Should you wait to do harvesting until you have a gain to offset? Any help would be appreciated.
The statement may be accurate, but we can't say because we don't know exactly what's in your taxable account. If your taxable account only has bond funds, then it makes sense that potential losses would only be in bond funds.

But if your taxable account also has stock funds, it's possible those funds have losses, too. But that depends on the price of the stock fund when you bought it.

I suggest you check your Vanguard account -- there should be a way to see the gain/loss of each of your funds. If there are losses in stock funds (again, for a taxable account), there's an opportunity to Tax Loss Harvest them in addition to the bond funds.

Anyway, assuming PAS is correct about only your bond funds having harvestable losses, they may also be correct about it being difficult to find matching funds. As I understand things, PAS uses a relatively limited set of fund choices and it's possible you're using all of them. If they all have losses, you could sell them but then buying into the same funds would cause a wash sale. A wash sale is not bad, it just defers the ability to deduct the loss until later.

Going off-topic, I suggest telling the PAS advisor that having seven bond funds is overkill. Having both BND and VBTLX is rather bizarre given they're the same fund (!) just in ETF and mutual fund wrappers.

Instead I would (1) ask yourself what "average duration" and credit quality you want for your bond allocation as a whole
and (2) build a portfolio that meets those parameters using no more than three funds. It should be possible. Maybe PAS would be willing to help simplify your bond funds.
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arcticpineapplecorp.
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Re: Vanguard Tax Harvesting

Post by arcticpineapplecorp. »

JacK 098 wrote: Tue Jun 21, 2022 2:27 pm Sorry here the the names with the symbols-

VBTLX Total Bond Market Index Fund
VFIDX intermediate Term Investment Grade Fund
BND Total Bond Market Index Fund ETF
BNDX Total Intl Bond IndexFund ETF
BIV intermediate Term Bond ETF
BLV Long Term Bond Index Fund ETF
BSV Short Term Bond Index Fund ETF
how much in losses in each do you have? I.E. are you looking to TLH all of them or just some and if some, which?

Have you identified tax loss partners (to purchase replacement shares in other funds with money from the sale of the lots with losses?
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jebmke
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Re: Vanguard Tax Harvesting

Post by jebmke »

would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thanks for everyone's help. The more I read about tax harvesting the more I get confused.

Here are the loses by account:

Loss
VBTLX Total Bond Market Index Fund IRA $20K
VFIDX intermediate Term Investment Grade Fund IRA $28K
BND Total Bond Market Index Fund ETF IRA $12K
BNDX Total Intl Bond IndexFund ETF IRA $26K
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500
UpperNwGuy
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Re: Vanguard Tax Harvesting

Post by UpperNwGuy »

jebmke wrote: Tue Jun 21, 2022 3:12 pm would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
^^This is the solution. Sell them all and harvest the losses. Buy VGSH (Short-Term Treasury ETF) and VGIT (Intermediate-Term Treasury ETF) in equal proportions. Wait 31 days and then sell those and redeploy the funds to no more than two or three bond funds that you want to keep for the long haul.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thank You UpperNWGuy. I am going to speak to Vanguard.

Regards,

Jack
sycamore
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Re: Vanguard Tax Harvesting

Post by sycamore »

JacK 098 wrote: Tue Jun 21, 2022 5:54 pm Thanks for everyone's help. The more I read about tax harvesting the more I get confused.

Here are the loses by account:

Loss
VBTLX Total Bond Market Index Fund IRA $20K
VFIDX intermediate Term Investment Grade Fund IRA $28K
BND Total Bond Market Index Fund ETF IRA $12K
BNDX Total Intl Bond IndexFund ETF IRA $26K
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500
A couple of things to help explain Tax Loss Harvesting.
1. You can only harvest losses in a taxable account. So first look at your taxable bond holdings:
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500

That's $33.5K in losses you could realize if you sold them all. Selling them would be an ideal time to consolidate and/or simplify your taxable bond holdings, perhaps just one or two.


2. However :( one of the wrinkles of tax-loss harvesting is something called a wash sale.
The wash sale says that if you sell shares at a loss, and buy "replacement" share within 30 days (before or after the sale), the loss can't be claimed and is instead transferred to the replacement shares. (Note: replacement shares means either the same fund or a "substantially identical" one.)

Example: you sell 100 shares at a loss of $50/share. You buy 35 shares of a substantially identical fund 10 days later.
You can only claim the loss on 65 shares. The $50/share loss is added to the basis of the 35 replacement shares.
The loss is basically transferred to the future when you sell those 35 shares (either at a loss, or for less of a gain).

3. Unfortunately, a further wrinkle is that if replacement shares are in a tax-advantaged account (like an IRA), the loss is effectively gone forever. That's because you can't claim losses on sales in such accounts.

And because you own VBTLX, VFIDX, BND, and BNDX in an IRA, you'll have to be on the lookout for the wash sale. The simplest way to do this is
1. Stop buying any new shares of those funds in the IRA and in taxable.
2. Turn off dividend reinvestment for those funds in the IRA and in taxable.
3. Wait 30 days.
Now it's safe to sell the VBTLX, VFIDX, BND, and BNDX funds in taxable without worrying about the wash sale.

Going forward, I suggest that you don't own the same funds in the IRA that you do in taxable. This helps avoid the wash sale issue.

It appears you own BSV, BIV, and BLV only in taxable, so you could realize the losses on them right away.

Hope that helps.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thank You Sycamore for your great explanation. I can see even if I have an advisor I need to keep an eye on my accounts. I am not sure why I have so many funds but I agree with trying to simplify.

Regards,

Jack
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

I do have one more question after I thought about this issue - who should i expect to come up with these tax strategies? Is it the Vanguard PAS, a Tax accountant, or do I need get myself up to speed?

Regards,

Jack
dbr
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Re: Vanguard Tax Harvesting

Post by dbr »

UpperNwGuy wrote: Tue Jun 21, 2022 5:59 pm
jebmke wrote: Tue Jun 21, 2022 3:12 pm would not be hard to take losses in any/all. Assuming there is unrealized loss in all of these, one option (and there could be several) would be to liquidate them all and put in either short term treasury index or intermediate term treasury index or a blend of both.
^^This is the solution. Sell them all and harvest the losses. Buy VGSH (Short-Term Treasury ETF) and VGIT (Intermediate-Term Treasury ETF) in equal proportions. Wait 31 days and then sell those and redeploy the funds to no more than two or three bond funds that you want to keep for the long haul.
Also agree. And don't forget you can even keep the entire proceeds in cash for 30 days.

I hope it was not VPAS that put you in all those funds to start with.
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AAA
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Re: Vanguard Tax Harvesting

Post by AAA »

sycamore wrote: Wed Jun 22, 2022 7:46 pm
2. However :( one of the wrinkles of tax-loss harvesting is something called a wash sale.
The wash sale says that if you sell shares at a loss, and buy "replacement" share within 30 days (before or after the sale), the loss can't be claimed and is instead transferred to the replacement shares. (Note: replacement shares means either the same fund or a "substantially identical" one.)
Is the accounting of this transfer of loss something Vanguard/Fidelity does, and is reflected in a future 1099-B, or is it something one has to keep track of oneself?
rkhusky
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Re: Vanguard Tax Harvesting

Post by rkhusky »

AAA wrote: Sat Jul 02, 2022 11:22 am Is the accounting of this transfer of loss something Vanguard/Fidelity does, and is reflected in a future 1099-B, or is it something one has to keep track of oneself?
They will make the adjustments if it is the same investment in the same account. You have to make adjustments yourself if it is across accounts.
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Re: Vanguard Tax Harvesting

Post by Gaston »

JacK 098 wrote: Tue Jun 21, 2022 5:54 pm Here are the loses by account:

Loss
VBTLX Total Bond Market Index Fund IRA $20K
VFIDX intermediate Term Investment Grade Fund IRA $28K
BND Total Bond Market Index Fund ETF IRA $12K
BNDX Total Intl Bond IndexFund ETF IRA $26K
BNDX Total Intl Bond IndexFund ETF Taxable $1K
BIV intermediate Term Bond ETF Taxable $7K
BLV Long Term Bond Index Fund ETF Taxable $10K
BSV Short Term Bond Index Fund ETF Taxable $2K
VBTLX Total Bond Market Index Fund Taxable $11K
VFIDX intermediate Term Investment Grade Fund Taxable $2,500
When one holds a wide variety of bond funds, then yes, it can be difficult to find another bond fund suitable for tax-loss harvesting without triggering a wash-sale violation. I agree with UpperNWGuy that it's best to clean this situation up by selling all the bond funds, parking the cash in a money market fund for at least 31 days, then purchasing (or re-purchasing) the one or two bond funds that you want to hold long-term.

The brokerage (Vanguard, Fidelity or whoever) will report your short-term and long-term capital loss at year-end. You'll then have to reflect this on your Federal tax return. If you prepare your own tax return, this means entering the information into TurboTax or whatever product you use. Otherwise, your tax accountant will take care of this.

Remember that for the 2022 tax year, you can use the capital loss to offset any capital gains you might have in other taxable accounts, and above that, you can use up to $3,000 of the capital loss as an offset against current income. If, after doing this, you still have a surplus of capital losses, you can carry these forward to 2023 and beyond for use in those tax years.
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beyou
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Re: Vanguard Tax Harvesting

Post by beyou »

If you are not sure why they hold so many bond funds and they can’t do TLH, maybe PAS is something you should phase out over time, as you learn how to do this yourself.

Note one of the “problems” with having PAS do the harvesting, is that often I find the BEST alternative fund is a non-Vanguard fund (Blackrock ishares, Schwab). Is Vanguard PAS really going to admit that competitors have suitably good alternatives ? THAT is the reason they say there are no alternatives to swap into. There are alternatives.

And if you had stock fund losses, it would be more important to swap to a similar fund, as stocks make most of their gains in unpredictable short periods of time. Avoiding stocks for 31 days can have huge impact (up or down). Not so true for most bond funds, hence the advice you can sell now, buy cash-like investments for 31 days and buy same funds back. You lose 31 days of higher interest and smaller potential price swings (compared to stocks).

I DIY as you can easily learn enough to do better than MOST advisors, they all have some biases/motives, and many in the industry have just a bit more knowledge than you do. Not a knock on Vanguard/PAS, I think same would be true for any large broker. They are either selling you a formulaic invest plan (so your input is minimal such as you experienced with PAS) or you get an advisor who customizes, but you have no way to know if they would do any better if you don’t educate yourself. I would never use PAS myself, and I think maybe a custom type advisory relationship is what you want, though this is expensive and you can learn, hence avoid the cost.
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JacK 098
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Re: Vanguard Tax Harvesting

Post by JacK 098 »

Thank you all so much. You are all right and I am the one the can't explain "why do you have so many Bond funds". That is on me and I know I said I had just one more question but I have to ask one more. How do I get myself out of this? I want to simply. Is there an advisor who I can pay a fee to evaluate and only charge me when I need them? This could online. I live in central NJ.

Happy Fourth of July.

Regards,

Jack
BF3000
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Re: Vanguard Tax Harvesting

Post by BF3000 »

*I don’t believe that vanguard’s robo service includes automatic tax loss harvesting. Also, vanguard limits the portfolio to vanguard ETFs. There are times when the ideal TLH partner might be a an ETF from other low cost companies like blackrock, state street, Schwab, and BNY Mellon. There are robo advisors that have automated TLH with a primary and secondary etf.

*It isn’t hard to do yourself, especially after you have simplified the portfolio and developed a short list of ETFs that track a slightly different index. A person could sell 3 bond ETFs and buy replacements in under 5 minutes on a smart phone.
dbr
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Re: Vanguard Tax Harvesting

Post by dbr »

Keep in mind you can't make sense out of tax loss harvesting without reference to one's particular tax situation both now and into the future.

TLH is a tax management tactic rather than an investment tactic. One would think automatic tax loss harvesting would be something one would want to avoid. In this sense automatic rebalancing, which is an investment strategy as long as it does not mess up taxes, would be desirable, but not TLH.
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Re: Vanguard Tax Harvesting

Post by beyou »

JacK 098 wrote: Sun Jul 03, 2022 11:30 am Thank you all so much. You are all right and I am the one the can't explain "why do you have so many Bond funds". That is on me and I know I said I had just one more question but I have to ask one more. How do I get myself out of this? I want to simply. Is there an advisor who I can pay a fee to evaluate and only charge me when I need them? This could online. I live in central NJ.

Happy Fourth of July.

Regards,

Jack
Search for “fee only planners”.
Someone who may give you good advice at reasonable cost so you can DIY is

https://planvisionmn.com/

A number if threads about this firm as well as a video about their services.

https://www.bogleheads.org/blog/2021/04 ... son-lynch/
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