Help Changing Funds In Taxable Account

[b1gdog83]

I have a Vanguard Taxable account $535,000 invested in VFORX Target Retirement 2040. I have a few other retirement accounts (2-Roth IRA's, 457, 403b, HSA, RHSA). They are all invested in target date funds. I'm in the process of changing them and asset allocating them as a whole. I don't want to hold any bonds in the taxable account like I'm currently doing.

My question is what is the most strategic way to move out of the target date fund in my taxable account and into a total stock market fund VTSAX?

[retired@50]

My question is what is the most strategic way to move out of the target date fund in my taxable account and into a total stock market fund VTSAX?

The strategy begins with knowing if you're currently sitting on an unrealized capital gain or loss in the target date fund position.

Do you know which it is?

For some reading on the topic, see the wiki page on paying a tax cost to switch funds.
https://www.bogleheads.org/wiki/Paying_ ... itch_funds

Regards,

[rkhusky]

Sell lots with losses or small gains. Send dividend and cap gain distributions to the settlement fund. If in the 0% LTCG bracket, sell shares with gains to the top of that bracket.

[stan1]

Sell lots with losses or small gains. Send dividend and cap gain distributions to the settlement fund. If in the 0% LTCG bracket, sell shares with gains to the top of that bracket.

Good advice, I'd just add to set cost basis method to specific identification and learn how to use that user interface on the Vanguard website to see what your gains and losses are on a lot by lot basis (assuming these shares are all covered having been purchased since 2012).

Also, if you are under 70.5 consider contributing the most appreciated shares to a donor advised fund and then making grants to your charities from there.

[steadyosmosis]

I have a Vanguard Taxable account $535,000 invested in VFORX Target Retirement 2040. I have a few other retirement accounts (2-Roth IRA's, 457, 403b, HSA, RHSA). They are all invested in target date funds. I'm in the process of changing them and asset allocating them as a whole. I don't want to hold any bonds in the taxable account like I'm currently doing.

My question is what is the most strategic way to move out of the target date fund in my taxable account and into a total stock market fund VTSAX?

Use tax software (or pen and paper) to determine your tax cost to make the move(s).

[jeffyscott]

Sell lots with losses or small gains. Send dividend and cap gain distributions to the settlement fund. If in the 0% LTCG bracket, sell shares with gains to the top of that bracket.

Good advice, I'd just add to set cost basis method to specific identification and learn how to use that user interface on the Vanguard website to see what your gains and losses are on a lot by lot basis (assuming these shares are all covered having been purchased since 2012).

And I think you can only choose specific identification if there have been no sales under average cost?

WRT, to selling to the top of the 0% LTCG/QDI bracket, you may want to check what the state income tax cost will be. Also would need to leave some room, since there will be distributions. With $525K, it looks like last year's were about $14K.

I think you can also send the distributions directly to VTSAX, if you like.

Assuming you want to maintain the same asset allocation, you would presumably then offset the moves from VFORX to VTSAX by selling target date in one of the other accounts and buying all the target date components except VTSAX.

[sycamore]

A similar question is being discussed in another thread. See this post for suggestions: viewtopic.php?p=8290819#p8290819.

[b1gdog83]

The strategy begins with knowing if you're currently sitting on an unrealized capital gain or loss in the target date fund position.

Do you know which it is?

Regards,

Short Term Capital Gain: $3,233
Long Term Capital Gain: $35,591
Total Capital Gain: $38,824

2024 AGI: $160,000

[retired@50]

The strategy begins with knowing if you're currently sitting on an unrealized capital gain or loss in the target date fund position.

Do you know which it is?

Regards,

Short Term Capital Gain: $3,233
Long Term Capital Gain: $35,591
Total Capital Gain: $38,824

2024 AGI: $160,000

So then the next question is whether or not you're willing to get out of this position by paying the 15% capital gains tax on the $35k and ordinary income tax on the $3,233 position(s) if you sell. You could wait until the entire position is "long-term" which might help a little.

Did you read the wiki page I linked?

Regards,

[b1gdog83]

I'm trying to wrap my head around the tax savings I'll get each year from switching my taxable account from holding bonds to one that holds all stocks.

2024 Taxable Accounts 1099:

Total Ordinary Dividends: $13,226
Total Capital Gain Distribution: $6,181
Total Capital Gain Distribution: $1,036
Foreign Tax Paid: $369

Nonqualified Dividend: $6,978
Qualified Dividend: $6,181
Long Term Capital Gain: $1,036
Short Term Capital Gain: $66.77

Total Dividends and Distributions: $ 14,262


Can you give me an idea how much I'll be saving?

[KneePartsPro]

I'm trying to wrap my head around the tax savings I'll get each year from switching my taxable account from holding bonds to one that holds all stocks.

2024 Taxable Accounts 1099:

Total Ordinary Dividends: $13,226
Total Capital Gain Distribution: $6,181
Total Capital Gain Distribution: $1,036
Foreign Tax Paid: $369

Nonqualified Dividend: $6,978
Qualified Dividend: $6,181
Long Term Capital Gain: $1,036
Short Term Capital Gain: $66.77

Total Dividends and Distributions: $ 14,262


Can you give me an idea how much I'll be saving?

Whether you are married filing jointly or filing as single/h.o.h. is obviously a contributing factor, as well as whether the re-allocation itself results in a lower income tax bracket. A tax software where you can input all of the necessary information is perhaps your best bet for an accurate estimate.

[jeffyscott]

If you had $535,000 in VTSAX, it looks like your distributions would have been around $6700. That would be mostly QDI. Instead you had QDI of $6,181 and LTCG of $1,036. That's around an additional $500, assuming 15% tax that would cost about $75 in additional tax.

You had an additional ~$7000 in non qualified and STCG and those are likely taxed at 22% if MFJ , that would cost about $1540 (if single, it's probably 24%, so not a huge difference). So my guess is the cost is in the range of maybe $1600 for your total additional tax, that's about 0.3% of assets. State taxes would be an additional cost.

Some of this is only tax deferral though, if you withdraw from the taxable account you would pay taxes on the gains at that time. But maybe you will be in the 0% LTCG bracket at that time or maybe you never use the money and your heirs get a stepped up cost basis.

Of course, there's also at least the hope that VTSAX would have higher returns than VFORX, so that may reduce the difference over time. OTOH, VTSAX could decline and then you could get a greater benefit from tax loss harvesting than you would get with VFORX. Also having lower growth assets in traditional tax deferred might result in lower RMDs which may be beneficial.

[mhadden1]

Sell lots with losses or small gains. Send dividend and cap gain distributions to the settlement fund.

Maybe there are some lots with losses from the past 6-12 months? Lots produced by dividend or CG distribution reinvestments?

[retired@50]

Can you give me an idea how much I'll be saving?

Tax bracket, filing status, other income sources, etc. all matter here.

Try playing around with this site: https://engaging-data.com/tax-brackets/

Regards,

[b1gdog83]

I'm married filling jointly and no state tax in Florida.

Short Term Capital Gain: $3,233
Long Term Capital Gain: $35,591
Total Capital Gain: $38,824
2024 AGI: $160,000

So it looks like if my math is correct. I'll pay $6,049 to sell my target date fund. I don't totally get all the other nuisances to strategically sell it like some are suggesting. If in fact my math is correct do you think this makes sense to sell this fund and the long run I'll be best for it?

[TwstdSista]

For $6k and the sake of simplicity, I would exchange it all for VTSAX today (assuming there are no wash sale issues with VTSAX).

[rkhusky]

That’s a fairly small cap gain relative to the size of the holding (7%). If your calculations are right, that’s about a 1% tax hit. I can see doing that all at once.

[jeffyscott]

The investment must mostly be fairly recent for the LTCG to be that low.

VFORX is up 8% in the past year and 23% cumulative over the past 3. Of course some those gains would have been distributed...

[b1gdog83]

Just to confirm the Capital Gains I will have to add to my AGI? I'm also trying to do a a Roth Conversion but I might need to wait for another year if the Capital Gains count against my AGI for this year.

[arcticpineapplecorp.]

Just to confirm the Capital Gains I will have to add to my AGI? I'm also trying to do a a Roth Conversion but I might need to wait for another year if the Capital Gains count against my AGI for this year.

plug in the numbers in the 1040 online calculator to see the impact of cap gains on your other income. As was said, I wouldn't sell anything that had a short term cap gains because you'll be paying higher taxes on those. Just wait until those become long term gains (or even short term losses depending on what happens between now and the end of the year you've held those short term lots).