Bogleheads.org

During 2023, I will be in a situation where I plan on being in the 12% tax bracket, but do not plan on being in the 12% bracket moving forward. For those of you who are curious we have a rental business, with a lot of start-up costs that we will not have in the future. We also expect to make more money in the future than we will in 2023. In retirement, I also expect to be in the 22% bracket because of a pension for my wife and me that will pay 78% of our salary. Our rental income will increase in this time as we are adding two more AIRBNB rentals in the next 12 to 18 months. We are both 50 and will be retiring in 8 years from our teaching jobs.

I have around 300K in a brokerage account. Much of this was inherited. The vast majority is in U.S. Total Stock Market and Foreign Total Stack Market at Vanguard. I plan on selling from this brokerage account to fund a 403B and a 457, with a mix of Roth and Tax-Deferred contributions. I would like to purchase the same funds in my retirement accounts. I would be creating twice monthly wash sales. I do not need the capital losses right now as I have some carried over from the past few years and will be able to use my $3000 limit. My question is will I mess anything up down the road with these wash sales? I don't want to pay more taxes in the future because of a mistake. I am ok not getting the tax break now, but I don't want to pay more in the future by not completely understanding the wash sale rules. Any help in this matter would be greatly appreciated.

Others may differ, but I am of the opinion (and willing to take my chances with the IRS), that the employer retirement plans DO NOT COUNT for wash sales. So if you rely on my advice, you are free to do what you are proposing. I am sure someone will come along and say everything to the contrary.

Only the taxable accounts -- of BOTH spouses, if married -- and the respective IRAs (either traditional or Roth) count for wash sales. Even then, only if you sell them for loss in taxable and have 'replacement shares' in other accounts within the 61 day window (30 days before + day of sale + 30 days after).

=============

That said, even if we do take the position that employer plans do count for wash sales, it would be easy to bypass them. What exact funds are available in your employer plans now, and what exact funds are you invested in right now? If you are willing to share that information, may be this forum could help you find alternatives that do not have you tripping up on wash-sale landmines?

lakpr wrote: ↑Mon Jan 23, 2023 12:38 pm Others may differ, but I am of the opinion (and willing to take my chances with the IRS), that the employer retirement plans DO NOT COUNT for wash sales. So if you rely on my advice, you are free to do what you are proposing. I am sure someone will come along and say everything to the contrary.

I concur with your assessment. IRS publication 550 seems pretty clear on this (see page 56) https://www.irs.gov/pub/irs-pdf/p550.pdf
Item #4 under Wash Sales:

Aquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

The IRS clarifies that a wash sale can occur with an IRA but do not make any mention of employer retirement accounts, HSAs, etc.

Thanks for the clarification so far. I will do some research on comparable funds and share with everyone in case I want to go that route.

WinstonTeracina wrote: ↑Mon Jan 23, 2023 12:52 pm I concur with your assessment. IRS publication 550 seems pretty clear on this (see page 56) https://www.irs.gov/pub/irs-pdf/p550.pdf
Item #4 under Wash Sales:

Aquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

The IRS clarifies that a wash sale can occur with an IRA but do not make any mention of employer retirement accounts, HSAs, etc.

Ok I'll bite. You quoted #4 but ignored #1 which says

Buy substantially identical stock or securities

I don't know why people think that excludes employer retirement accounts.

Sell Vanguard U.S. Total Stock Market and Foreign Total Stock Market in your taxable brokerage account and immediately purchase Schwab US Broad Market ETF (SCHB) and iShares Core MSCI Total International Stock ETF (IXUS) in that same account. That will realize your capital losses for tax purposes in the Vanguard funds. Do not reinvest dividend distributions from these new funds.

After 30 days begin purchasing Vanguard Total Stock and Total International Stock in your 403B and 457 accounts, using proceeds from dividend's and periodic sales of SCHB and IXUS in your taxable account.

I have these funds available in my Ohio Deferred Compensation 457 that I could use to simulate the U.S. Total Stock Market index fund at Vanguard. It would be helpful if anyone could give me an idea on the ratio of these when I purchase.

U.S. Large Company Index Fund. .01 expense ratio. This fund attempts to match the S and P 500 Index
U.S. Small/Mid Company Index Fund .02 expense ratio This fund attempts to match the Russell Small Cap Completeness Index

As far as my international stock goes I have Vanguard Total International Index Fund. Here is what the 457 offers. I am not sure if this is essentially identical or not.

Non-US Company Stock Index .05 expense ration. This fund attemps to match the MSCI ACWI ex USA Investable Market Index.

I essentially want to make sure that I am able to mirror the U.S. Total Stock Market Index and the International Stock Index at Vanguard with these new funds. Any help would be appreciated. I would also like to know if these choices avoid the Wash Sale rule as I would be selling in my Vanguard Brokerage Account and would be purchasing in my Ohio Deferred Compensation retirement account

teacher2163 wrote: ↑Tue Jan 24, 2023 12:22 pm I have these funds available in my Ohio Deferred Compensation 457 that I could use to simulate the U.S. Total Stock Market index fund at Vanguard. It would be helpful if anyone could give me an idea on the ratio of these when I purchase.

U.S. Large Company Index Fund. .01 expense ratio. This fund attempts to match the S and P 500 Index
U.S. Small/Mid Company Index Fund .02 expense ratio This fund attempts to match the Russell Small Cap Completeness Index

As far as my international stock goes I have Vanguard Total International Index Fund. Here is what the 457 offers. I am not sure if this is essentially identical or not.

Non-US Company Stock Index

82:18 ratio for the first two funds to replicate US Total Stock Market Index for the domestic equities, according to the Wiki:
https://www.bogleheads.org/wiki/Approxi ... ock_market
See the very first entry in the section "Approximating total stock with two funds".
A 80:20 (4:1) ratio is also close enough.

According to this PDF doc, the Non-US Company Stock Index is bechmarked against MSCI All Country World Ex US Index, so you can take it to be equivalent of VTIAX (so it is not missing anything, small-caps or emerging-markets or Canada or Mexico as other indexes do).

Thanks for the response. In your opinion would I be avoiding any potential wash sales by the purchase of these funds?

teacher2163 wrote: ↑Tue Jan 24, 2023 1:14 pm Thanks for the response. In your opinion would I be avoiding any potential wash sales by the purchase of these funds?

I already stated my opinion up thread: viewtopic.php?p=7079032#p7079032

Yes you would be avoiding potential wash sales, NOT because I had gone through each and every holding between VTSAX and these funds in the Ohio Deferred Compensation plan and then came to the conclusion; BUT because these are retirement plans, period. I didn't need to look underneath the hood to conclude that wash sale rules do not apply.

WinstonTeracina wrote: ↑Mon Jan 23, 2023 12:52 pm I concur with your assessment. IRS publication 550 seems pretty clear on this (see page 56) https://www.irs.gov/pub/irs-pdf/p550.pdf
Item #4 under Wash Sales:

Aquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA.

The IRS clarifies that a wash sale can occur with an IRA but do not make any mention of employer retirement accounts, HSAs, etc.

FYI, there are historical reasons for that language. There has been a court case specifically about IRAs, but not other retirement accounts. The actual law doesn't mention either. Even the IRS says that you cannot rely on their publications.

Well that makes it easy then