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Checkpoint needed please...
Old 10-17-2009, 05:37 PM   #1
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Checkpoint needed please...

I've already talked about transfering all of my mutual fund assets from TDA to VG to get it all under 1 roof and am progressing well there.

One final decision...I have AWSHX, CAIBX, and LTEBX holdings directly with the fund company. Total stake is worth about $12K as of last week. Company policy is none of their funds can be transferred to management by another financial firm (I checked). So those funds will be toast by year end or first thing next year. Exp ratio over time and cleaning my financial house up are my main 2 reasons.

My question is...very simple...do I wait until after 31 Dec to get the last possible cap gains/dividends and have cleaner year-end data by scheduling the liquidation for early Jan 10, or is there a clear advantage to cashing them out before 31 Dec sans 4Q09 cap gains/dividends?

I know this is a very basic question......but the only dumb question is the one unasked.
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Old 10-17-2009, 05:45 PM   #2
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If you cash out before end of year dividends, all your gains should be long-term assuming you've held all shares at least one year.

Otherwise, some of the distributions might be paid as short-term gains and/or dividend distributions which would be taxed at higher rates unless you are in a really low tax bracket.

Audrey
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Old 10-17-2009, 06:12 PM   #3
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Quote:
Originally Posted by audreyh1 View Post
If you cash out before end of year dividends, all your gains should be long-term assuming you've held all shares at least one year.

Otherwise, some of the distributions might be paid as short-term gains and/or dividend distributions which would be taxed at higher rates unless you are in a really low tax bracket.

Audrey
Original funds were AWSHX and ANWPX, both started in 1997 and built up via DCA over 5 or so years.
ANWPX was exchanged for LTEBX in 1Q09.
Half of AWSHX was exchanged for CAIBX in 1Q09.

So...CAIBX and LTEBX would fall into the short term category (1Q09)?
Or would all fall into long term? This is where I'm a bit confuddled.

My effective tax bracket is 12.5% per TurboTax 2008 software.

Logging off to watch a movie...will check back tomorrow AM.
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Old 10-17-2009, 06:49 PM   #4
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Some of the shares will be short term shares since they were bought within a year. The fund company will know which is which and report them on your 1099, or you can tell by knowing how many shares you bought within the past year. So when you sell, you will have some long term capital gains and some short term capital gains.

What matters is your marginal tax rate, not your "effective" tax rate. People usually treat investment decisions as if they would be taxed at the marginal tax rate for planning purposes, assuming that income comes after all the other income you have already earned.

If your top tax bracket is 15%, then this decision is pretty much a wash unless the short-term gains kick you into a higher income tax bracket.

So, you need to have some idea of your basis so that you can make an informed decision.

The fund company should have all the information you need.

Audrey
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Old 10-17-2009, 08:16 PM   #5
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Ok, I understand. TY
I will contact the fund company and have them provide the cost basis. The good news is these funds were registered only in my name from day one, i.e. not inherited.
Better news is the paper trail is minimal.
I checked at the IRS site, and my income (no earned income) falls within the range of the third line of Schedule X for single filers (page 80 at http://www.irs.gov/pub/irs-pdf/i1040tt.pdf). I pay federal tax but no state tax on pension (CSRS) and annuity (TSP) income because both are derived from US govt retirement plans.
The sale of these funds ($12K or thereabouts) will not put me into the next tax bracket.
I'm thinking after 31 Dec will be my best bet, and to be sure, I will wait for the 1 year since the exchange in 1Q09 to pass by.

Taxes have always been my Waterloo.
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Old 10-17-2009, 10:42 PM   #6
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Normally, I would want to move the money before the year end distribution to prevent receiving taxable distributions from the funds. But after last year, almost every fund should be sitting on plenty of loses to offset any winning positions they decided to sell, so nothing to worry about.
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Old 10-18-2009, 05:35 AM   #7
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If the funds are in a taxable account, you will want to transfer on or before 12/31 so that you do not get a 1099B or 1099DIV from your old firm for tax tear 2010.

If you wait until January, you will get a 1099B in 2011 for any shares sold in 2010. You will also get a 1099DIV for any small amount of dividends paid.

If this is an IRA, then the above does not apply.

All this will be a pain because you won't remember what you did in January 2010 when you are filling out your taxes for 2010 in October 2011.
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Old 10-18-2009, 01:35 PM   #8
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If the funds are in a taxable account, you will want to transfer on or before 12/31 so that you do not get a 1099B or 1099DIV from your old firm for tax tear 2010.

If you wait until January, you will get a 1099B in 2011 for any shares sold in 2010. You will also get a 1099DIV for any small amount of dividends paid.

If this is an IRA, then the above does not apply.

All this will be a pain because you won't remember what you did in January 2010 when you are filling out your taxes for 2010 in October 2011.
All three funds are in taxable accounts.
AWSHX is a long term holding.
CAIBX and LTEBX are short term holdings (1Q09).
I could do this in 2 stages, liquidate AWSHX before 31 Dec 09, followed by the other two in 1Q09 once that year is up. Hmmmm...food for thought.

Regarding remembering, I actually keep an Outlook calendar reminder with a running log of any moves I made in my portfolio and why. It's a short list and easy to maintain. Incurable engineer brain at w*rk...

I truly appreciate the comments and tax rule reminders. This is not rocket science, but it's good to get outside opinions so I keep my head on straight. Theoretically...
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Old 10-18-2009, 01:54 PM   #9
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Do you have a capital loss carryover from last yr? If you do and it is large enough to accomodate any gains from this yr, it may not matter if your other gains are short-term or not.
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Old 10-18-2009, 02:19 PM   #10
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Do you have a capital loss carryover from last yr? If you do and it is large enough to accomodate any gains from this yr, it may not matter if your other gains are short-term or not.
I do not have that info yet. I'll call the company Monday and see where I stand. Their web site does not publish ST/LT cap gains like VG does.

No carryover from last year. However, the 1Q09 exchange of half of AWSHX may possibly be exactly what I need for a TLH for 2009 to offset any type of gains, LT or ST.

TY for the ongoing help and well directed questions. I am trainable.
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