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How to sell Vanguard Wellington --help!
Old 12-30-2015, 02:59 PM   #1
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How to sell Vanguard Wellington --help!

Before I started reading this forum I was even more clueless, and I did my asset allocation in my retirement and non-retirement accounts independently, so I put Wellington in my non-retirement account. I now know better, but I have about 5000 shares.

I've just sold some stocks and ETFs to harvest some capital losses for 2015 -- about $5,000 in LTCL. I now want to sell some of my Wellington, with three objectives: (1) eat up the capital loss (2) reduce the bonds in my taxable account, and (3) generate some cash for a large purchase in 2016.

By default, Vanguard will sell uncovered shares first. For those, my average cost was $46.48/share (Wellington is currently at $64.xx/share). So I'd only sell about 280 shares to hit my $5000 in LTCG, and this would only generate about $18,000 in cash.

Or, I *think* I could instruct Vanguard to sell the shares that I acquired between 1/23/2013 and 9/15/2014 (one big purchase, the rest acquired by divs and cg). Those shares (about 2,000) cost between $60 and $69/shares. Selling these would generate about $5000 in LTCG, no STCG, and yield about $130,000 in cash (half of which I would invest in an index stock fund, and keep half in cash).

So here are the questions:

1. Is my thinking straight? And can I tell Vanguard to sell shares acquired between specfic dates?

2. Is my strategy wrong? I will cut my shares from 5000 to 3000, so that will help future taxes. But I'm selling the shares with the least gains, and of course some shares with losses.

FYI, none of the three people I spoke to at the Flagship desk knew diddly about selling multiple specific lots, one said I had to sell the uncovered shares first, and one said that if I didn't sell FIFO I had to sell LIFO. <sigh>

Thanks!
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Old 12-30-2015, 03:57 PM   #2
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The situation is complicated by the fact that one cannot switch cost basis methods willy-nilly. If you have ever sold shares of this fund and used average basis for the cost basis method, then you are stuck with using it for most of your shares.

Also you have one more trading session to get something done for this year.

Whether a Vanguar CSR can be of any help is not clear as they do not help with tax information. You might call them up and change your cost basis method to Specific Identification especially if you have never sold shares before. (Never mind, you did call them up and they were not helpful. But maybe they can get the Cost Basis Method changed to Specific ID as it may be too late to change it online through the web interface in time for a transaction tomorrow.)

And just because shares are not covered does not mean you must use average basis. Here is a nice discussion where someone went through the trouble of examining ALL their transactions and changed the Cost Basis method to Specific Identification, then sold only the shares with losses: https://www.bogleheads.org/forum/viewtopic.php?t=180333 Note how they gave instructions on which lots to sell of the non-covered shares via a PDF attachment to a secure message to Vanguard.

As you noted Average Basis required First-in, First-out share specification. Specific Identification uses First-in, First-out share specification as the default, too. Note that FIFO, LIFO, HIFO, MIFO, SIFO are all subsets of Specific Identification so do not bother with them, just use Specific Identification for ALL your taxable account investments.
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Old 12-30-2015, 04:18 PM   #3
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What happens when you try to sell online? What options are you presented with for select lots and # of shares.

I have one fund with both covered and noncovered shares. If I select Sell, I see the noncovered shares as one big lot, and the covered shares are shown on the purchase dates. Each purchase is shown, including reinvestments of divs and CGs. I can choose how many shares to sell from each lot, and can sell covered before noncovered shares--apparently. Since I don't want to sell I didn't go beyond the first step of selecting shares and hitting continue to see if it overrules me later, but I seem to recall doing this before with no problem.

I chose SpecID for the basis type for the covered shares. If you've already sold some of those shares using average cost, you're stuck with it. If you haven't, you may need to go into some account option to change it to Spec ID before you see the option to choose specific lots.

Given your objectives, I'd try to sell the shares in order of least to greatest gain until you use up your capital gain objective. This will leave you the fewest shares in the taxable account.
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Old 12-30-2015, 04:44 PM   #4
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Oh, dear. Last year I sold shares -- simply instructed to sell $100K -- and I was bitten by the average cost/FIFO gotcha: it generated $31K in capital gains, not the substantially lower amount that I had naively expected based on the average cost of all of my shares, covered and uncovered.

That's when I learned that "average cost" has little to do with capital gains.

I will play with this some more tonight just to see if the web will let me sell specific lots. If not, well -- I guess I take at $3000 LTCL for 2015 and carryover $2000 to next year.

Always learning....

Thanks!
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Old 12-30-2015, 05:06 PM   #5
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Which method was used? Average cost or FIFO? If it was FIFO, there's no problem to switch to SpecID since FIFO is selling specific shares, the first in. It's just a method of SpecID in which they automatically choose the oldest ones rather than you selected the ones you want.

Even if it was average cost, covered vs noncovered are handled separately. I *think* Vanguard would sell the noncovered shares first before dipping into the covered shares. If they didn't touch the covered shares, you should be able to use SpecID on the covered shares and should be able to sell them ahead of noncovered. I don't remember for sure though.

In any case, like I said before, see what options you have, and if you don't have the options you want, try to change the cost basis to SpecID and see if that helps.
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Old 12-30-2015, 05:41 PM   #6
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Also, depending on your tax bracket, taking the 3000 loss may work out better. If you're above the 15% bracket you'll get that 3000 loss off a higher rate than you would from canceling out LTCGs. Even if you're in the 15% bracket there's really no diff other than having a lower tax payment this year by subtracting the 3000 from income and deferring the LTCGs for another year.
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Old 12-30-2015, 05:59 PM   #7
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Hmmm. This year, filing single, I will be at about $35K before considering the LTCL, all coming from dividends, interest, and capital gain distributions. And I wish that were lower; that's the peril of having the Wellington in the taxable account.

In 2016 my income will be double that because I will have to begin taking RMDs from three IRAs I inherited this year. That's one reason I want to whittle down my Wellington position -- don't need to generate even more income!

I left this to the last moment because I was dealing with the mess in health insurance in Texas as well as scrambling to do things with my parents' estates before year-end. Mea culpa. Lots to think about before the markets close tomorrow.

Thanks for the help!
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Old 12-30-2015, 06:31 PM   #8
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That changes my answer.

$35K of that type income should generate no taxes due. If you're in the 0 or 10% bracket than LTCGs and qual divs are not taxed unless they push all income above the bracket (37,450). You not only could sell to cancel out the loss, but you could sell even more to push yourself to the start of that 15% bracket and still pay no taxes. If that $35K does not take into account exemptions and deductions you have even more room. I would take full advantage of this if you can, especially with more income coming next year.

You might even be able to sell more or all of it and at least have it be no worse than taking it in the future, but that gets even more complicated as it depends on how much your RMDs are, and how much your income is from interest, STCGs and non-qualified dividends is. I would at least try to get to $37,450 after all the deductions and exemptions, and unlike the Roth conversion scenario, I don't think it will hurt you to go over.
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Old 12-30-2015, 06:36 PM   #9
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One more note, you can model this with a tax program to see the impact of various gains from the sale. Unless your situation is complex you can fill in the major amounts and get a pretty close number. You don't have to record every sale, just one summary sale for schedule D to represent everything, then a sale for Wellington and try changing the number and see how that impacts the bottom line.
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Old 12-30-2015, 06:48 PM   #10
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Thanks, RunningBum! I'm playing with TaxCaster (TurboTax online) right now. I don't yet have TurboTax Premier 2015.

$35K less $6,300 deduction and $4000 exemptions leaves about $24,500 of taxable income, and yes -- no income tax due, per TaxCaster. So if I follow what you're saying correctly, I could not only sell enough to absorb my capital loss, but sell enough additional to generate another $13k in capital gains, taking me up to $37,450 of taxable income?

Hmmm.
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Old 12-30-2015, 07:20 PM   #11
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Go online and into cost basis under My Accounts and to the account you want to sell. Then go to View/change cost basis method and change your preference from average cost to specific ID. Then do your sale and select your lots.
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Old 12-30-2015, 07:29 PM   #12
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Quote:
Originally Posted by GreyDawg View Post
Thanks, RunningBum! I'm playing with TaxCaster (TurboTax online) right now. I don't yet have TurboTax Premier 2015.

$35K less $6,300 deduction and $4000 exemptions leaves about $24,500 of taxable income, and yes -- no income tax due, per TaxCaster. So if I follow what you're saying correctly, I could not only sell enough to absorb my capital loss, but sell enough additional to generate another $13k in capital gains, taking me up to $37,450 of taxable income?

Hmmm.
Put in a number for long-term capitals into TaxCaster and see what happens. Put in different numbers and see what happens.
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Old 12-30-2015, 08:58 PM   #13
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Yep, TaxCaster is good for playing with numbers -- good 'nuff for this.

But ... I had a lightbulb moment: in 2015 I had an ACA subsidy -- about $3,000 worth. If I sell enough Wellington to bring my taxable income up to $37,450, then I will have to repay the feds $3000 for ACA since my MAGI will be way to high for a subsidy.

In terms of cash out of my pocket, it's a wash -- pay the Feds $3000 for ACA reimbursement this year, or pay it to the IRS next year at 15% on capital gains.

I guess the good news is that in 2016 I will not have the complicating factor of the ACA reimbursement. So maybe I should carry over a LTCL of $2000 to 2016 and then sell early in the year, before Wellington generates more cap gains and dividends.

Oy. I have learned a lot in the past 24 hours, and this forum has been invaluable!

I long for the day (maybe in 2016?) when I have my portfolio cleaned up, balanced, and the asset classes in the right places. :-)

Many thanks to everyone!
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