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Rebalancing and Account Types
Old 06-26-2019, 11:07 AM   #1
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Rebalancing and Account Types

Hello!

I'm planning on retiring at 59 1/2, about 2 years from now. My plan will be to maintain a small handful of mutual funds distributed over 4 or 5 asset classes. Where I am right now is I have several "rollover IRA" accounts (401K's from companies that I've left) with one brokerage company. My question is, do I continue with several different accounts or merge them into one. Post retirement, I won't be contributing any more money, but I'll need to periodically rebalance to maintain my asset allocation. Is there a tax implication to rebalancing across different accounts? As in: I sell some shares of my bond fund, which is in one rollover IRA account, and buy more shares of the small cap value fund which is in another account. Seems like besides twice as many mouse clicks, it's six of one, half dozen of the other. Am I missing anything?

Thanks!
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Old 06-26-2019, 11:16 AM   #2
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I did exactly that recently, I clubbed the different Rollover IRAs into a Single Rollover IRA, & yes you can re balance within that Single Rollover IRA.

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Old 06-26-2019, 11:42 AM   #3
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Old 06-26-2019, 11:46 AM   #4
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I moved several IRAs from different companies to Fidelity several years ago. Made life very simple for me in that regard. One mistake I made was I had IRAs funded with pre-tax or untaxed $$ and one with after tax $$. Years ago you could only take a deduction on your IRA contribution if you met income limits so the untaxed account you had to take account of how much you contributed and how much was earnings when you made withdraws. So if you have an account worth $20K and had contributed $5K then 75% of your withdraw was taxable. Anyway, I commingled these accounts and now have to pay income tax on any withdraws. Not a big impact in my case, probably contributed about $6K, in taxed $$ but keep this in mind if you have any taxed IRA accounts.


Otherwise, I rolled all my IRA accounts into 2, one traditional and one ROTH. Now when I re-balance my AA only 2 IRAs (and one for DW). Previously it was a real pain. Not aware of any tax implication of selling say $5K of bond fund from IRA one and buying $5k of S&P fund in another. Of course with different accounts you would need $5K in 2nd IRA to buy the S&P fund. Merge the IRAs (considering the type and tax deferral of each) and makes it easier. Less chance of error at least for me

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Old 06-26-2019, 12:17 PM   #5
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Depends a little on how easy you can sell one fund and use that money to buy another. If your funds allow that all on the same day, no problem. If you have to sell shares in one account and buy shares in another account to get what you want and then deal with excess cash or no cash, it can be a pain.

After simplifying to Fidelity index funds in my retirement accounts, my recharacterization legacy of many Roth accounts is not much trouble at all.
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Old 06-26-2019, 12:28 PM   #6
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I've opened some IRA accounts post retirement just to move (no more contributing once retired) money around for the sake of rebalancing to get my allocations right.

Regardless if you plan on consolidating or not, either way, you want a picture of the overall allocations. If you don't want to consolidate, you can always just create a spreadsheet and have the various accounts sum up to the different asset classes for rebalancing purposes.
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Old 06-26-2019, 12:30 PM   #7
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You certainly can rebalance in multiple accounts. My question is why would you want to? Since retiring I've simplified by combining old 401k rollovers and IRA's into one for each of us. It has made reblancing a snap. Just a simple exchange or two.

YMMV, but it sure made my life easier and will make it easier for DW when I kick.
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Old 06-26-2019, 12:38 PM   #8
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I like the simplicity of a single IRA (unless you have a mix of pre-tax and untaxed as was mentioned in another post), but there is no tax implication to any kind of transaction activity in an IRA except for withdrawals, and withdrawals are fully taxed on the deferred income regardless of what you had invested in within the IRA. You could have even (foolishly) invested in tax exempt bonds in an IRA and when you withdrew the funds, it would all be taxable income.

One exception to the transaction rule is wash sales. If you sell at a loss in a taxable account, and buy the same (or substantially the same) investment 30 days before or after the sale in an IRA, you will have lost the capital loss on the sale. The wash sale keeps you from being able to write it off at the time of the sale, and since the investment is now in an IRA, there's no chance to take the loss later. But that's only when the taxable account is involved. You can sell at a loss in one IRA and buy the same immediately in another IRA.
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Old 06-26-2019, 02:55 PM   #9
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Quote:
Originally Posted by RunningBum View Post
One exception to the transaction rule is wash sales. If you sell at a loss in a taxable account, and buy the same (or substantially the same) investment 30 days before or after the sale in an IRA, you will have lost the capital loss on the sale. The wash sale keeps you from being able to write it off at the time of the sale, and since the investment is now in an IRA, there's no chance to take the loss later. But that's only when the taxable account is involved. You can sell at a loss in one IRA and buy the same immediately in another IRA.
Note the 30 days, I found out hard way when I took a loss on an equity on 14th of the month of June (last year) just to offset a gain. I then bought it back on 14 July and Fido said no loss due to wash rule

Not sure if I also need to account for when the sale closes so 30 plus 5, but probably not since purchase also must close afterwards also. My rule now is 45 days. Live and learn, or so they say.
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Old 06-26-2019, 03:14 PM   #10
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Quote:
Originally Posted by RetireBy90 View Post
Note the 30 days, I found out hard way when I took a loss on an equity on 14th of the month of June (last year) just to offset a gain. I then bought it back on 14 July and Fido said no loss due to wash rule

Not sure if I also need to account for when the sale closes so 30 plus 5, but probably not since purchase also must close afterwards also. My rule now is 45 days. Live and learn, or so they say.
Way back in the day when I used a full service broker, so at least 20 years ago, he taught me to tax loss harvest aggressively...and to always add a few days just to be sure with the wash rule.
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Old 06-27-2019, 06:38 AM   #11
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I've also taken the approach to simplify my accounts as much as possible. Through time, I merged multiple 401k's into a single traditional "rollover" IRA. I now have one taxable brokerage account, one rollover IRA, and one nearly empty Roth IRA. I created the Roth IRA this year to get the clock started on the 5-year roll that could come into play later one. I hope to try and do some conversions of part of the rollover IRA into the Roth IRA up to lower tax bracket thresholds. So 3 accounts total. I set up my Asset Allocation across all 3 of them and rebalance as needed across all 3 of them. Pretty simple to keep track of and make changes as needed.
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Old 06-27-2019, 07:03 AM   #12
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Am I missing anything?
You aren't missing anything, although in my opinion fewer accounts == simpler/better.
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