Rebalancing (taxable accounts) - gotta do it!

[audreyh1]

This year estimated distributions will be enough to cover our Jan withdrawal, but not enough to rebalance to our target AA after such a big market year.

Just gotta bite the tax bullet and do it!

I’m considering pulling most of the rebalancing into this year’s taxes - i.e. do it before year end.

 

[mrfeh]

This year estimated distributions will be enough to cover our Jan withdrawal, but not enough to rebalance to our target AA after such a big market year.

Just gotta bite the tax bullet and do it!

I’m considering pulling most of the rebalancing into this year’s taxes - i.e. do it before year end.

Depends on how far from your target AA you are.

A recession will take care of the rebalancing for you.

 

[sengsational]

I presume since you're talking about capital gains tax. And no loosers to offset those. Nice problem to have. Lock in your gain before mr market takes them back.


Nice thing about doing it now is you can have the pro-forma tax return computed and know just what the tax bracket will be. You could fill up a bracket and take some more next year too.

 

[audreyh1]

Depends on how far from your target AA you are.

A recession will take care of the rebalancing for you.

That's the point - I will be well off of target once I take the withdrawal.

I'm definitely not interested in having a recession take care of rebalancing for me. I prefer to be rebalanced before recessions show up.

 

[audreyh1]

I presume since you're talking about capital gains tax. And no loosers to offset those. Nice problem to have. Lock in your gain before mr market takes them back.


Nice thing about doing it now is you can have the pro-forma tax return computed and know just what the tax bracket will be. You could fill up a bracket and take some more next year too.

Right - no losers - already took advantage of what I could last year.

Yes - it's in the "nice problem" category. So far our capital gains income looks to be lower than last year, so the additional trimming for rebalancing at least comes on top of a lower amount.

I totally agree with locking in gains before Mr. Market takes them back. I'm actually planning to withdraw a bit extra in Jan for gifting purposes. Just seems like a good time to do extra gifting if you were already thinking about it.

I'm generally in the 12% bracket on ordinary income, as most of my income is qualified dividends and long-term capital gains. The rebalancing won't change this at all.

 

[pb4uski]

Could you rebalance in tax-deferred accounts and avoid the tax hit? I ususally rebalance in tax-deferred for this reason.

 

[mrfeh]

That's the point - I will be well off of target once I take the withdrawal.

I'm definitely not interested in having a recession take care of rebalancing for me. I prefer to be rebalanced before recessions show up.

Yes, but what is "well off"?

You should have percentages that dictate your actions.

 

[audreyh1]

Yes, but what is "well off"?

You should have percentages that dictate your actions.

Yes I do. 8% off which is above my threshold.

But not everyone uses thresholds, nor is it required for rebalancing.

 

[donheff]

Like PB4 I rebalance in tax differed keeping only equities in taxable. When DW’s RMDs kick in that will gradually change as excess distributions go into taxable. We will attempt to maintain AA when we allocate the excess.

 

[Perryinva]

If you wanna play, you gotta pay. It’s a lot worse when you have pensions filling up your good brackets, so rebalancing is always more expensive. Good problem, but still seems more painful.

 

[audreyh1]

Like PB4 I rebalance in tax differed keeping only equities in taxable. When DW’s RMDs kick in that will gradually change as excess distributions go into taxable. We will attempt to maintain AA when we allocate the excess.

My tax deferred is much much smaller than taxable.

 

[ducky911]

I know I am out of balance but going to wait until first of the year to check.

After the last 10 years of run up in the market if you use only your tax deferred accounts to re-balance they would be 100% bonds/cash . Gotta pay some tax...ouch...but can wait a month to wait a year to pay.

 

[pb4uski]

.... I'm generally in the 12% bracket on ordinary income, as most of my income is qualified dividends and long-term capital gains. The rebalancing won't change this at all.

Do you have much headroom for 0% long-term capital gains? If so, if you used that headroom would it make much of a dent in the 8% overallocation to equities?

 

[pb4uski]

My tax deferred is much much smaller than taxable.

Is your tax-deferred all fixed income?

 

[audreyh1]

Do you have much headroom for 0% long-term capital gains? If so, if you used that headroom would it make much of a dent in the 8% overallocation to equities?

No. Last year ordinary income was almost exactly the 12% limit. It might be slightly lower this year, but not by much.

But the 0% headroom has already been used up by qualified dividends and long-term capital gains distributions paid YTD. We also cross the NIIT limit annually. First world problems.

Is your tax-deferred all fixed income?

It should be, but it's not all fixed income yet.

 

[walkinwood]

Bond funds did well this year - even TIPS & Intermediate treasuries. That, combined with the large distributions by my two active funds late last year (I don't reinvest), keeps my AA within bounds this year.

 

[Midpack]

I put off rebalancing to avoid taxable events as long as I can, but once I break the 25/5 rule I have to force myself unless I know something else is coming that’ll alter my AA. And even then if I have any losses, I use them to offset gains.

 

[Ronstar]

I only have equities in taxable. So my rebalance will be cash from condo sale into taxable equities, and tax deferred equities to tax deferred bonds. And convert some tax deferred equities to Roth.

 

[audreyh1]

Bond funds did well this year - even TIPS & Intermediate treasuries. That, combined with the large distributions by my two active funds late last year (I don't reinvest), keeps my AA within bounds this year.

Yes they did! Quite a recovery. But the stock funds still zoomed way ahead because they ended last year down quite a bit. Thus we will be well out of balance.