Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Tax or no tax event?
Old 07-22-2017, 06:59 AM   #1
Recycles dryer sheets
 
Join Date: Jun 2015
Posts: 51
Tax or no tax event?

I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!
hopeisnotaplan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-22-2017, 07:02 AM   #2
Recycles dryer sheets
 
Join Date: Jun 2010
Location: Southwest Florida
Posts: 470
Quote:
Originally Posted by hopeisnotaplan View Post
I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!


It is a taxable event but no tax due. The other funds are irrelevant

Gill
Gill is offline   Reply With Quote
Old 07-22-2017, 07:06 AM   #3
Thinks s/he gets paid by the post
 
Join Date: Sep 2014
Location: The Great Wide Open
Posts: 3,779
You have a long term/short term capital loss depending on the time period that you held the mutual fund.

However, if the 4 mutual funds were held during a distribution period, you still may have a taxable event occur.
Winemaker is offline   Reply With Quote
Old 07-22-2017, 07:11 AM   #4
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 723
funds you keep have unrealized gains and losses, therefore no tax consequence. However, they may generate ongoing taxable income and year-end cap gain distributions that are taxable. additionally, funds you sell have a tax consequence but only if you realize a gain.
panacea is offline   Reply With Quote
Old 07-22-2017, 07:22 AM   #5
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,021
Quote:
Originally Posted by panacea View Post
funds you keep have unrealized gains and losses, therefore no tax consequence. However, they may generate ongoing taxable income and year-end cap gain distributions that are taxable. additionally, funds you sell have a tax consequence but only if you realize a gain.
I would say that it is a taxable event even if you realize a loss. Capital losses are set off first against capital gains then against regular income tax ( up to $3k per year of losses can be set against income tax)
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 07-22-2017, 07:32 AM   #6
Recycles dryer sheets
 
Join Date: Jan 2014
Posts: 456
+1
PERSonalTime is offline   Reply With Quote
Old 07-22-2017, 07:34 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Posts: 2,509
The loss is a "taxable event" in that you likely should file the loss info. It just should not cost you $. You noted other funds have gains which you have not sold. You did not note that any of the MF had any distributions or not, so we assume it did not happen. If they distributed, that would likely be a taxable event depending upon the type of distribution even if you did not trade funds.
bingybear is offline   Reply With Quote
Old 07-22-2017, 07:36 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Quote:
Originally Posted by hopeisnotaplan View Post
I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!
As you have defined it, the sale of the fund is a taxable event. However, since the fund had no value increase the gain would be zero and the tax on the gain woudl be zero as well.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 07-22-2017, 09:26 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 16,972
Quote:
Originally Posted by pb4uski View Post
As you have defined it, the sale of the fund is a taxable event. However, since the fund had no value increase the gain would be zero and the tax on the gain woudl be zero as well.
But the other 3 funds could have done a distribution and tax would be owing on those events, even if no cash was paid to the OP.

This is what I dislike about mutual funds, you get to pay tax, but don't get any cash in your pocket, until you finally sell the mutual fund.
Sunset is offline   Reply With Quote
Old 07-22-2017, 09:36 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2009
Posts: 6,679
Quote:
Originally Posted by Sunset View Post
But the other 3 funds could have done a distribution and tax would be owing on those events, even if no cash was paid to the OP.

This is what I dislike about mutual funds, you get to pay tax, but don't get any cash in your pocket, until you finally sell the mutual fund.
You do actually get the cash, but you chose to automatically reinvest it back into the fund (or another fund), so you don't really get to keep it for more than a millisecond. It is still taxable event.

Also, sometimes cap gain distributions are done midyear, not only at the end of the year.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 07-22-2017, 10:12 AM   #11
Thinks s/he gets paid by the post
 
Join Date: Mar 2017
Location: New York City
Posts: 2,838
Quote:
Originally Posted by hopeisnotaplan View Post
I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!
Listen, I think I know what your driving at, in my layman terms you have 4 funds. You sell the fund that started with 10 thousand, its now worth 9 thousand. No you dont owe one penny in taxes. You need to report it. But you will not owe any money. this is the blue collar answer to the question. All this dividend & interest stuff happens weather you sell the fund or not, its all noise.
__________________
Withdrawal Rate currently zero, Pension 137 % of our spending, Wasted 5 years of my prime working extra for a safe withdrawal rate. I can live like a King for a year, or a Prince for the rest of my life. I will stay on topic, I will stay on topic, I will stay on topic
Blue Collar Guy is offline   Reply With Quote
Old 07-22-2017, 10:28 AM   #12
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 34,021
Quote:
Originally Posted by hopeisnotaplan View Post
I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!
Since this is an investing 101 question I'm guessing that you haven't had an after tax account holding mutual funds before. I can only speak for Fidelity and Vanguard as they are the only companies I have owned funds with but I believe it to be true of all such companies.

In February or March usually you will get a set of tax forms for the previous year to include with your tax return. Each fund is treated as a separate entity so you will see fund by fund dividends and capital gain distributions, plus any capital gains or losses from the sale of shares from each fund.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 07-22-2017, 10:38 AM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
Quote:
Originally Posted by scrabbler1 View Post
You do actually get the cash, but you chose to automatically reinvest it back into the fund (or another fund), so you don't really get to keep it for more than a millisecond. It is still taxable event.
...
+1 you can always chose not to reinvest and take the dividends in cash and use part of the cash to pay the tax and then either save or spend the rest.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 07-22-2017, 05:32 PM   #14
Recycles dryer sheets
 
Join Date: Jun 2015
Posts: 51
Quote:
Originally Posted by Blue Collar Guy View Post
Listen, I think I know what your driving at, in my layman terms you have 4 funds. You sell the fund that started with 10 thousand, its now worth 9 thousand. No you dont owe one penny in taxes. You need to report it. But you will not owe any money. this is the blue collar answer to the question. All this dividend & interest stuff happens weather you sell the fund or not, its all noise.


Yes...this.
And several other responses answered the question that each fund is independent and the funds in the account aren't tied together. I appreciate the confirmation. That's how I assumed it worked, but wasn't 100%.
hopeisnotaplan is offline   Reply With Quote
Old 07-22-2017, 05:54 PM   #15
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Charlotte
Posts: 222
Quote:
Originally Posted by hopeisnotaplan View Post
I'm sure this is investing 101, but I'm second guessing the way I believe this works.

Let's say you open an after tax account and spread the dollars over 4 mutual funds. Three of the funds increase in value. One fund stays flat or has a slight loss. You have never rebalanced or transferred dollars between funds. You liquidate the amount out of the flat/neg fund to cash. Is there a tax implication because the entire brokerage account went up in value or no taxable event because the specific fund you liquidated had no value increase. Thanks in advance!
Are you referring to a traditional IRA funded with after tax dollars or a personal, non-retirement account?
bw5972 is offline   Reply With Quote
Old 07-22-2017, 06:36 PM   #16
Recycles dryer sheets
 
Join Date: Jun 2015
Posts: 51
Quote:
Originally Posted by bw5972 View Post
Are you referring to a traditional IRA funded with after tax dollars or a personal, non-retirement account?


Personal brokerage account.
hopeisnotaplan is offline   Reply With Quote
Old 07-22-2017, 06:49 PM   #17
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Charlotte
Posts: 222
Quote:
Originally Posted by hopeisnotaplan View Post
Personal brokerage account.
In a personal account each fund or stock stands alone as far as taxable events.
The fund that was liquidated will have a gain or loss based on price change while you held. In addition, for ALL of the funds, there may be capital gain distributions where there were gains or losses within a fund from the buying and selling of stocks within the fund. The total taxable net gain or loss would be distributed back to the fund holders i.e. you.

Dividends from the funds are also taxable unless they have been elected to be reinvested as the purchase of additional units of the fund.
bw5972 is offline   Reply With Quote
Old 07-22-2017, 06:51 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,581
Quote:
Originally Posted by bw5972 View Post

Dividends from the funds are also taxable unless they have been elected to be reinvested as the purchase of additional units of the fund.
Doesn't matter if they are reinvested or not, the dividends are reportable and taxable at the appropriate rate.
RE2Boys is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
AARP's annual event "Life @ 50" question? Orchidflower Other topics 9 08-22-2011 05:34 PM
Fit for Life Livestream event simple girl Health and Early Retirement 0 05-13-2011 12:51 PM
Animal Shelter Event Purron Other topics 7 05-06-2009 07:17 PM
DISTURBING event at the prison LeatherneckPA Other topics 14 11-15-2007 10:32 AM
Spooky Event Coming Up Early Morrow OldAgePensioner Other topics 14 04-05-2006 05:00 AM

» Quick Links

 
All times are GMT -6. The time now is 08:33 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.