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When to sell Wellington and Wellesley
11-22-2016, 09:38 AM
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#1
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Recycles dryer sheets
Join Date: Jan 2010
Posts: 442
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When to sell Wellington and Wellesley
I have inherited Wellington and Wellesley in a taxable account, and Wellington in a IRA.
In the course of rebalancing, I want to exchange the W & W in my taxable accounts (fortunately the cap gains are smallish) for equities, and exchange the Wellington in the IRA for Wellesley and Total Bond Index.
My instinct is to wait and sell the W&W after the dividends are paid in mid-December.
Yesterday an advisor at Vanguard told me that it doesn't make a difference: when the dividends are paid, the W&W prices are immediately corrected downward to reflect the dividend, so it is just a matter of which pocket the money is coming from/going to.
Huh?
QUESTION: should I wait until after dividends are paid to to my exchanges, or in fact does it not make a difference to my "worth?"
(Another newbie question...I know. But I am learning a lot!)
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11-22-2016, 09:41 AM
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#2
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Join Date: Jun 2002
Location: Texas: No Country for Old Men
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Quote:
Originally Posted by BarbWire
Yesterday an advisor at Vanguard told me that it doesn't make a difference: when the dividends are paid, the W&W prices are immediately corrected downward to reflect the dividend, so it is just a matter of which pocket the money is coming from/going to.
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^ This.
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Numbers is hard
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11-22-2016, 09:51 AM
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#3
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Join Date: Jan 2010
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Thanks!
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11-22-2016, 09:51 AM
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#4
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Location: Rio Grande Valley
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In the taxable account distributions paid will be taxed regardless of your basis, whereas equities won't pay out cap gains distributions, so my instinct would be to do it before.
Just take a look at the tax situation to know for sure. Vanguard has posted distribution estimates, and you should know what any realized gain may be from selling the funds in your taxable account. Cap gains are usually low for a recent inheritance.
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11-22-2016, 12:54 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jul 2014
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The sales timing is not the critical part and is a wash for total invested balance before taxes. Focus on the tax implications of selling before or after the distribution date(s). If you sell before 1 year, the gains will be considered short term capital gains and will be taxed at your marginal rate. Also, don't sell the W & W funds this year and buy equity funds that are planning on large capital gain or dividend distributions shortly after you purchase them because that will cause even more taxable income.
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11-23-2016, 09:09 AM
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#6
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Thanks!
Audreyh1: yes, low cap gains on recent inheritance is one of the many reasons I want to sell the W&W in the taxable accounts in 2016.
NO2L84ER: That's not quite right for inheritance: although the cost basis reset to reflect market value on the date of death, the long-term vs short-term did not. So the only short term gain I have is for shares acquired by my mother or by me (dividendent reinvestment) in the past year.
I am planning to buy Total Stock Market ETF and a bit of Total International Stock Market ETF in the taxable account. I suppose Vanguard should be able to tell me if either is scheduled for a cap gain or dividend distribution, and when.
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11-23-2016, 10:04 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
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Quote:
Originally Posted by BarbWire
Thanks!
Audreyh1: yes, low cap gains on recent inheritance is one of the many reasons I want to sell the W&W in the taxable accounts in 2016.
I am planning to buy Total Stock Market ETF and a bit of Total International Stock Market ETF in the taxable account. I suppose Vanguard should be able to tell me if either is scheduled for a cap gain or dividend distribution, and when.
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For this reason you might want to consider doing so before (Dec 22?), but you can check the actual numbers involved.
Vanguard has published the projected distributions per share for their mutual funds (not ETFs) to be paid in Dec 2016 - the date is given with each fund here: https://personal.vanguard.com/us/ins...l-gains-112016
ETFs also pay distributions, but they may not be as large. You might want to ask about that.
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11-23-2016, 11:50 AM
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#8
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Administrator
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Location: N. Yorkshire
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While the total money will be the same if you sell just before or just after, then for a taxable account my take on this is that it would be better to sell before the dividend distribution, particularly if the dividends are currently re-invested.
Wellesley dividends are mostly non-qualified so are taxed as regular income. Selling before dividends are distributed means that the NAV price is slightly higher so the money received in the sale will have slightly higher cap gains, than selling after when the total money will be a mix of non-qualified dividend, a little qualified dividend plus cap gains.
Automatic reinvesting also means that the new shares bought by the dividends a few days earlier are short term gains, plus you may run afoul of wash-sale rules if you then purchase Wellesley funds in the IRA within a 30 day period because of the newly invested dividends. (This is not much money but a real pain filling in the tax forms)
Quote:
In the course of rebalancing, I want to exchange the W & W in my taxable accounts (fortunately the cap gains are smallish) for equities, and exchange the Wellington in the IRA for Wellesley and Total Bond Index.
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11-23-2016, 01:18 PM
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#9
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Alan makes a good point... in the taxable account while the total amount received will be no different since the NAV changes by the amount of the dividend, the tax treatment is different... a portion of the dividend (arising from bond interest) will be ordinary income but if sold then that undistributed interest portion of the value would be LTCG assuming the holding period is met. A nuance for sure, but a minor difference.
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11-23-2016, 06:57 PM
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#10
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Quote:
Originally Posted by Alan
Automatic reinvesting also means that the new shares bought by the dividends a few days earlier are short term gains, plus you may run afoul of wash-sale rules if you then purchase Wellesley funds in the IRA within a 30 day period because of the newly invested dividends. (This is not much money but a real pain filling in the tax forms)
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I asked the Vanguard guy about this (though not as clearly articulated) and he said that wash-sale rules only apply to transactions within the same account, not to sales and purchases in different accounts. As long as I am selling Wellesley or Wellington in a taxable account, and purchasing in a non-taxable account, he said I'd be fine.
But then, I've had some really bad advice (and some really good advice) from Vanguard reps before .....
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11-23-2016, 07:22 PM
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#11
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Administrator
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Retired in Jan, 2010 at 55, moved to England in May 2016
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