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Old 07-28-2016, 12:16 PM   #21
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Treasuries and even total US bond market index funds were clearly much better than a junk bond fund.
That higher yield comes at a cost.
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Old 07-28-2016, 01:50 PM   #22
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Only tax-exempt dividends from VWALX are tax-exempt. Any capital gains distributions would not be tax-exempt.
Does that also apply to municipal bonds ?
SMTFX Sit Minnesota Tax-Free for instance

Thanks!
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Old 07-28-2016, 01:56 PM   #23
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Does that also apply to municipal bonds ?
SMTFX Sit Minnesota Tax-Free for instance

Thanks!
Yes it does.
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Old 07-30-2016, 05:22 AM   #24
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I'm don't understand. One would tax-loss harvest the huge loss in the year it happened. There would not be future years of TLH unless losses occurred in those years.

We tax-loss harvested losses in 2008-2009 in the mid-6-figure range. Those carryover losses are the reason we do not have to pay much in the way of taxes as retirees today. For instance, if I sell $100,000 of stocks with $50,000 of capital gains, then I offset that $50,000 of capital gains with losses harvesting in 2008 and my taxable income is zero. Actually, it is better than that because I do Roth conversion because my taxable income is so low even though I have plenty of money to spend on expenses.

But quite a few people misunderstand how tax-loss harvesting works. I am happy to go into detail on how it works for anybody that wants to know.
You are making assumptions here. You are assuming that in a year with a huge market drop and subsequent huge capital losses, one would be able
to tax loss harvest.
What if there were not sufficient gains to offset a huge capital loss. Sure you were able to do it in 2008-2009 because the gains had probably been building for years. This is not always the case which is where a cash reserve comes in handy.

My point was if there is no corresponding gain to offset a huge loss....the loss needs to be carried over year after year and can only be offset by $3,000 in each subsequent year. That's the tax code as of today. Hope that makes it a little clearer.
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Old 07-30-2016, 07:46 AM   #25
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I'm don't understand. One would tax-loss harvest the huge loss in the year it happened. There would not be future years of TLH unless losses occurred in those years.

We tax-loss harvested losses in 2008-2009 in the mid-6-figure range. Those carryover losses are the reason we do not have to pay much in the way of taxes as retirees today. For instance, if I sell $100,000 of stocks with $50,000 of capital gains, then I offset that $50,000 of capital gains with losses harvesting in 2008 and my taxable income is zero. Actually, it is better than that because I do Roth conversion because my taxable income is so low even though I have plenty of money to spend on expenses.

But quite a few people misunderstand how tax-loss harvesting works. I am happy to go into detail on how it works for anybody that wants to know.
To be fair though, many early retirees are in the 15% tax bracket or lower and would typically pay 0% on capital gains anyway... though it is nice that you can do more low tax cost Roth conversions because of your tax losses.
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Old 07-30-2016, 07:56 AM   #26
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To be fair though, many early retirees are in the 15% tax bracket or lower and would typically pay 0% on capital gains anyway... though it is nice that you can do more low tax cost Roth conversions because of your tax losses.
Thanks for pointing this out. I have gotten so used to paying cap gains in the 33% bracket I didn't realize there was a pot of gold at the end of the rainbow. I hope that tax break still exists when I have more control over my income when I retire. Until then I am a tax loss harvesting farmer.
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Old 07-30-2016, 08:40 AM   #27
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This scenario does not work for many retirees. If one has SS or pension income or rental income sure. But for retirees relying on their portfolio for the majority of their income....not so much.

You are limited a $3,000 capital loss in any year. By carrying over loss amounts beyond $3,000, you are in effect giving the govt. an interest free loan until the next year.

So in 2008-2009, if you had a huge unexpected expense of say $50,000....then selling at a huge loss may result in many future years of TLH. Not something I would want to do.

Ditto


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Old 07-30-2016, 10:47 AM   #28
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I don't have any cash nor fixed income in any taxable account. That is, no savings account, no CDs, no bonds, no bond funds, etc. The reason is taxes. I don't want to earn any interest or dividends that increase my income and cause me to pay more taxes.
I understand in theory why this makes sense. However, when I do the math, it doesn't seem to work out that way for me. I have CDs in taxable accounts earning between 2.25-3%. I also have intermediate term muni bonds paying 1.23% tax free. In my tax bracket, that equates to about 2% equivalent yield. So it's still lower than my lowest earning CD.

Intermediate term bonds have moderate interest rate sensitivity that CDs (non-brokered) do not. And with interest rates being at all time lows, it seems more likely that bond fund prices will fall over the coming years rather than rise. So as much as I hate having money in CDs that I'm paying taxes on, I can't find a good reason to put all of it into bond funds just to avoid paying the taxes.
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Old 07-30-2016, 11:41 AM   #29
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There is a pretty simple algebraic formula out there for comparing taxfree bonds to taxable so you know which is the most efficient for you, ceteris paribus. It, of course, bakes in your marginal rate so that is accounted for.


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Old 07-30-2016, 12:56 PM   #30
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You are making assumptions here. You are assuming that in a year with a huge market drop and subsequent huge capital losses, one would be able
to tax loss harvest.
What if there were not sufficient gains to offset a huge capital loss. Sure you were able to do it in 2008-2009 because the gains had probably been building for years. This is not always the case which is where a cash reserve comes in handy.

My point was if there is no corresponding gain to offset a huge loss....the loss needs to be carried over year after year and can only be offset by $3,000 in each subsequent year. That's the tax code as of today. Hope that makes it a little clearer.
Not quite correct. Capital losses taken today can offset capital gains in future years - including capital gains distributions from mutual funds and qualified dividends from both stocks and mutual funds. You are only limited by $3000 in years where you have 0 capital gains and 0 qualified dividends.
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Old 07-30-2016, 01:26 PM   #31
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.......... I have CDs in taxable accounts earning between 2.25-3%.........
Where can I get a 3% CD?
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Old 07-30-2016, 04:20 PM   #32
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Where can I get a 3% CD?

Currently, nowhere. But many of us on the forum took advantage when Penfed offered 3% five year CDs a couple of years ago.


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