The first thing that comes to mind is try to take maximum advantage of any zero-rate capital gains window you may have. This depends on your income, but if you expect to be under the top of the 15% tax bracket, you could sell enough of your USAA holdings so that the gain on them remained within that bracket (where cap gains are taxed at zero%). Do the same thing every year up to the top of the 15% bracket until you've gotten all of the shares sold.I have a (post-tax) USAA fund which I would like to sell and transfer to my Vanguard holdings. Is there a best practice for making this transfer in order to minimize taxes?
Can any of the holdings be transferred in kind, so there is no actual sale and thus no capital gains?
The USAA "holdings" are shares of one mutual fund. Is it possible to discombobulate such shares into their constituents, which do or don't have capital gains and/or can be transferred in kind?Can any of the holdings be transferred in kind, so there is no actual sale and thus no capital gains?
The USAA "holdings" are shares of one mutual fund. Is it possible to discombobulate such shares into their constituents, which do or don't have capital gains and/or can be transferred in kind?
What I'm hearing is that it's expensive to just wash my hands quickly of this investment, and I should plan to act slowly and methodically.
Thanks very much for the advice, though.
Update:
Nerded out this morning while watching the baby... made some assumptions about ROI and tracked down my basis for USAA S&P.
Long story short, out to 37 years, there is never a time where the total ER difference paid over the course of time ever exceeds the CG tax hit. At 37 years (and based on all my assumptions and facts) it gets to about 25% of the total CG tax I'd pay to make the move.
You'd have to decide if the convenience is worth it. For me, we're talking about $75K, and it'd cost me ~$6000 to move it, or about $163 difference in expenses to keep it where it is. And it never really gets close to being the financially sound move to go between relatively equivalent funds.
Absolutely.If you're going to sell it eventually rather than keep it until an heir inherits it and gets a stepped up basis, won't you eventually pay the $6,000 either way?
The USAA "holdings" are shares of one mutual fund. Is it possible to discombobulate such shares into their constituents, which do or don't have capital gains and/or can be transferred in kind?
What I'm hearing is that it's expensive to just wash my hands quickly of this investment, and I should plan to act slowly and methodically.
Thanks very much for the advice, though.
My USAA fund is USCRX, with expenses of over 1%, I think, and I'd want to move 'em to some combination of VWENX/VWNAX. What more info do I need in order to figure how long it will take to amortize the tax hit?Skeptic - I was in USAA before moving to Vanguard. I moved because I could reduce my already low expenses to less than half of what they were at USAA in equivalent funds. Here's how I handled your situation:
Inside my IRA, I transferred the funds in-kind, and eventually sold the USAA funds and purchased VTSAX/VTIAX.
In my USAA brokerage account, I transferred the equity holdings in-kind and am still holding those same shares in my Vanguard brokerage account (AAPL).
In the USAA mutual fund account, I never made the move. It didn't make sense to me to sell my USAA S&P 500 fund, move the money over to Vanguard, then purchase VTSAX. The expense difference is .26 to 0.05. I didn't do the math, but incurring a taxable event for such marginal savings didn't make sense to me (maybe I should do the math... that math, by the way, would involve knowing the ER difference, your tax bracket, your basis, the total value, the ROI, and how long you intend to hold the funds before selling them in the future. The longer your timeline and higher the ER difference, the more valuable it is to make the shift.)
Instead, my plan is that the USAA mutual fund account, being that with the highest ER, stays where it is and has a big, fat, target on it as the first funds to be spent when I start drawing down.
Obviously, if there's a bigger difference in ERs or you're flat-out stuck in a bad fund at USAA and want to sell it anyway, maybe it becomes worth it. Otherwise, MY short answer would be: do not incur a taxable event just for convenience.
To determine the tax hit:My USAA fund is USCRX, with expenses of over 1%, I think, and I'd want to move 'em to some combination of VWENX/VWNAX. What more info do I need in order to figure how long it will take to amortize the tax hit?