Selling funds pre/post CGD?

[steelyman]

Most know that it is best to wait until after a distribution to purchase fund shares, but does it matter when selling? It seems to me not.

I just realized how few trading days are left this year and better get off my butt and start selling stuff!

 

[braumeister]

Just a thought.
Plenty of serious investors (like mutual funds) do a lot of selling toward the end of the year, as you're thinking of doing.

But then they do a lot of buying at the beginning of the next year, so many of those same stocks that got hit at year-end wind up gaining far more during the January buying spree.

Consider your own situation. Do you really want a bunch of capital gains this year you will pay taxes on in a few months? The answer could very well be yes, but you need to be sure.

 

[kaneohe]

As in most of life, .........depends......

Assume basis = 1; value now 10; assume LT ,
1) sell before distribution; LTCG = 9

2) Assume value 10 includes CG = 2, DIV =1 so
sell after distribution when value = 7 w/ CG=2, DIV =1
LTCG from sale = 6
Taxable CG = 2 and taxable DIV = 1
Total taxable income = 9 , the same as in 1)
so best case , the same if taxation same on all parts;
worst case.....CG distribution ST, DIV is non-qualified so taxation
on part of income is higher than in 1)

 

[steelyman]

Thanks, braumeister - you make good points. But yes, I really want to take capital gains this year 'cause I am one-time-only eligible for 0% tax.

In funds, I want to sell long-term holdings in Vanguard STAR and Total Stock, also Royce Premier. I really like all of them, so I'll be head-scratching this week about what to replace them with, even temporarily.

 

[UtahSkier]

Naturally it depends...

For example, you can sell a fund like wellsely with a large non-qualified dividend that you have held for over a year in a taxable account. If you sell before the dividend record date, the dividend payment will be a part of your long term capital gains. If you sell afterwards, the dividend will be paid to you and taxed as income.

Next year with the current forecast of all dividends treated as income for everyone, this will suggest selling somewhat before the dividend record date to be tax-optimal for a security held for greater than a year.

Note that I have assumed your marginal income tax rate is greater than your long term capital gain tax rate.

 

[kaneohe]

In funds, I want to sell long-term holdings in Vanguard STAR and Total Stock, also Royce Premier. I really like all of them, so I'll be head-scratching this week about what to replace them with, even temporarily.

If you are selling for gains, you can buy back immediately.
If you are selling for loss, then you risk wash sale if you buy back too soon.

 

[steelyman]

If you are selling for gains, you can buy back immediately.
If you are selling for loss, then you risk wash sale if you buy back too soon.

Oh no, it's all gains - I have plenty of losses (can you spell AMD?) that I'm tucking away till 2013.
I can't buy the funds back immediately due to frequent trading rules.

I'm volunteering at a community Christmas dinner this week, but then I got me a hot date with Quicken

 

[pb4uski]

Oh no, it's all gains - I have plenty of losses (can you spell AMD?) that I'm tucking away till 2013.
I can't buy the funds back immediately due to frequent trading rules.

I'm volunteering at a community Christmas dinner this week, but then I got me a hot date with Quicken

I ran into the frequent trading rule restrictions recently when I sold some funds to take advantage of 0% CG rate. It drives me nuts that VG chooses to apply the frequent trading rules to same day trades, but it is what it is. For me to sell and buy $x of Total Stock (or whatever) should just be an accounting transaction for them and doesn't affect the fund's liquidity one iota - but I digress.

There are ways around the frequent trading rules. For example, you could sell Total Stock fund and buy the Total Stock ETF in your VG brokerage account and use the proceeds from the sale of the fund to settle the buy of the ETF. Or you could exchange Total Stock fund for S&P 500 Index and Extended Market funds in certain proportions (not sure specifically what they are but VG can tell you) and it is supposed to be the same as Total Stock fund.

For STAR you could buy the funds that make up STAR (see https://personal.vanguard.com/us/FundsSnapshot?FundId=0056&FundIntExt=INT#tab=2) or one of VGs similar balanced funds. STAR and Target Retirement 2020 have had similar growth patterns over the last 1,3 and 5 years so that fund might be a good temporary parking spot for the 60 or 90 days.

I did some rebalancing at the same time so it worked out ok.

 

[audreyh1]

Most know that it is best to wait until after a distribution to purchase fund shares, but does it matter when selling? It seems to me not.

I just realized how few trading days are left this year and better get off my butt and start selling stuff!

In a taxable account, if you are going to sell a fund anyway, and you have held it for more than a year, it's best to sell before a distribution, so that you are only taxed at long term capital gains rates. And you are also paying on the difference compared to your basis. Now if the distribution is only a long term cap gains and you sell the entire fund, it would be a wash. But if the distribution included short term cap gains or non-qualified dividends you'd probably end up paying higher taxes.

 

[steelyman]

For STAR you could buy the funds that make up STAR (see https://personal.vanguard.com/us/FundsSnapshot?FundId=0056&FundIntExt=INT#tab=2) or one of VGs similar balanced funds. STAR and Target Retirement 2020 have had similar growth patterns over the last 1,3 and 5 years so that fund might be a good temporary parking spot for the 60 or 90 days.

That is a really good idea that I would NEVER have thought of, thanks! But it may be a little too much work for this bluesman - probably I will just sell, leave the proceeds in money market, take a deep breath, and hit it again in the New Year

 

[steelyman]

In a taxable account, if you are going to sell a fund anyway, and you have held it for more than a year, it's best to sell before a distribution, so that you are only taxed at long term capital gains rates. And you are also paying on the difference compared to your basis. Now if the distribution is only a long term cap gains and you sell the entire fund, it would be a wash. But if the distribution included short term cap gains or non-qualified dividends you'd probably end up paying higher taxes.

Huh, that's good to think about, thanks. This is all in taxable (tax-deferred are a breeze... at least for now).

 

[Animorph]

I'm "transferring" some equities from taxable accounts into IRA accounts by selling them in the taxable account and buying the same thing in the IRA. Any capital loss in this case is a total loss, never recovered. I have two funds that are due to distribute dividends and gains to the tune of 10% of NAV before the end of the year. And right now, pre-distribution, the NAVs are just barely above what I bought them at. So I have to sell now or pay taxes on the gains and wait until they gain 10% before I can try it again. Or wait out the wash sale period. I'm selling/repurchasing both Monday, so hopefully the market doesn't decline much.

 

[LOL!]

If you all are worried about Vanguard frequent trading rules, there is the online work-around discussed at Bogleheads:
Frequent trading policy - Bogleheads

Even a little bit of extra income can cause problems for folks who are up against some limits like income limits for Roth contributions. This is especially true if they have already made Roth contributions that will have to be undone.

 

[steelyman]

Well, my selling has begun. I'm taking pb4uski's advice (thank you!) and moving the two VG funds into the 2020 target. I'll think about it again around March. After Xmas, I'll sell Royce and a few individual stocks to wrap up the year. I appreciate all the replies!

 

[steelyman]

Wow. This afternoon, I updated my tax spreadsheet for the first time in many months (yes, turning into a slacker over here), and was surprised how fast I got pushed over that 0% tax limit - due to a few pension payments, dividends, realized capital gains and capital gain distributions.

I haven't even sold any stocks that I thought I would yet, just funds. I'd really hoped to get the 0% on gains for this year but now the dilemma is whether to sell losers or just keep selling for gains at the 15% bracket before 2013. My inclination is just to suck it up, keep the losses, and do the latter... any opinions otherwise?

 

[kaneohe]

Have you calculated the end result of your assumptions?

Assume basis of 50 and current value of 100.

1) sell now for gain of 50. Pay 15% CG tax of 7.5 and have 92.5 to reinvest.
Assume investment doubles to 185. Sell now for gain of 92.5. If CG tax is now 20%, tax is 18.5 and amount after tax is 166.5

2) do not sell now. Assume investment doubles to 200. Sell now for gain of
150. If CG tax is now 20%, tax is 30 and amount after tax is 170 which is more than the amount in 1).

Pls check math ..........if correct, it suggests that selling now at lower CG tax may not necessarily be better...........probably depends on assumptions made. If you were planning to sell anyway, that's one thing. If you are selling just to take the gain now, perhaps another.

 

[pb4uski]

Wow. This afternoon, I updated my tax spreadsheet for the first time in many months (yes, turning into a slacker over here), and was surprised how fast I got pushed over that 0% tax limit - due to a few pension payments, dividends, realized capital gains and capital gain distributions.

I haven't even sold any stocks that I thought I would yet, just funds. I'd really hoped to get the 0% on gains for this year but now the dilemma is whether to sell losers or just keep selling for gains at the 15% bracket before 2013. My inclination is just to suck it up, keep the losses, and do the latter... any opinions otherwise?

I almost always do a complete projected tax update before making any major moves in my taxable accounts.

No right answer but beware of letting the tax tail wag the investment dog. First priority is what you want to do investment wise. That said, if you harvested losses would it bring you back down into the 0% capital gains bracket?

 

[steelyman]

I got all but two of the stock trades I wanted executed today. I had placed them last night in the form of what Fidelity calls a "one triggers the other" order (I was selling then buying back at about $0.25 cheaper).

Most got filled by 9am central time when all the yapping about the "fiscal cliff" (which I am sooo sick of) was going on.

I decided to keep selling and take gains as it is unlikely my income will be this low again and of course likely rate increases. So my basis on those stocks is now "reset" and I am done with this stuff for the year, thank heaven.

I appreciated all comments!

 

[Gone4Good]

Most know that it is best to wait until after a distribution to purchase fund shares, but does it matter when selling? It seems to me not.

Not all fund distributions are the same. Short Term Capital Gains distributions are taxed like ordinary income. So if you're getting any ST Gains Distributions, you're better off selling the fund before the x-dividend date than afterwards.