2018 Capital Gain Dist will affect my ACA costs

[DAYDREAMER]

It's looking like the 2018 capital Gain distribution of the shares I own in Wellesley Admiral fund will throw me over the Income limit to qualify for ACA. Currently, vangaurd is showing a realized capital gain of $2.71/share. I like the Wellesley fund, and want to continue investing in it in the future, but come December, I need to take action as to not have my ACA subsidy affected.

Currently, I have a loss of $20k at today's share price and have owned the stock for more than a year now.

I see 2 options:
1. Sell the shares December 1, (before the distribution), wait 30 days to fulfill wash rule requirements, and buy the stock back at the reduced price January 1.

2. Wait to sell after the Dividends and Capital gains distribution are made (approx December 15), Sell all shares before year end, and buy back 30 days later, using the loss to offset the Capital gains distribution.

I am asking the financially savvy group here, which is the best path to take? What other things should I be considering?

Thank you in advance for helpful advice.

 

[pb4uski]

Are you sure?... This webpage says that the realized capital gains are $1.12/share.

https://investor.vanguard.com/mutual-funds/profile/distributions/vwinx

Sell now and lock in that $20k loss... reinvest proceeds in another Vanguard 40/60 balanced fund... perhaps VGWIX that has similar AA and realized gains of only $0.15/share... then after wash sale period is over sell VGWIX and buy back VWINX if you want.

 

[Marc]

Or, you could just pay your fair market price for health insurance and not have the rest of us subsidize your medical care.

Marc

 

[pb4uski]

Marc, you have a problem with people playing by the rules? Blame the rulemakers, not the players.

 

[DAYDREAMER]

Are you sure?... This webpage says that the realized capital gains are $1.12/share.

https://investor.vanguard.com/mutual-funds/profile/distributions/vwinx

Sell now and lock in that $20k loss... reinvest proceeds in another Vanguard 40/60 balanced fund... perhaps VGWIX that has similar AA and realized gains of only $0.15/share... then after wash sale period is over sell VGWIX and buy back VWINX if you want.

I own Wellesley Admiral fund, and looking at the fund page right now that says as of 9/30/2018, realized capital gains is $2.71

 

[pb4uski]

Ah... you are right, I was looking at the Investor shares page.

 

[SecondCor521]

In addition to realizing capital losses, there are other ways to reduce AGI. See basically the bottom-most section on the front page of the 2017 version of Form 1040. I don't know if any apply to you, but they are options that may be worth considering.

 

[beowulf]

Tiny little violin playing for all those whose assets are so large and throwing off so much income that their ACA subsidies might be endangered.

 

[audreyh1]

Unrealized gains change from day to day.

Distributions can be short and long term. That may not matter to you.

Be sure to wait 31 days after the sale date to buy back in order to avoid the wash sale rule.

So the wash-sale period is actually 61 days, consisting of the 30 days before to 30 days after the date of sale.

Read more: Wash-Sale Rule https://www.investopedia.com/terms/w/washsalerule.asp#ixzz5ULQqSX8j
Follow us: Investopedia on Facebook

 

[TwoByFour]

Tiny little violin playing for all those whose assets are so large and throwing off so much income that their ACA subsidies might be endangered.

+1

 

[Texas Proud]

Or you can calculate the income on the distribution and sell only the number of shares you need to offset that income...


Why take the whole $20K loss if you do not need it...


Now, if you want to reduce your income to get more subsidy then go for it...




Last... check back in a month and a half... I am sure that Vanguard will try and reduce that number after the latest market drop and it might not be as bad as you think when distributions come rolling along...

 

[DAYDREAMER]

Or you can calculate the income on the distribution and sell only the number of shares you need to offset that income...


Why take the whole $20K loss if you do not need it...


Now, if you want to reduce your income to get more subsidy then go for it...




Last... check back in a month and a half... I am sure that Vanguard will try and reduce that number after the latest market drop and it might not be as bad as you think when distributions come rolling along...

I guess should have added a 3Rd option as you describe. One concern I have is, if I wait until after the capital gains are distributed, will I have enough time to actually get the sale transaction complete. Let's say they do the distributions December 21, markets are closed through Christmas. I don't know how long it takes for an actual sale transaction to complete. If the transaction completes after December 31, 2018, ACA subsidy is lost.

Sorry to all the replies that find my learning to optimize ACA subsidies offensive. It's this diligent study of rules and financial interest that has allowed me to ER at 52.

 

[SecondCor521]

One concern I have is, if I wait until after the capital gains are distributed, will I have enough time to actually get the sale transaction complete. Let's say they do the distributions December 21, markets are closed through Christmas. I don't know how long it takes for an actual sale transaction to complete. If the transaction completes after December 31, 2018, ACA subsidy is lost.

I wouldn't worry about this too much, but you can call Vanguard and talk about it with them.

First, Wellesley distributed last year on 12/15, not 12/21.

Second, the market is only closed on Christmas Day itself. The market will be open weekdays every day in December except 12/25.

Third, if you place the order in the morning (even up until shortly before the market closes, but I'm not sure the exact cutoff - I think it's 4pm Eastern, but again I'm not sure), then the transaction will occur the same day.

However, I am not sure if the two or three day settlement period after the transaction date matters in terms of which tax year the transaction belongs to. I personally have similar kinds of transactions to make, and I'll probably be making them around 12/24, which I think is plenty of time for the transaction to count for 2018.

 

[gauss]

I wonder if there would be so much negativity against ACA subsidies if there was not the 400% FPL cliff and the subsidies smoothly rolled off to $0 as income increased?

The "affordable" part of ACA was the intent that nobody would be forced to pay more than ~ %10 of their income on health insurance premiums.

I believe the reason that we have the 400% cliff is that full funding could not be secured.

 

[RunningBum]

Wellesley seems like a bad fund to hold in taxable if you're edging towards the subsidy cliff, as are most managed funds. I would sell before the distribution and buy index funds. Whether you time the buy for after distributions is up to you.

I bit the bullet and sold Primecap last year at a profit and gave up the subsidy for a year to better position myself for future years. That's a risk because there's no guarantee the subsidy will continue. Tax/subsidy-wise you're in a better position because you can sell at a loss and qualify this year as well. I would sell whether or not it looks at year's end that you'll make it, so you don't go through this next year.

 

[MrLoco]

OP: As mentioned Wellesley is probably not a good fit in a taxable account if you are trying to manage an ACA subsidy due to the tilt toward bonds in the Fund. Perhaps you could exchange for a separate stock fund and a muni fund and Tax Loss Harvest each year to keep your income low enough to keep the subsidy. Plus, even though muni income counts toward your AGI when trying for a subsidy , at least this income will still be free from Federal Income Tax.


Also, for those with snide remarks concerning those of us with high level assets attempting to secure an ACA subsidy....why even post since your snide remarks add nothing to the discussion and does not help the OP out in any way. You would be better off posting over in the personal finance section of the city data forums. That is where all the crybabies constantly whine about millionaires "gaming" the system. Perhaps the mods could intervene?

 

[Dtail]

Marc, you have a problem with people playing by the rules? Blame the rulemakers, not the players.

+1
I would like to see one negative comment about ACA income management from folks using the technique.
I am renting - not asking anyone to give up their mortgage deduction.

 

[flintnational]

I always love the threads where we criticize the legal tax strategies of other members. What fun! I guess we expect "others" to pay more taxes than they legally owe. Sounds about right.

 

[bingybear]

Do you have any shares that have losses? If so, you could sell shares at a loss. If you own the ETF version you should be able to sell identified shares. If you own the MF shares, then you may be stuck with average share cost based if that is what you picked the first time shares were sold.

Remember if you sell shares this year to miss the distribution, you still need to deal with taxes on the sale of shares.

 

[Cpadave]

ACA benefited many but was an unfair disaster for some people like us. After ACA, our premium doubled so we had to move into bronze plan to make it work. Needless to say we do not qualify for any subsidy. This year we have to pay more 60K into obamacare because of unusual gain.

 

[scrabbler1]

I had always been just a little under the MAGI cap to get a small subsidy, until 2017, when a huuuge LTCG distribution from a stock fund tossed me well over the cliff. Selling shares beforehand would not have helped because my cost basis was pretty low. I will be watching closely for the upcoming year-end LTCG distributions to see if I go over the cliff again. If I am close, I may be able to sell some stuff at a loss to rescue me.

 

[marko]

Just got my Preliminary Year End numbers.

If the numbers hold, it will be the highest distribution ever for me.

In my case that's a good thing as this is where we draw 100% of our income vs selling shares. I needed to replenish my bucket.

(let's not get into dividends vs total return strategies ok?)

 

[DAYDREAMER]

Thank you for the helpful replies. I have a few more ideas to think about now. All my investing knowledge has been from participating in 401k pretax situations. This is the first year learning about taxable investments (proceeds from sale of second home) and how it affects ACA subsidies. The learning curve is steep, but fun!

2019 and on, we will have retire healthcare provided by megacorp, so rest assured to all those who are offended I'm "gaming' the system, I won't be taking anymore money out of your pocket in the future.

 

[FANOFJESUS]

I see why you are worried the pay out last year was only maybe 1/3 of that. It is shocking how they can swing.

 

[Cpadave]

There is nothing wrong with planning to get the best result from the system. I would do the same if I was in your situation. They just need to fix the system to make it more fair and control the cost.

Thank you for the helpful replies. I have a few more ideas to think about now. All my investing knowledge has been from participating in 401k pretax situations. This is the first year learning about taxable investments (proceeds from sale of second home) and how it affects ACA subsidies. The learning curve is steep, but fun!

2019 and on, we will have retire healthcare provided by megacorp, so rest assured to all those who are offended I'm "gaming' the system, I won't be taking anymore money out of your pocket in the future.