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Old 02-20-2021, 02:31 PM   #21
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Originally Posted by Closet_Gamer View Post
For sure look into this.

We use a "donor advised" charitable fund structure at Schwab...

Just ensure you wait 30 days to avoid getting tripped up on wash sale rules, and then use the cash you would have given to charity to backfill whatever securities you donated.
Wash sale rules do not come and play with respect to contributions to a DAF, or with charitable contributions of property in general.

You may buy identical securities the day before or the day after you donate, with no adverse tax repercussions.

But I think what you said seems to be a common misconception, I believe I've read it here a few times.
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Old 02-21-2021, 12:33 PM   #22
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Originally Posted by Montecfo View Post
Wash sale rules do not come and play with respect to contributions to a DAF, or with charitable contributions of property in general.

You may buy identical securities the day before or the day after you donate, with no adverse tax repercussions.

But I think what you said seems to be a common misconception, I believe I've read it here a few times.
Thanks to both you and Runningbum for sharing that. Super helpful!
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Old 02-22-2021, 11:53 AM   #23
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Tax time is always an interesting time to assess these issues. Looks like Midpack and I were doing something similar during this tax season.

Since I had to calculate some cap gains, I decided to look at my entire cap gain situation. And I have a lot of outstanding gains! Last year I simplified my assets and ate a few losses to balance gains. I left the high gain equities in place.

So, here's my plan: monitor the political situation and take some gains if changes are proposed for 2022. Otherwise, continue with Roth conversions.

If I take gains, I'll be scrubbing the most recent lots with the lowest gains and preserving the high gain lots for future charitable contributions.

We don't know where politics will lead this year. I know Joe said "Only over $400k". However, I can also see the current capital gains situation being declared a "loophole," and hence changed while the lawmakers in charge still claim no tax increase. I also expect nothing to be retroactive to Jan 1 this year, because it would be seen next April 15, before elections.

So, it just bears watching this year and being flexible with the plan.
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Old 02-22-2021, 12:20 PM   #24
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We also have large amounts of appreciated stock in our brokerage account. Weíre on the second year of using a donor advised fund and itís a piece of cake to use with Schwab. Weíre still in the same boat as many are here trying to balance Roth conversions with capital gains and dividend income in a tax friendly way. Iím not sure itís possible without taking some major tax hit.
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Old 02-22-2021, 12:23 PM   #25
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What am I missing (first world problems)?

Like some/but not all here I presume, we are sitting on a relatively large chunk of capital gains in our taxable account. We haven't needed to sell anything, and we don't have any holdings with a loss, so I can't sell and use an offsetting loss. Since we pay taxes on dividends annually, they've been deposited in our checking account for many years, so all our gains are 99%+ long term appreciation (no dividend reinvestment).

I am going to continue with very large Roth conversions for the next 6 years or so, so I certainly don't want to take cap gains now. All our AGI comes from dividends, interest & conversions. We use cash to supplement dividends & interest for spending withdrawals.

There's no way to know what future cap gains tax brackets will be, presumably less favorable than today, but I plan to start withdrawing from taxable when Roth conversions are done, TIRA RMD's will be low and we'll have more than enough income from Soc Sec, dividends (taxable) and TIRA RMD's. At that point I'll be able to control exactly what we take in cap gains each year. I don't foresee a time we'll be forced to sell and take an outsized cap gains hit.
I've considered this implication as well, or pondered it or whatever. My ER journey will be the same with a slight difference that cash comes from RE rentals. So that provides me with some shelter when offsetting losses, but a separate step-up basis with AGI unless I reset it beforehand.

With RE aside, I ponder...when if at all should I just take the TIRA and run. One in the hand IS worth more than Two in the bush? I will likely land somewhere in the middle in 25 years when I actually have to think about this problem lol..

In the meantime I need to put more emphasis on roth contributions. Right now just one rung short of doing the full contribution...still not maxing 401k...as I have a large mortgage payment on 15yr...just lots of variables really. Interesting to read others opinions.
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Old 02-22-2021, 12:27 PM   #26
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With RE aside, I ponder...when if at all should I just take the TIRA and run. One in the hand IS worth more than Two in the bush? I will likely land somewhere in the middle in 25 years when I actually have to think about this problem lol..
What does it mean to "take the TIRA and run"?
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Old 02-22-2021, 01:18 PM   #27
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I'm sitting at 60% of my investable assets in taxable right now. Have been doing Roth conversions in parallel with raising cash by selling some equities in taxable to fund a large purchase....been focused on the combination of the two for tax purposes. Since the bulk of our equities are in the taxable account, I look at the partial sales there as help in keeping my asset allocation in check while raising the cash.
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Old 02-22-2021, 01:18 PM   #28
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We also have large amounts of appreciated stock in our brokerage account. Weíre on the second year of using a donor advised fund and itís a piece of cake to use with Schwab. Weíre still in the same boat as many are here trying to balance Roth conversions with capital gains and dividend income in a tax friendly way. Iím not sure itís possible without taking some major tax hit.
I'm glad you bring up DAFs. We have new users reading all the time, so it is nice to spread the word about DAFs. I first learned about DAFs from this site, along with the idea of Roth conversions.

We've had our DAF since 2014. It is enormously useful for charitable giving, especially if you are way too young for QCDs. In my final years of w*rk, it was a great way to build up a pile for future charitable giving.

Now that we're retired, we can use it to "bunch" contributions to one year, and then spread out the actual donations evenly through the years. I take our most highly appreciated equities and contribute them to the DAF in those years. Our next year to do this will be 2022.

Bunching contributions is good for multiple reasons:
1) The donor (us) can bunch high enough to get over the standard deduction and get a tax break.
2) The charitable groups can rely on more evenly spaced out donations from us, instead of giving them in lumps.
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Old 02-22-2021, 11:52 PM   #29
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Another vote for Donor Advised fund. Realistically you guys aren't going to spend it all before you die, and you can't take it with. I had a lot of income in 2018, and so I don't a significant amount of stock. It felt really good to be able to write a lot of checks to worthwhile charities, this year when clearly a lot of people were in need.
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Old 02-23-2021, 12:13 AM   #30
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What am I missing (first world problems)?

Like some/but not all here I presume, we are sitting on a relatively large chunk of capital gains in our taxable account. We haven't needed to sell anything, and we don't have any holdings with a loss, so I can't sell and use an offsetting loss. Since we pay taxes on dividends annually, they've been deposited in our checking account for many years, so all our gains are 99%+ long term appreciation (no dividend reinvestment).

I'm missing something here... in a taxable account, whether you reinvest long term cap gains or take them as cash instead, the cap gains during the tax year are still a taxable event each year. Or are you running with a S&P500 fund or maybe a growth fund that throw off low/no cap gains? Or are they bond funds?
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Old 02-23-2021, 01:10 AM   #31
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Here's my take on this risk. I think if congress did tinker with LTCG rates, they move to a progressive system, where the more LTCG's you realized, the higher the taxation rate. Essentially what they've done with income taxes.

My thinking here is they would find a solution which carves out a low tax rate for the majority of modest retirees -- say realized gains up to $100-150k, and then progressively step them up from there. I find it highly unlikely they'd just raise the LTCG rate across the board -- they'd be needless stirring up a bee's nest of angry retirees, when they can achieve 80% of their goals (raising revenue) by using a progressive taxation rate.

This is definitely a risk I keep on my radar, but it's probably not in the top 5 things I worry about.
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Old 02-23-2021, 04:01 AM   #32
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I'm missing something here... in a taxable account, whether you reinvest long term cap gains or take them as cash instead, the cap gains during the tax year are still a taxable event each year. Or are you running with a S&P500 fund or maybe a growth fund that throw off low/no cap gains? Or are they bond funds?


Many of us have individual stocks with large gains. These gains are not taxable until the sale of the stock. I think youíre just thinking of mutual funds that distribute their capital gains to owners of the fund, which do have to have taxes paid each year. With individual stocks, we get to decide when to sell and pay taxes.
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Old 02-23-2021, 06:13 AM   #33
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Many of us have individual stocks with large gains. These gains are not taxable until the sale of the stock. I think youíre just thinking of mutual funds that distribute their capital gains to owners of the fund, which do have to have taxes paid each year. With individual stocks, we get to decide when to sell and pay taxes.
I've owned VG Total Stock Index Fund for years and if there's been a CG distribution, I can't remember it. I picked up the S&P 500 index last year too and that should be the same. Many managed mutual funds have cap gains distributions, but they are rarer with index funds. Managed funds have them when managers decide to sell holdings at a gain. Index funds only have them if the fund has to sell holdings due to heavy redemptions.
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Old 02-23-2021, 06:36 AM   #34
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I've owned VG Total Stock Index Fund for years and if there's been a CG distribution, I can't remember it. I picked up the S&P 500 index last year too and that should be the same. Many managed mutual funds have cap gains distributions, but they are rarer with index funds. Managed funds have them when managers decide to sell holdings at a gain. Index funds only have them if the fund has to sell holdings due to heavy redemptions.
Exactly. I've held VG Total Stock Index since 2007. No CG distributions to date.

I also have VG Balanced Index since 2007, and interestingly, they finally threw off some gains in 2019 and 2020, although they were not large.

And so on. In the recent decade, my new purchases are ETFs. CG distributions are possible, but they are even rarer.

After a few decades, the gains can really add up.
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Old 02-23-2021, 07:12 AM   #35
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I'm missing something here... in a taxable account, whether you reinvest long term cap gains or take them as cash instead, the cap gains during the tax year are still a taxable event each year. Or are you running with a S&P500 fund or maybe a growth fund that throw off low/no cap gains? Or are they bond funds?
None of the 9 index funds we hold in taxable throw off significant cap gains, usually none but when they do they amounts are very small relative to dividends. But yes they are taxable in that year when they occur.
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Old 02-23-2021, 08:50 AM   #36
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Unless your cap gains distributions from your mutual funds are large, I wouldn’t worry about it. I assume you are mostly in Vanguard index funds, so your cap gains distributions are going to be quite small. You can use your Roth conversions and the Roth later to rebalance, so it seems like you can leave the cap gains unrealized.

Anticipating possible future tax law changes - seems like a no win situation and you can drive yourself crazy with the effort.
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Old 02-23-2021, 08:54 AM   #37
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I'm missing something here... in a taxable account, whether you reinvest long term cap gains or take them as cash instead, the cap gains during the tax year are still a taxable event each year. Or are you running with a S&P500 fund or maybe a growth fund that throw off low/no cap gains? Or are they bond funds?
What you are missing is.....

Check out how low cap gains distributions are on index funds - particularly the Vanguard funds. Itís the actively managed mutual funds that often pay large cap gains distributions.
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Old 02-24-2021, 12:16 AM   #38
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What you are missing is.....

Check out how low cap gains distributions are on index funds - particularly the Vanguard funds. Itís the actively managed mutual funds that often pay large cap gains distributions.
Yes, like Wellington... and a (managed) growth fund that we have had for I think more than 25 years. In keeping with this threads topic, we were hit hard with LTCGs in December, which limits the size of Roth conversions we can do, without driving hard into IRMAA. But to limit LTCGs, so we can do larger conversions, means selling some/all of the large LTCG "offenders". Which by selling them, drives us up the tax/IRMAA curve. Arg!
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Old 02-27-2021, 07:15 PM   #39
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We also highly recommend a Donor Advised Fund. We also have ours at Schwab, easy to setup, easy to transfer assets, easy to make donations.
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Old 02-27-2021, 07:29 PM   #40
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Is it possible that you simply are not spending enough money? If you are living on dividends and capital gains but never selling any shares of your equities, you may be setting yourself up to die with millions of dollars left over. It’s not the worst problem you could have but it’s something to think about before it’s too late.

We are in the same situation actually. We spend far less than Firecalc says we could. And we have no kids. So we do need to find something else to spend money on to require us to eventually sell some long held shares of equities. But for now capital gains and dividends more than cover our expenses.
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