Tips For Converting 80 Individual Stocks To ETF’s

[RetiredAt49]

I have a taxable brokerage account (with a wealth management company) that contains 80 individual equities (e.g. Apple). I opened up a Fidelity brokerage account and am currently transferring the assets “in kind”.

What is the best method for converting 80 individual stocks into 3-4 ETF’s? Goal is not not take a huge tax hit and convert it all at once.

 

[Sunset]

Did you buy the 80 stocks ?

To avoid a HUGE tax hit, all I can recommend is sell each year up to a certain amount of capital gain. If you had losers, then the loss will offset gains. If no losers, then just sell whatever you don't like first.

Naturally you should have in mind which ETF's you want to buy, so when you sell $X in stocks, you can buy a little of each ETF.

 

[target2019]

We've converted or sold about half of our inherited 40 stocks. We use SCHD and SPYD ETF's.

If there's a loss for a particular company I offset it with a gain in another company. Then I buy SCHD or transfer the proceeds to checking to pay RE taxes, FED estimated, and so on.

I may go beyond that, but not much more. For tax efficiency you look at the lot details in the stock you're interested in. It's not difficult, just requires a bit of understanding.

It also helps to first identify an ETF that meets your goals.

 

[njhowie]

Do you have young kids that don't currently pay income taxes? Maybe you gift some of the holdings to each of them. I see that if taxable income is up to $40,400 (in 2021), you do not pay capital gains taxes. Then they can sell and gift the money back to you.

I think that's ok, just verify first.

The amounts may well be over the $16k limit for filing a gift tax return, but you can simply have it come out of your estate allowance, which is currently very high - $12M for individuals ($24M for married) in 2022.

https://www.forbes.com/sites/ashlea...2022-couples-can-pass-on-720000-more-tax-free

The estate tax is assessed at 40% on the biggest estates. By transferring wealth to heirs early, the rich can avoid the estate tax. They do so by making big gifts—typically in the millions that eat up the $12 million exemption amount—and by making lots of $16,000 annual exclusion gifts that don’t count against the $12 million.

In 2022, an individual can leave $12.06 million to heirs and pay no federal estate or gift tax, while a married couple can shield $24.12 million. For a couple who already maxed out lifetime gifts, the new higher exemption means that there’s room for them to give away another $720,000 in 2022.

“We always prefer clients make lifetime gifts rather than waiting to die and use the exemption at death because when you’re making a lifetime gift you’re really leveraging that exemption amount,” says Toni Ann Kruse, an estate lawyer with McDermott Will & Emery. Example: Make a $10 million gift today. Assets worth $10 million are out of your estate, and any growth on the $10 million is outside of your estate.

 

[pb4uski]

I have a taxable brokerage account (with a wealth management company) that contains 80 individual equities (e.g. Apple). I opened up a Fidelity brokerage account and am currently transferring the assets “in kind”.

What is the best method for converting 80 individual stocks into 3-4 ETF’s? Goal is not not take a huge tax hit and convert it all at once.

Below assumes that you do NOT have any loss carryovers.

1. Sell any positions with unrealized losses
2. Sell positions with gains to offset the losses realized in 1 above
3. Sell additional positions to fill the rest of the 0% capital gains tax bracket, if applicable
4. Reinvest the proceeds in the 3-4 ETFs of your choice
5. Put in stop loss orders for your cost for any positions with slight unrealizd gains

Also, if you have appetite for converting at a 15% capital gains rate then you might go further, but before you do, consider the state income tax and any ACA subsidy implications as well.

The 0% capital gains tax bracket is $80,800 of taxable income for 2021 and that would equate to $105,900 of AGI assuming the $25,100 standard deduction for a married couple for 2021. The amounts will increase somewhat for 2022.

 

[euro]

I addition to the above, you can consider setting up a donor advised charitable fund. You can fund those with appreciated equities and take a tax deduction upfront. Then you make your annual donations (if any) from that DAF.
This allows you to bundle a few years worth of donations all into one tax year and itemize deductions in that year even if you normally take the standard deduction.
I have used this to trim my individual stock portfolio over the past 10 years and will continue to do so.
There ARE some limitations (for example, if I remember correctly, in any give year, you can only donate (and deduct) up to 50% of your MAGI income).

 

[RunningBum]

If you have too much income to get 0% CGs, know that the 15% rate holds for up to $501600 this year for MFJ, 445850 for single. And it goes up each year.

 

[Montecfo]

I think the gift to kids who sell and gift back is not a good idea. Sounds like a plan to evade taxes. IRS has tools to recast that.

Systematic approach suggested by Pb4 seems to cover it along with the DAF idea.

 

[cathy63]

Do you have young kids that don't currently pay income taxes? Maybe you gift some of the holdings to each of them. I see that if taxable income is up to $40,400 (in 2021), you do not pay capital gains taxes. Then they can sell and gift the money back to you.

I think that's ok, just verify first.

I think the gift to kids who sell and gift back is not a good idea. Sounds like a plan to evade taxes. IRS has tools to recast that.

Yes, that's tax fraud, so definitely not o.k. Also, it wouldn't work with "young kids" since they're usually somebody's dependents for tax purposes and unearned income over $2200 is taxed at their parents' rate.

It's beneficial to give your adult child appreciated stock as a gift instead of cash if they are not anyone's tax dependent and they earn less than $53,950 as a single person ($54,625 in 2022).

 

[OldShooter]

Didn't we already do this? https://www.early-retirement.org/fo...nt-company-worth-it-111727-5.html#post2694994

 

[RetiredAt49]

Didn't we already do this? https://www.early-retirement.org/fo...nt-company-worth-it-111727-5.html#post2694994

You gave me your perspective OldShooter and I appreciated that… but that was in the context of another thread so I wanted to focus specifically on tax strategies now that I have pulled away from the wealth management company.

The 80 stocks were hand picked by that wealth management company and overall my portfolio is doing well or in-line with the S&P 500. Most of the equities were purchased in April 2020 (the date I moved to the wealth management company) so I’ll probably hold on until April of next year so that I don’t get hit with short-term capital gains.

Then I’ll use your strategy along with others that have posted in this thread