Withdraw before or after CG Distribution for use of funds?

[Looking4Ward]

I'm sure I'm overthinking this, but I'm planning on paying cash for a home early next year.

I'm going to be selling off shares of Vanguard Wellington from an after tax account to do so, but I'm struggling to decide if it's better to do that before or after the large CG distribution next month.

If I sell before, I realize a higher selling price and have to sell less shares.

Let's say I have 8195 shares at 67.90 a share and sell 2945 shares, leaving 5250 shares:

$200k + $21K distribution + $2158 dividend = $223,210 net proceeds.

If I sell after, it's at a lower PAR value ($4 per share distribution) so I end up with less shares remaining but higher initial net proceeds:

Sell 3130 shares at $63.90 with 5065 shares left:

$200k + $33k distribution + $3360 dividend = $236,221 net proceeds.

I don't need to factor any CG on the sale because I can tax-loss harvest from shares in either case. I'm also assuming today's share price will be somewhat static until the end of the year. But what if it goes up? What if it comes down?

So I'm not sure if I should sell before the CG distribution or after.

 

[SecondCor521]

Is the CG distribution LT or ST? I'd personally look at that and the rest of my Schedule D situation this year to decide when and what to sell.

The other thing I'd look at is which taxable year - selling this year goes on our 2022 tax returns, selling 1/1/2023 goes on the 2023 tax return. May make a bit of difference in terms of how much in taxes needs to be paid and when.

I'd also look at my overall tax situation both in terms of where I stood on ordinary income tax bracket, capital gains brackets, and other things like ACA subsidies and FAFSA EFC effects.

I'm not sure what I'd do, but the above are the things I would think about.

 

[Looking4Ward]

Is the CG distribution LT or ST? I'd personally look at that and the rest of my Schedule D situation this year to decide when and what to sell.

The other thing I'd look at is which taxable year - selling this year goes on our 2022 tax returns, selling 1/1/2023 goes on the 2023 tax return. May make a bit of difference in terms of how much in taxes needs to be paid and when.

I'd also look at my overall tax situation both in terms of where I stood on ordinary income tax bracket, capital gains brackets, and other things like ACA subsidies and FAFSA EFC effects.

I'm not sure what I'd do, but the above are the things I would think about.

Thanks. They are all LT and I would not be incurring capital gains sufficient to trigger taxes nor push me over the ACA cliff in either scenario.

The net is I would immediately realize $13k more in proceeds if I sell after the CG distribution but I would have less shares remaining for future growth, dividends, and CG distributions. It might be a wash, I don't know, but I'm sure someone smarter than me has been faced with this before

 

[OldShooter]

... I would have less shares remaining for future growth, dividends, and CG distributions. ...

I don't see how the number of shares matters. You have a certain amount of money invested; future growth, dividends, and CG distributions will be based on this amount. Consider what would happen if a stock split or combination occurred -- there would be no effect on your amount invested, hence no effect on future growth, dividends, and CG distributions, right?

 

[Looking4Ward]

I don't see how the number of shares matters. You have a certain amount of money invested; future growth, dividends, and CG distributions will be based on this amount. Consider what would happen if a stock split or combination occurred -- there would be no effect on your amount invested, hence no effect on future growth, dividends, and CG distributions, right?

The value of future dividends and CG distributions are based on per share. Less shares, less of each regardless of share price.

 

[SecondCor521]

A couple of additional things to point out:

1. The reason you're getting "more net proceeds" is because you're selling more shares in the second case. If you do the math, the $13K "extra" is offset by the value of the (5250 - 5065) shares you still are holding in the second case.

2. There is also a small difference in the dividend amounts you calculated. You're right that if you sell after the dividend date, you will get the dividend. But the share price will drop by that dividend amount (roughly) on the day the shares go ex-dividend, so that's not "extra" money either - you either get it in a higher share price or as a dividend, but not both. It appears that you did not adjust the share price lower by the dividend amount; that is an error.

3. You're premising these calculations on a $4 CG distribution. It looks like the fund only has about $2.32 in realized CGs this year (https://investor.vanguard.com/investment-products/mutual-funds/profile/vwelx#distributions), so your calculations should be based on the smaller number, not the larger.

4. OldShooter is right; there is no free lunch. Other than the tax characteristics, you're not getting more money or less money by selling before or after a distribution date. The underlying investments in the fund will fluctuate, of course, but that is unknowable anyway, especially in the near term. The only difference I see is the tax characteristics of the sale and the timing of when any resulting tax effects would be realized.

 

[Looking4Ward]

A couple of additional things to point out:

1. The reason you're getting "more net proceeds" is because you're selling more shares in the second case. If you do the math, the $13K "extra" is offset by the value of the (5250 - 5065) shares you still are holding in the second case.

2. There is also a small difference in the dividend amounts you calculated. You're right that if you sell after the dividend date, you will get the dividend. But the share price will drop by that dividend amount (roughly) on the day the shares go ex-dividend, so that's not "extra" money either - you either get it in a higher share price or as a dividend, but not both. It appears that you did not adjust the share price lower by the dividend amount; that is an error.

3. You're premising these calculations on a $4 CG distribution. It looks like the fund only has about $2.32 in realized CGs this year (https://investor.vanguard.com/investment-products/mutual-funds/profile/vwelx#distributions), so your calculations should be based on the smaller number, not the larger.

4. OldShooter is right; there is no free lunch. Other than the tax characteristics, you're not getting more money or less money by selling before or after a distribution date. The underlying investments in the fund will fluctuate, of course, but that is unknowable anyway, especially in the near term. The only difference I see is the tax characteristics of the sale and the timing of when any resulting tax effects would be realized.

Thanks! It's VWENX (Admiral) and as of today the expected distribution is $4.01 but yes you are correct on all other counts. I suppose what this all means is that it really doesn't matter if I do it before or after, except for possible tax consequences and I've got that covered either way.

 

[SecondCor521]

Interesting. I wonder why the Admiral shares have such a higher amount of CGs. I thought most pairs like VWELX/VWENX were fairly similar in their statistics. (I don't own Wellington, but do own other Vanguard funds.)

 

[Looking4Ward]

Interesting. I wonder why the Admiral shares have such a higher amount of CGs. I thought most pairs like VWELX/VWENX were fairly similar in their statistics. (I don't own Wellington, but do own other Vanguard funds.)

I don't understand why but the per-share price of Admiral has always been much higher than Investor. The percentage yield is the same though.

 

[walkinwood]

If you need the money in the next few months, you should be selling now. There is always a risk of a drop in the market and you don't have the time to recover if you need the money soonish.