Anybody want to share steps to choose what to sell?

[UpQuark]

I am a few months away from retiring and attempting to learn the best way to take money out of my retirement savings.
I had thought I would just turn off dividend reinvestment and withdraw the dividends, but now that I've learned more about taxes it seems most of my dividends are in an IRA so I guess I will only withdraw some of those dividends and reinvest the remainder, and instead sell from the regular investment account (the one that would get capital gains taxed).


First, does anyone know if Fidelity has a ready made tool to find the ideal stock/fund to sell?


Do you have a list of steps that you follow to choose? And if you have Fidelity and know which screen you look at that would be super helpful too.



I had thought maybe just compare the growth percent, but then when I looked deeper one that I thought was a poor performer pays dividends and the combination of dividend percent and growth makes it seem like an okay investment.


Then there is one that has grown really nicely, but its lifetime percentage growth is shockingly low and so maybe it only has grown recently, or gee maybe it has dividends too, and maybe it is the one that keeps paying dividends that are not qualified and give me a negative surprise at tax time. No idea though.



I'm still learning how to drill down into them to see past performance details.

 

[jebmke]

I normally sell whatever generates the lowest realized gain for tax purposes.

 

[iloveyoga]

I keep a chunk in money market and I rebalance quarterly so I don’t have to decide what to sell.

 

[RunningBum]

Do you have an asset allocation plan? You could sell whatever you are overbalanced in, to get back in balance.

You talk about comparing growth, and then noting dividends. My first comment is that you should be looking at total return (growth + dividends). My second comment is that if you are looking to keep your top gainers, this may be contrary to what I first said, selling off overbalanced holdings. Remember, those gains are history. Presumably you have a reason for holding all of your investments, so it seems better to sell those that are high rather than those that are low.

Tax consequences, as others have mentioned, is certainly another factor. I tend to first decide what to sell based on keeping my AA intact, then selecting which shares are most tax efficient to sell of what I've decided. If the tax consequence is too big, I'll consider something else. There's a saying not to let the tax tail wag the dog, but on the other hand don't totally ignore it.

 

[GrayHare]

I'll sell whatever appears to be the most overpriced, which ends up being a form of rebalancing.

 

[CRLLS]

Since I don't have any stocks outright, I tell Fidelity how much I want per month, and they take the appropriate percentage amount out of all funds. I could have also told the which fund to take it from.

 

[38Chevy454]

Being in IRA, all of the withdrawal will be taxed. So just pick what is highest if using the rebalance approach. Or if using some elements of market timing sell the ones that you think are due for pullback. Or if using the most gain approach sell what has the highest percentage gain.
In the end your tax bill is the same since the full withdrawal is taxable. The consolation is you haven't paid taxes on the original investment or any of the dividends or gains in price.

 

[chassis]

Either sell all holdings in proportion in order to maintain allocation weights, so that you generate the target amount of cash.

Or sell holdings where you no longer believe in the future prospects for the business.

 

[Exchme]

There is real money to be saved in tax optimization, we can give you some pointers, but it would be too generic to be useful without more data. If we could get more information about the size of the taxable and tax deferred accounts, their, asset allocation, age, expenses, marital status, SS/pension amounts & intended claim age, we might have something interesting to say.

You need to find out the cost basis for your various taxable holdings. That's easy, just set your cost basis to SpecID. Then you will be able to see which shares were bought at what price so you can see what the taxes of selling each piece will be.

 

[Sunset]

There is real money to be saved in tax optimization, we can give you some pointers, but it would be too generic to be useful without more data. If we could get more information about the size of the taxable and tax deferred accounts, their, asset allocation, age, expenses, marital status, SS/pension amounts & intended claim age, we might have something interesting to say.

You need to find out the cost basis for your various taxable holdings. That's easy, just set your cost basis to SpecID. Then you will be able to see which shares were bought at what price so you can see what the taxes of selling each piece will be.

+1
Exactly what I was thinking, does this OP need to worry about the RMD torpedo , what are OP's plans for SS , I didn't see OP asking about Roth conversions either.

 

[youbet]

I keep a chunk in money market and I rebalance quarterly so I don’t have to decide what to sell.

It sounds more like you have to decide what to sell every quarter....

 

[RobbieB]

I spend all the dividends from the taxable equities account (auto transfer to checking), hit the IRA for the minimum RMA amount (even though I don't have to) and sell some more equities as needed.

 

[iloveyoga]

It sounds more like you have to decide what to sell every quarter....

Yes, I do a transfer in my Vanguard IRA each quarter if needed. It is usually a small percentage and pretty easy to do. I have kept things as simple as possible because my DS will someday need to take over.

The thing I would change if possible....all of our savings ended up in pre tax accounts. I wish I had done that part differently back when we were both working.

 

[NW-Bound]

The replies so far implied rebalancing between a broad-based ETF or MF such as VTI or SPY with a bond fund or ETF like BND.

I read the OP's question as asking how to use some valuation metrics to decide to sell overvalued stocks, sector ETFs, or active MFs. This is not simple. It's much harder, as it deals with active investing instead of passive indexing and rebalancing.

 

[Animorph]

Dividends and distributions taken as cash in the taxable account is usually a good idea since you will have to pay taxes on them anyway.

After that I would sell any taxable shares in an investment that no longer fit what I need for the future or is no longer performing like I expected. I'm actually doing that right now after I simplified my investments to just a few broad index funds. I still have four mutual funds I no longer want but I'm selling over a few years to minimize taxes.

If you had a target asset allocation (AA), and I have used this for individual stocks and a collection of over 30 mutual funds/ETF's, then you sell whatever is above your target allocation, like it or not. Pretty clear cut without a lot of thought required. It's not too late to do this.

If none of those apply, selling a little of everything is a great non-decision.

In general you want to sell taxable account shares first, then traditional IRA/401k or equivalent, then Roth IRA. That lets your tax advantaged retirement account investments continue to grow. With taxable and IRA shares, consider Roth conversions.

Within a taxable account, you generally want to sell the shares with the lowest capital gains. That will minimize taxes. Fidelity does have buttons to do that when you are placing a sell order. You could do worse than just selling any shares of anything with the lowest gains, but that's kind of blindly random. Don't sell any shares at a loss that you bought within the past 30 days, or will buy in the next 30 days. That's a wash sale. Not a total disaster (unless the buy was in a retirement account), but it might be a tax hassle.

Good luck!

 

[Finance Dave]

Most of our savings are in TIRAs. What we do is take out of the TIRA an amount that puts us near the top of the 12% bracket, then supplement that with money from our Roth to meet our living expenses.

Next year we'll be doing something different, as we're selling a rental property...strategy not fully determined yet.

I use FIDO but don't know of any tool they have to help you decide this.

 

[FLSUnFIRE]

I don't think anyone has mentioned ORP yet: https://www.i-orp.com/Plans/index.html


The majority of my funds are tax-deferred. ORP has me start a SEPP immediately (and I do not dissagree) but I am holding off the first couple years as I see if I'll have any earned income and also to manage MAGI for ACA purposes these early years. I may do a partial transfer to a tIRA and SEPP a portion to give me more flexibility as my SEPP period will be long (will likely start around 49-50 Y/O).


I would play around with calculators and also maybe model your situation in a spreadsheet. Don't let the tax tail wag the dog too much (especially since tax laws can change).

 

[Time2]

I don't think anyone has mentioned ORP yet: https://www.i-orp.com/Plans/index.html


The majority of my funds are tax-deferred. ORP has me start a SEPP immediately (and I do not dissagree) but I am holding off the first couple years as I see if I'll have any earned income and also to manage MAGI for ACA purposes these early years. I may do a partial transfer to a tIRA and SEPP a portion to give me more flexibility as my SEPP period will be long (will likely start around 49-50 Y/O).


I would play around with calculators and also maybe model your situation in a spreadsheet. Don't let the tax tail wag the dog too much (especially since tax laws can change).

I tried using I-orp and I keep getting a 504 error, is it working for others?