Retch The Grate
Full time employment: Posting here.
A question about cost basis accounting on mutual funds held at Vanguard, advice from people who understand better would be great.
So I'm working at a startup and my cash flow in my checking account has just gotten tight and I need to sell a bit of my regular investment account's mutual fund holdings to get some cash buffer back (totally my fault, I thought I had disabled my monthly automatic investment but it turned out I'd only done it temporarily and it turned back on while I'm still in a low cash on hand state). I'm going to sell about $10k of stock, and I want to minimize taxes paid (the startup just went to full salaries so my yearly income will be high enough that taxes matter, , so presumably I should set the cost basis method to specific ID and sell my recent investments that don't have much in the way of gains.
The question I have is, it talks about needing to know my basis for all of my investments prior to 2012 if I turn on Specific ID, and I haven't been keeping records of that (monthly investments, plus dividend reinvestment means there are packets of shares at all sorts of prices), when I started the account I didn't realize I had to do that part of the record keeping. From my reading of Vanguard's webpages, I can turn on Specific ID, and if I want to sell old shares, they just get reported at the Average Cost basis, which seems fine, since I'd just been planning on Average Cost in general for when I intend to be accessing these investments. So my concern/question is, is it ok to turn on Specific ID, sell my most recent investments to minimize gains, and can I still sell the older shares using Average Cost accounting?
Alternately I could take money out of my Roth, which I'm loath to do because I want that pile to grow, but my understanding is I can pull out some of my contributions without any penalty since those are already taxed. Would that make more sense, I'm assuming no since I want as much in there for later when I'm getting all my money from my investments so I can manage how much is taxable each year to control rates.
What makes the most sense to do? Income this year from the new job will be $81.5k now that we are up to full salary and my taxable investment capital gains are generally a few thousand dollars each year. And yes, I understand that all told given I'm only going to move a 5-10k cash buffer back into my checking account the taxes are only a few hundred dollars even on the Average Cost method, but I want to understand the best way to do this for the future too, since at some point I'll hopefully be FIREd and having to do more withdrawals.
So I'm working at a startup and my cash flow in my checking account has just gotten tight and I need to sell a bit of my regular investment account's mutual fund holdings to get some cash buffer back (totally my fault, I thought I had disabled my monthly automatic investment but it turned out I'd only done it temporarily and it turned back on while I'm still in a low cash on hand state). I'm going to sell about $10k of stock, and I want to minimize taxes paid (the startup just went to full salaries so my yearly income will be high enough that taxes matter, , so presumably I should set the cost basis method to specific ID and sell my recent investments that don't have much in the way of gains.
The question I have is, it talks about needing to know my basis for all of my investments prior to 2012 if I turn on Specific ID, and I haven't been keeping records of that (monthly investments, plus dividend reinvestment means there are packets of shares at all sorts of prices), when I started the account I didn't realize I had to do that part of the record keeping. From my reading of Vanguard's webpages, I can turn on Specific ID, and if I want to sell old shares, they just get reported at the Average Cost basis, which seems fine, since I'd just been planning on Average Cost in general for when I intend to be accessing these investments. So my concern/question is, is it ok to turn on Specific ID, sell my most recent investments to minimize gains, and can I still sell the older shares using Average Cost accounting?
Alternately I could take money out of my Roth, which I'm loath to do because I want that pile to grow, but my understanding is I can pull out some of my contributions without any penalty since those are already taxed. Would that make more sense, I'm assuming no since I want as much in there for later when I'm getting all my money from my investments so I can manage how much is taxable each year to control rates.
What makes the most sense to do? Income this year from the new job will be $81.5k now that we are up to full salary and my taxable investment capital gains are generally a few thousand dollars each year. And yes, I understand that all told given I'm only going to move a 5-10k cash buffer back into my checking account the taxes are only a few hundred dollars even on the Average Cost method, but I want to understand the best way to do this for the future too, since at some point I'll hopefully be FIREd and having to do more withdrawals.