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Converting an actively managed fund

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  • Converting an actively managed fund

    I have a old taxable account (formerly a custodial account) at Fidelity currently worth about $25k in FCNTX; it's performed well, but has an ER of 0.82. My basis is 7.77 compared to current share value of 13.43.

     

    I just graduated from fellowship and will be 50% fellow salary and 50% attending salary for 2019 income taxes however, the sale will obviously be subject to 15% capital gains taxes. I had been selling shares to fund ROTH IRA contributions for my spouse and I but unfortunately got a late start, hence the remaining value.

    I will probably proceed with simply selling and converting to a low cost index fund now (15% CG tax bill) as I figure this is simpler (minimizing # of MFs) and likely better than sacrificing ~0.5% ER annually if I hold onto it (without additional contributions) for 30 years. I don't believe updating my basis is worth it since I'm not crazy about keeping the fund in the first place. Am I correct in this understanding or am I missing some other technique that I could utilize this year?

  • #2
    Will you be itemizing deductions on this year's taxes, and do you plan on making any charitable contributions?  If so, you could donate the highly appreciated shares instead of cash.  Then use the cash you would have donated to buy the index fund.  You'll get the a tax deduction based on the current value, and also eliminate the future capital gains tax at the same time.

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    • #3
      Thanks for that idea. I haven't itemized historically because the standard deduction has been better. I am still going to be an employee so no major business expenses and no mortgage at this point so I don't anticipate that I will itemize because of the increased standard deduction. I will definitely consider this as an option moving forward though when other itemized deductions begin to accumulate.

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      • #4
        You can sell it and move on. You're looking at about $1500 in capital gains taxes so you shouldn't have a problem finding that.

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