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Investing in taxable account/Tax Loss Harvesting considerations

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  • Investing in taxable account/Tax Loss Harvesting considerations

    Hi All,

    I am going to start investing in a taxable account in 2020 and want to try and limit my headaches going forward. I have a couple of questions I am hoping the group can help me sort out:

    1. Is it better to invest monthly or periodically (say quarterly)? I am not too worried about the psychological aspect of it as I can set the allotted dollar amount and just make the contribution to my brokerage amount at the specified interval. I am more concerned with the tax implications for tax loss harvesting. I am already planning on not reinvesting the dividends (have them go into MM to reinvest them quarterly). I am curious if it would be easier to just invest the rest of my money quarterly with the dividends to avoid any small tax lots to figure out when tax loss harvesting and to prevent any wash sales when I do TLH. I know this probably will not be often, but anything I can do to reduce the headaches when the time comes would be appreciated. Investing less often (say 1-2x a year) would reduce dollar cost averaging nature of making more regular contributions (theoretically), so I want to make somewhat regular contributions.

    2. My 401k's best option is a "Lifecycle" fund from Vanguard that is a split of Total-US, Total Int, and US Bond (I think the 2050 retirement date). I contribute to this on a per-pay-period basis throughout the year. If I try to TLH out of my taxable account, will my regular contributions to this create a wash sale? Is there a way around this as my match is dependent on me making these contributions regularly throughout the year and I do not want to put the contributions on hold as it would cause me to lose out on extra tax-sheltered dollars.

    3. I assume Vanguard will give me a form at the end of the year that lets me know my tax liability based on the dividends (and any appreciated shares that I have sold), right?

    Any other helpful hints are appreciated. Thanks!

  • #2
    Originally posted by snowbldr View Post
    Hi All,

    I am going to start investing in a taxable account in 2020 and want to try and limit my headaches going forward. I have a couple of questions I am hoping the group can help me sort out:

    1. Is it better to invest monthly or periodically (say quarterly)? I am not too worried about the psychological aspect of it as I can set the allotted dollar amount and just make the contribution to my brokerage amount at the specified interval. I am more concerned with the tax implications for tax loss harvesting. I am already planning on not reinvesting the dividends (have them go into MM to reinvest them quarterly). I am curious if it would be easier to just invest the rest of my money quarterly with the dividends to avoid any small tax lots to figure out when tax loss harvesting and to prevent any wash sales when I do TLH. I know this probably will not be often, but anything I can do to reduce the headaches when the time comes would be appreciated. Investing less often (say 1-2x a year) would reduce dollar cost averaging nature of making more regular contributions (theoretically), so I want to make somewhat regular contributions.

    2. My 401k's best option is a "Lifecycle" fund from Vanguard that is a split of Total-US, Total Int, and US Bond (I think the 2050 retirement date). I contribute to this on a per-pay-period basis throughout the year. If I try to TLH out of my taxable account, will my regular contributions to this create a wash sale? Is there a way around this as my match is dependent on me making these contributions regularly throughout the year and I do not want to put the contributions on hold as it would cause me to lose out on extra tax-sheltered dollars.

    3. I assume Vanguard will give me a form at the end of the year that lets me know my tax liability based on the dividends (and any appreciated shares that I have sold), right?

    Any other helpful hints are appreciated. Thanks!
    1. For TLH purposes monthly is fine. Wash sale is 31 days so you may not be able to do the same day of the month each month (if market is down), depending on what you are wanting to purchase. Alternately you can purchase something that isn't "substantially identical" ie: VEU instead of VXUS. It gets more difficult if you keep harvesting losses over several months time. Don't set taxable account to automatic purchases if you plan to TLH.
    2. No, general consensus is that the lifecycle funds don't cause wash sale despite holding underlying index funds
    3. Yes

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    • #3
      Monthly.
      no.
      Yes.
      ​​​​​​

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      • #4
        I'd invest whenever you have the extra money. In my opinion, having small tax lots is not really a big deal these days with how well brokerages keep track of everything.

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        • #5
          Originally posted by snowbldr View Post

          3. I assume Vanguard will give me a form at the end of the year that lets me know my tax liability based on the dividends (and any appreciated shares that I have sold), right?
          Vanguard provides the data that needs to be reported both to you and the IRS. YOU are responsible for reporting the data and determining your taxes based upon your return.
          Typically, this can be electronically interfaced and handled seamlessly. You are and should verify the data and taxes are correct. Problems occur primarily with things like rollovers and transactions where the original purchase data is not available.

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