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Tax loss harvesting, roboinvesting, Income Driven Repayment: A bad combo?

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  • Tax loss harvesting, roboinvesting, Income Driven Repayment: A bad combo?

    Plan to open my first taxable account soon. I'm a new-ish attending. Still on PAYE, going for PSLF.

    In learning about Tax loss harvesting (TLH) it seems we are, if I may grotesquely simplify and assume the investor's tax rate doesn't change, essentially recapturing the tax we paid on the money we used when making our original investment at the expense of having a lower cost basis going forward. The game of it is we can pay the lower capital gains tax rate rather than our marginal rate assuming our not-substantially-identical investment recovers, and also pay it later (or never, if we die and leave the account to someone). Neat.

    BUT:
    Any capital gains you make adjust your AGI upward, and thus are factored into the income driven repayment. As best as I can figure, the IRS lets you play games with those gains, but IDR does not; thus, you would lose an extra 10% of those gains to IBR beyond the capital gains tax to the IRS.

    FURTHERMORE:
    I was thinking about roboinvesting (reading WCI on it, of course), and automatic TLH seemed great until I realized the above. Seems like they do TLH daily, at times. If my thesis above is correct, you could be screwing yourself on autopilot pretty easily if you are new to this game, as I and others on IDR probably are.

    Am I wrong on this? Seems like if an investor is on IDR of any kind (PAYE, REPAYE, IBR, etc), they would be best served waiting until they are no longer on IDR before doing any TLH.


  • #2
    1 yes
    2 weren't we talking about losses?
    3 not following

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    • #3
      Tax loss harvesting is all about lowering taxable income which is directly aligning with lowering AGI/IDR payments. I think you are looking at this backwards.

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      • #4
        only realized capital gains affect AGI. Not unrealized gains.

        you should not be investing in marketable securities any money you need in the near term. Therefore you should not expect to realize any capital gains anytime soon.

        If you do, you have planned poorly.
        my radiology group is hiring, pm if you can do msk and are interested

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