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Converting an actively managed fund

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  • Avatar PedsRehabMD 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/08/2019

    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?

    #228763 Reply
    Avatar Hober Mallow 
    Participant
    Status: Other Professional, Spouse
    Posts: 35
    Joined: 01/01/2018

    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.

    #228798 Reply
    Liked by EndoRobert
    Avatar PedsRehabMD 
    Participant
    Status: Physician
    Posts: 2
    Joined: 07/08/2019

    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.

    #228802 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2477
    Joined: 01/03/2017
    Earnest refinancing bonus

    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.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #228815 Reply
    Liked by EndoRobert, Zaphod

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