Taxable Account Allocation to Avoid Wash Sale

[gkeep84]

I am in the process of starting my taxable account after funding my backdoor Roth IRAs for this year. I have been doing a lot of reading about tax efficient assets to place in the taxable portfolio (US Total Market Index, International Index, Muni Bonds, Vanguard Tax exempt funds). I hope to start tax loss harvesting in the future but I am concerned with creating a wash sale with my existing assets in my 403b, government 457, and Roth IRA. I initially considered Wealthfront or Betterment but they mostly use Vanguard funds. My list of funds owned is below.

457/403b

Fid Large Cap Value Index

Fid Extended Market Index

Fid Sm Cap Index

Fid Large Cap Growth Index

Vg Total Market Bond Index

VG Emerging Markets Index

VG Reit Index

VG TIPS Index

VG Total International Stock Index

 

Roth IRA

VG Target Retirement 2050 (Until enough $$ to slice/dice)

 

Given my current asset holdings, what ETFs would be reasonable to hold in order to keep the portfolio simple and relatively tax efficient? I was planning on opening the taxable account at Vanguard given my excellent experience with them so far. I think a roboadvisor with automated TLH (Betterment) may make the situation more complex by creating numerous small tax lots. I am concerned that these programs do not account for your outside holdings and can generate a wash sale. Any thoughts on the best way to proceed with a taxable account with these current tax-deferred/tax-free holdings?

 

 

 

[Lithium]

I don't see any problem with buying VTI in a taxable account.  It looks like you'll want to avoid VXUS as long as you're holding the same mutual fund in your retirement account, but VEU (possibly with some VSS) is the next best thing.

[PhysicianOnFIRE]

I agree with @lithium. You can buy a total stock market ETF or mutual fund in the taxable account. S&P 500 would make a great TLH partner.

 

[gkeep84]

Thanks for your responses. I omitted my largest portion of that portfolilo. VG VITSX ( Total Market Stock index). That would make the SP 500 ETF (VOO), FTSE EX-US (VEU) and VSS the simplest choices, right? I cannot use VTI because I have the mutual fund in my retirement account.

[mattrbc]

You may want to consider adding individual stock positions into the portfolio. You may also want to consider an equally weighted S&P 500 ETF. That would help to diversify you away from the FANG (FB, Apple, Netlflix, Google) stocks that are genearlly overweighted in portfolios. Equally weighted on a 10-year return outperforms a market weight S&P ETF.  Individual stocks will also help you to outperform the indexes, which is ultimately the goal. ETFs are great core holdings, but you should add indiviudal names as satelitle positions for added alpha.

[childay]

gkeep84 wrote:

Thanks for your responses. I omitted my largest portion of that portfolilo. VG VITSX ( Total Market Stock index). That would make the SP 500 ETF (VOO), FTSE EX-US (VEU) and VSS the simplest choices, right? I cannot use VTI because I have the mutual fund in my retirement account.

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Keep in mind if you can change your distribution options in your 403b/457 plans, you don't have to worry about wash sales except for new contributions.  You can choose not to reinvest the  dividends in the same funds.  I dont know how you have your 403b investments set up though, whether you are automatically investing in multiple funds each month etc..

[PhysicianOnFIRE]

mattrbc wrote:

Individual stocks will also help you to outperform the indexes, which is ultimately the goal.

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Really? Tell us which ones, so we can all get rich!  8-)

 

@gkeep84, I would greatly simplify the funds in the retirement accounts. When you hold the total market, there's really no need for all the individual components. If you want to tilt, choose a class (like small value) and hold that, too. Do that, and you won't have a hard time finding substantially non-identical funds to keep in a taxable account.

 

[nachos31]

gkeep84 wrote:

Thanks for your responses. I omitted my largest portion of that portfolilo. VG VITSX ( Total Market Stock index). That would make the SP 500 ETF (VOO), FTSE EX-US (VEU) and VSS the simplest choices, right? I cannot use VTI because I have the mutual fund in my retirement account.

Click to expand...

Sounds like you want to stick with Vanguard, which is great, but bear in mind that some of the other fund companies make similar funds that follow different indices: ITOT tracks the S&P Total Market Index, SCHB tracks the Dow Jones US Total Market Index, VTI tracks the CRSP US Total Market Index, IWV tracks the Russell 3000 Index, etc. These would all make great TLH bed fellows. Within a taxable account you will have access to all of these (perhaps with some trading fees).

Similarly, you can exchange a TSM fund for a Large Cap fund like you've suggested, etc. As someone who does not yet own a taxable account (but will soon), I have been brushing up on this stuff too and I think the most important thing is to make sure that you like and can stick with whichever TLH partner you choose because you may switch to it and have to own it for an extended period of time before you have the opportunity to buy back the original.

On a side note, I do agree with POF that you should simplify your employer account holdings: you have Large Cap Value and Large Cap Growth, which in my mind together equal Large Cap Blend, so you can reduce to one fund between the two. You have Extended Mkt and Small Cap -- you can probably switch to one of these or do an Extended Mkt with a Small Cap Value fund (although Fidelity's has a high cost).

[gkeep84]

Thanks for the thoughts, nachos31 and POF. I have been meaning to simplify the asset allocation to a 4-5 fund portfolio. Starting out, I got a little overzealous with the slicing and dicing after binge reading 5-6 of the recommended finance books. Too many ideas were bouncing around my head.