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Tax loss harvesting while selling funds in retirement to contribute to taxable

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  • Tax loss harvesting while selling funds in retirement to contribute to taxable

    I have recently opened a taxable account after maxing out retirement. In order to place the most tax efficient funds in the taxable account and keep my portfolio balanced I need to sell these funds in my retirement accounts to be placed in taxable. My question is how to tax loss harvest while avoiding the wash sale rule. I guess the question is even more basic: If I am a monthly or bi-monthly investor, how to TLC in a quick market downturn? It seems I will always be within 30 days of buying the fund I want to TLC. Sure waiting 30 days is an option but you risk losing the opportunity as the fund could rebound.

  • #2
    Not sure I'm understanding you, but selling something in 401k shouldn't make any difference for TLH. What matters is when/what you buy

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    • #3
      Say I buy TSM fund on the first of every month and then it tanks 2 days later (before recovering within the month), how do I tax loss harvest without violating the wash sale rule. I will always be within 30 days of buying the same fund I am trying to sell since I buy monthly (or sometime more often).

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      • #4
        Originally posted by zuma35 View Post
        Say I buy TSM fund on the first of every month and then it tanks 2 days later (before recovering within the month), how do I tax loss harvest without violating the wash sale rule. I will always be within 30 days of buying the same fund I am trying to sell since I buy monthly (or sometime more often).
        Well if it tanks significantly then hopefully youre able to sell all the losses and there aren't any lots still in the 30 day window. Wash sale doesn't apply to lots you are selling

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        • #5
          Originally posted by zuma35 View Post
          Say I buy TSM fund on the first of every month and then it tanks 2 days later (before recovering within the month), how do I tax loss harvest without violating the wash sale rule. I will always be within 30 days of buying the same fund I am trying to sell since I buy monthly (or sometime more often).
          I have same question

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          • #6
            Maybe I’m misunderstanding something, but you can’t tax loss harvest in a retirement (pre-tax) account. It sounds like you’re saying you’re trying to sell losers in your “retirement accounts” and buy the same funds in taxable. Is that correct?

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            • #7
              1. To TLH when you’ve bought shares of something you want to TLH then you need to sell ALL shares of that security that you bought within the last 30 days in addition to any other lots you want to TLH.

              2. I hope you don’t mean you’re planning on taking money out of your pre-tax retirement accounts to place in taxable. In your pre-tax accounts, just exchange into whatever funds you want to be in. This isn’t a taxable event in tax-advantaged accounts. Then just continue to buy into your taxable account into whatever allocation you want as planned.

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              • #8
                Can you direct your retirement contributions toward a money market fund? Then distribute accordingly beyond 30 days?

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                • #9
                  I may not be understanding the OP question correctly.

                  but my question is fairly simple: does wash sale rules only apply to action in taxable account? Or would my bi weekly contribution to VTI in my 403b at my employer need to be paused for 30 days?

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                  • #10
                    Long shot:
                    Monthly purchases in a retirement account will trigger a wash sale in the taxable account.
                    Avoid any purchases 30 days before and after.
                    1) pause all auto purchases of that security AND dividend reinvestments.
                    2) pick a different security or fund.

                    Option 2 works best. As mentioned the 30 days prior will always be a problem. Deal with it. Sell it all.

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                    • #11
                      Originally posted by Tim View Post
                      Long shot:
                      Monthly purchases in a retirement account will trigger a wash sale in the taxable account.
                      Avoid any purchases 30 days before and after.
                      1) pause all auto purchases of that security AND dividend reinvestments.
                      2) pick a different security or fund.

                      Option 2 works best. As mentioned the 30 days prior will always be a problem. Deal with it. Sell it all.
                      Thanks.

                      What about HSA transactions?

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                      • #12
                        I'm not sure the IRS has ever come out with a formal position on TLH in retirement accounts vs taxable. Just pick a different fund. e.g. TSM in 401k and S&P500 in brokerage. There are many TLH partners out there, usually multiple acceptable ones in each category.

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                        • #13
                          I made this mistake with automatic reinvestment of dividends in a IRA , and sold a similar fund in a taxable. Vanguard found the wash for me. You may get away with it if you have similar funds but at different institutions , like Vanguard and Fidelity, but then again you may have to pay the taxman latter, if they disallow it.

                          Just buy similar funds, one an ETF and the other a mutual fund. or SP500 and TMI fund. Essentially tracking the same thing.

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                          • #14
                            As far as traditional IRA/401k, auto-invest into a target-date type fund. Then it won’t impact buying and selling various specific MF/ETFs in a taxable account vis a vis tax loss harvesting. Also, to be clear, you can’t TLH in a tax-deferred account, in case that was part of the question. Because there are no taxable events when buying or selling in a tax-deferred account (only when funds are distributed).

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