So I've got a family member who, for decades, has been investing much more in specific stocks than in mutual funds. As this individual nears retirement I am suggesting to transition the stock holdings in a tax-efficient way into mutual funds. They don't need the dividends or need to draw down from the taxable account for living expenses. They have enough from social security, RMDs, and partnership income (FLP) to support their lifestyle. If you can all poke holes in the following plan and/or suggest alternatives I would greatly appreciate it:
1. Turn off dividend re-investment, buy mutual fund shares with the cash
2. Sell lots with no gains
3. Sell off lots with gains with other lots with matching losses
4. Sell off lots with gains in the future (which will decrease as the effects of #1 take effect) with offsetting losses from TLH or from other stocks still held
5. Sell off lots with gains, take the tax hit as a cost of minimizing risk and improving diversification
Some additional pieces of information. Current stocks probably average a yield of 3.5-4%, mutual fund would probably be ~2%. Cap gains and dividends taxed at a marginal rate of 15%. 25% marginal income tax rate. Assume current tax law holds, for now.
Thanks everyone!
1. Turn off dividend re-investment, buy mutual fund shares with the cash
2. Sell lots with no gains
3. Sell off lots with gains with other lots with matching losses
4. Sell off lots with gains in the future (which will decrease as the effects of #1 take effect) with offsetting losses from TLH or from other stocks still held
5. Sell off lots with gains, take the tax hit as a cost of minimizing risk and improving diversification
Some additional pieces of information. Current stocks probably average a yield of 3.5-4%, mutual fund would probably be ~2%. Cap gains and dividends taxed at a marginal rate of 15%. 25% marginal income tax rate. Assume current tax law holds, for now.
Thanks everyone!
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