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Vanguard withdrawal to avoid taxes

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  • Vanguard withdrawal to avoid taxes

    Hi! I have a Vanguard taxable brokerage account and I am hoping to get some advice regarding how to best sell funds to avoid the most taxes (I need to put money down on a house).
    -- I opened the account in July 2020 and have been depositing money from paycheck biweekly
    -- I've invested 140k and have accumulated about 30k in returns (170k total)
    -- I invested 62k of that in July, August, September 2020 (most of the 62k was invest >1yr ago)
    -- In October the funds lost value before accumulating a lot of gains in Nov/Dec and on (not sure if this matters)
    -- I'd like to withdraw 80k

    Question: Would it be best to withdraw the money using FIFO (first in first out), HIFO (highest in, first out), or SpecID (specific identification)? Am I right in thinking that FIFO would be the best option so the gains would be mostly long term capital gains?

    Thanks for your help in advance and sorry if this is a dumb question!

  • #2
    The best way to pay the least amount of taxes is not to sell. But if you absolutely must sell (I'd always try to put down as little as possible on a house at this time) then I'd do SpecID and then look for any lots with a loss first. Then I'd look for any lots with the least amount of gains (if you have any losses then these can be short term capital gains as the losses will offset them).


    • #3
      1. Specific lots - look for long term gains
      2. turn off auto re-invest for at least a month, before the sale


      • #4
        Okay thank you! Why is turning off auto re-invest for a month important?


        • #5
          Originally posted by JSAVAGE View Post
          Okay thank you! Why is turning off auto re-invest for a month important?
          That’s to avoid any wash sales if you have losses.


          • #6
            Although in this specific case there are not likely to be net losses given the market has been up net over the investing period, so wash sale probably not a factor. Agree with those above given the situation: Select specific ID, sell any lot with a loss, then look for smallest long term capital gains, then just smallest short term gains.


            • #7
              Turning off auto invest also gives you cash to withdraw. Turn it off now. And dividend reinvest.
              Deposits are fine.

              Sell any specific ID losers.
              Sell the specific ID greatest LTCG.
              Raise the cash NOW, not later.

              House downpayment should not be in the market (less than 5 years). Raise the cash.