Restructuring Portfolio (Exchanging Funds) --Tax Consequences?

[Gatzbie]

With the Corona Pandemic drop in the market, I could have tax loss harvested $5k if my portfolio was structured the right way.

I want to restructure my portfolio to do this if opportunity arises again, here's what I want to do:

Exchange FSKAX & VTSAX in my 401k & IRA contributions for different funds to avoid the substantially identical investment in my taxable account (VTSAX).

My 401k contributions are pre-tax & after-tax.
My IRA contributions are to both Traditional & Roth IRA accounts.

Will I have no consequences in all of these because I am just exchanging one fund to another in tax-advantaged accounts?

I will be exchanging $100k in funds & wanted to be 2x myself....if I am missing anything here

[terran]

The only tax consequence you can have by exchanging funds in a 401(k) or IRA is if you cause a wash sale by buying a substantially identical investment to one you've sold at a loss in your taxable account within the 30 days (either before or after the purchase). It sounds like you haven't sold anything at a loss in taxable, and it also sounds like what you're planning to buy will by design not be substantially identical, so I wouldn't expect any tax consequences from your planned action.

Personally I wouldn't view FSKAX and VTSAX as substantially identical as they follow different indexes. The most cautious tax loss harvesters would disagree with me claiming that anything that follows the same general market (both total US stock market funds) are substantially identical. On the other side, the less cautious would claim that any tiny difference (different fund company, different expense ratio,  ETF vs mutual fund, etc) makes two funds not substantially identical even if they follow the same index. Personally, I draw the line at different indexes. So I would consider VOO and FXAIX substantially identical even though they're from different companies, one's an ETF and the other's a mutual fund, and they have different expense ratios because they follow the same S&P 500 index.

[phildonnia]

The only tax consequence you can have by exchanging funds in a 401(k) or IRA is if you cause a wash sale by buying a substantially identical investment to one you've sold at a loss in your taxable account within the 30 days (either before or after the purchase). It sounds like you haven't sold anything at a loss in taxable, and it also sounds like what you're planning to buy will by design not be substantially identical, so I wouldn't expect any tax consequences from your planned action.

Good thinking to check on this. This is really bad, because not only do you not realize the loss for tax purposes, but you also don't have that loss anymore for the future. 

[terran]

The only tax consequence you can have by exchanging funds in a 401(k) or IRA is if you cause a wash sale by buying a substantially identical investment to one you've sold at a loss in your taxable account within the 30 days (either before or after the purchase). It sounds like you haven't sold anything at a loss in taxable, and it also sounds like what you're planning to buy will by design not be substantially identical, so I wouldn't expect any tax consequences from your planned action.

Good thinking to check on this. This is really bad, because not only do you not realize the loss for tax purposes, but you also don't have that loss anymore for the future.

What phildonnia means by this is that, while not ideal, a wash sale in a taxable account isn't that big a deal because it increases the basis of the replacement shares, so you'll eventually pay less tax when you sell those shares. You don't lose the loss, you just delay it. But, if the replacement shares are in a tax advantaged account cost basis doesn't matter, so you really do lose the loss.

[Gatzbie]

The only tax consequence you can have by exchanging funds in a 401(k) or IRA is if you cause a wash sale by buying a substantially identical investment to one you've sold at a loss in your taxable account within the 30 days (either before or after the purchase). It sounds like you haven't sold anything at a loss in taxable, and it also sounds like what you're planning to buy will by design not be substantially identical, so I wouldn't expect any tax consequences from your planned action.

Never thought about a wash sale but that's correct! Have not sold anything in taxable brokerage account & plan to exchange 401k/IRAs for something not substantially identical. So I should be okay.

Personally I wouldn't view FSKAX and VTSAX as substantially identical as they follow different indexes. The most cautious tax loss harvesters would disagree with me claiming that anything that follows the same general market (both total US stock market funds) are substantially identical. On the other side, the less cautious would claim that any tiny difference (different fund company, different expense ratio,  ETF vs mutual fund, etc) makes two funds not substantially identical even if they follow the same index. Personally, I draw the line at different indexes. So I would consider VOO and FXAIX substantially identical even though they're from different companies, one's an ETF and the other's a mutual fund, and they have different expense ratios because they follow the same S&P 500 index.

I am highly cautious just to ensure I get the result I am looking for & less worry for me. This is why I am also making sure my 401k contributions are not substantially identical. In the eyes of the IRS, substantially identical investments in your 401k is a gray area still. Those less cautious do not worry about their 401k either when TLHing

Thanks for the replies & help!