Author Topic: When should the move from a loaded, higher ER fund happen? Tax implications  (Read 1362 times)

JJsfr

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I inherited some money (about $30k) while I was a minor and thankfully my parents invested it into the stock market in 2003 in a taxable account. They purchased a front loaded mutual fund (AWSHX) at 5.75% with a 0.62% ER. The investment has practically doubled and now sits at about $56k. I know the front load is money gone, but now the question comes down to whether we should move the money to the index fund we use to manage our domestic stocks (VTSAX in this case) for the lower ER?

As far as I'm aware, the only way of making this move is to cash the first fund out, pay the capital gains, then purchase the new fund shares. If this is wrong, please correct me.

My wife and I are late 20's and bring in about $130k gross. Neither of us are anticipating losing our jobs or quitting to drop us out of the 25% bracket (and into the 0% cap gains bracket).

A broad picture of our finances:
+ $130,000 in the stock market between the typical 401k, ROTH, and taxable accounts
- $30,000 student debt at 5% (paying about $4k/mo to this now since maxing ROTHs for the year)

Another thing that comes to mind is that if we cash out fully, then just pay off what's left of the debt and then put the rest into the market.

I would appreciate any insight on how we should proceed. Whether leave the money in the american funds fund, cash out all or some and move to a lower ER fund, or cash out and pay off the debt, or even should we wait until we find ourselves in a more tax-bracket friendly environment?

Thanks!

« Last Edit: June 25, 2014, 02:06:39 PM by jasfr »

Frankies Girl

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I sold off my crummy funds and bought into the index funds that fit my AA as soon as I figured out what I wanted to do. I had capital gains and losses, some short term even, but it wasn't that big a hit and it was a one-time thing. If it was me, I'd probably do the same thing again. It sounds like you'd only get hit with long term cap gains.

As you're currently in debt and the interest rate is kind of higher, I probably would move the funds to someplace like Vanguard or Fidelity and then cash out the account, use part of it to pay off the debt and then and invest the rest in VTAX or similar. Only because this is a taxable account tho. If it was a tax deferred, I'd just roll it over to Vanguard/Fid and then sell off the AF fund and purchase the new index fund.