Author Topic: Explain it to me like I知 5  (Read 941 times)

tennisray

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Explain it to me like I知 5
« on: April 28, 2019, 06:08:52 AM »
My parents started a couple of mutual funds for me when I was young. When I started working, I started contributing to the mutual funds before I started using VTI. One of them is an s&p500. One of them is causing me stress.  It is ACRNX. Its valued at 100k but throws off about 20k of long term capital gains per year that get reinvested.

I keep my agi low using 403b/457, but I知  pretty sure I was not eligible for the child tax credit (pre 2018) due to the capital gains.

My parents gave me records with initial cost basis, but I haven稚 kept up with reinvestment costs. I transferred this to my Etrade account a few years ago. I知 not sure if they can help with cost basis.

Should I sell everything and take the tax hit now so I can avoid cap gains in the future? Or stop reinvesting and slowly sell shares yearly depending on my tax situation? I guess I知 confused as to what info I need to get together to decide. I am in the 22% income bracket, so 15% for capital gains.

tennisray

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Re: Explain it to me like I知 5
« Reply #1 on: April 28, 2019, 11:46:23 AM »
Ok, I feel dumb but I think o figured it out. Since the fund has high turnover, my cost basis is stepped up each time. I won稚 have a large capital gain when I sell it. So, I知 going to sell and then buy an etf.

nereo

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Re: Explain it to me like I知 5
« Reply #2 on: April 28, 2019, 11:57:34 AM »
Correct.  You won't pay capitol gains taxes twice. If you've pad CG on 'churn' then you will only pay additional taxes on the proportion which has appreciated ("gains") since then. Such funds as ACRNX are really annoying for smaller investers like you and I, but are really optimized for big investors that benefit from paying CG along the way rather than all at once at sale.

More broadly speaking, whenever you have an investment that doesn't meet your financial goals or standards you should sell it as quickly as possible and invest in what does meet your criteria.  The expense ratio is high and you clearly aren't happy with it. 

tennisray

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Re: Explain it to me like I知 5
« Reply #3 on: April 28, 2019, 12:35:56 PM »
Correct.  You won't pay capitol gains taxes twice. If you've pad CG on 'churn' then you will only pay additional taxes on the proportion which has appreciated ("gains") since then. Such funds as ACRNX are really annoying for smaller investers like you and I, but are really optimized for big investors that benefit from paying CG along the way rather than all at once at sale.

More broadly speaking, whenever you have an investment that doesn't meet your financial goals or standards you should sell it as quickly as possible and invest in what does meet your criteria.  The expense ratio is high and you clearly aren't happy with it.

Thanks. Good advice in general! How about the shares that were just reinvested in 2018? Will that be considered short term or does that not apply to reinvestment?

MDM

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Re: Explain it to me like I知 5
« Reply #4 on: April 28, 2019, 05:44:37 PM »
Thanks. Good advice in general! How about the shares that were just reinvested in 2018? Will that be considered short term or does that not apply to reinvestment?
A reinvestment is a purchase, so the same short/long term rule applies.