Author Topic: Help with 401k Rollover and Rebalancing Questions  (Read 543 times)

windyday

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Help with 401k Rollover and Rebalancing Questions
« on: November 28, 2018, 12:44:48 PM »
My husband started a new job a couple months ago and we want to rollover his former 401k and Roth 401k into a Vanguard IRA/Roth IRA. Additionally, our accounts are due for rebalancing based on our target allocations (US/INT/BOND/REIT) and the balance of small/mid/large and value/blend/growth stocks we like to have (I use the Morningstar Instant X-ray tool on our entire portfolio to see where we are at).

Trying to do all of that together with the dollar amount available in each account, while minimizing the number of funds we have in each account, puts us in a place of wanting to sell existing positions in some funds in one account and buy a position in the same fund in a different account. We are only planning to buy/sell funds within our tax-advantaged accounts and not within our taxable account.

So my two questions are

1) Are there any sort of rules (like the wash rule) that would prevent us from, for example, selling the Vanguard Total Stock Market Index fund from our Roth IRA and immediately buying the same fund in the new rollover IRA? My understanding is that the wash rule only applies when the sale is from a taxable account, but I want to be sure I’m not missing something problematic.

2) Is that a dumb thing to do, to sell investments in one account and re-buy it in another? Without the tax implications of gains or losses in these accounts, it doesn’t seem like it matters (and we’re essentially forced to do that for the rollover anyway). Some of the amounts we’re shifting are in the 100k’s, so I guess it just feels weird to make such big sells/purchases at one time.

I attached some more detailed info if it helps.

Line 2 & 4: Move money from stocks to bonds within my 403b for rebalancing
Line 8 & 9: Rollover his old job 401k into a Vanguard IRA and purchase Total Stock Market Index
Line 10 & 11: Rollover his old job Roth 401k into a Vanguard Roth IRA (he already has one of these, so still need to understand if it can just be folded in to the existing one) and purchase Small-Cap Index
Line 12 & 13: Sell all of the Total Stock Market Index holding in my Roth IRA; use that money to buy Small-Cap Index and additional shares of REIT Index
Line 14: Sell all of the Total Stock Market Index holding in his Roth IRA and use that money to buy Small-Cap Index

As you can see, I’m selling 14% of our total portfolio worth of Total Stock Market Index between our two Roth IRAs, and purchasing 43% of the portfolio worth of Total Stock Market Index in the IRA rollover…basically shifting the location of the holding into the IRA instead of the Roth IRAs, to simplify the number of holdings we have across the accounts.

Thanks for any help or advice! Sometimes this all makes my head spin.

secondcor521

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Re: Help with 401k Rollover and Rebalancing Questions
« Reply #1 on: November 28, 2018, 01:49:51 PM »
Answers to questions:

1.  Not as far as I know.  In other words, I believe you can buy and sell within your IRAs without tax consequences.

2.  Not necessarily.  But I don't see that you're actually gaining anything, since you said you look at the overall portfolio (presumably across his/hers and across various accounts) and allocating across that overall view.  It does meet your goal of "minimizing the number of funds we have in each account", but that goal would not be valuable to me because it doesn't actually change anything in your financial situation.

Also, I believe you can roll his Roth 401k into his Roth IRA and there is usually no reason to have two separate Roth IRAs.  (The only reason would be if you wanted to maintain his former 401k funds as a rollover Roth IRA so that you could roll it into his new employer's Roth 401k - which is pretty unlikely.)

Boofinator

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Re: Help with 401k Rollover and Rebalancing Questions
« Reply #2 on: November 28, 2018, 02:03:10 PM »
The wash rule does apply to IRAs (but not 401k's): https://www.irs.gov/publications/p550

However, since you won't be deducting any losses by selling from your tax-advantaged accounts, a wash sale would not be triggered. Here's the applicable text:

"Wash Sales
 
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.

A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:

1. Buy substantially identical stock or securities,
 
2. Acquire substantially identical stock or securities in a fully taxable trade,
 
3. Acquire a contract or option to buy substantially identical stock or securities, or
 
4. Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA."

EDIT: Meant to say that a wash sale would not be triggered by a sale from your "tax-advantaged" accounts, rather than taxable accounts.
« Last Edit: November 29, 2018, 09:09:32 AM by Boofinator »

windyday

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Re: Help with 401k Rollover and Rebalancing Questions
« Reply #3 on: November 29, 2018, 08:53:04 AM »
Thank you both for taking the time to answer! I'll go back and look at whether we can achieve the same allocation without having to sell existing positions... you make a good point that there's really no value in minimizing the number of funds.