How to optimally sell taxable mutual fund?

[BlackAngel]

I have a taxable brokerage account with Oakmark that I’ve held for about 15 years. I have about $70,000 in The Oakmark Fund and I want to sell it and move the money into Vanguard because the fees are too high (0.87%). It’s set up to automatically re-invest all capital gains and dividends (annual distributions). I want to sell the fund efficiently without paying too much in fees and taxes.

Should I turn off auto-reinvestment and wait for a year so as not to pay short-term capital gains?

I’ve held this fund since before 2011 and never tracked cost basis. How do I handle this?

Is there a better time to sell this fund and move the money? End of year? Beginning of year?

Thanks!

[Vagabond76]

I wouldn't worry much about the short term holding period for the 2015 distribution. It was small this year ~90¢ per share or about $1000 according to your holding. Plus it is probably a loss since being paid on Dec 17.

More important is the total gain. That is a long holding period so you probably have a lot of gain. My back-of-the-envelope calculation is 166%, but that includes distributions which you should have already paid tax on. You will need to find records.  Old tax records showing distributions will help, but you really need the cost bases. Oakmark or your broker might have that.

The gain will be taxed at 15% or 20%. But if the gain combined with your other income puts your other income in too high of a bracket, then sell half before the end of this year and the other half next month.

[mizchief]

I am doing something similar with two old accounts that I have that I am going to transfer either to Fidelity (Spartan funds) or Vanguard.  I plan to sell all funds that are currently at a loss in 2015.  If you can see the tax lots (your broker can help you with that), sell ONLY the lots that have a price that is lower than the current price.  Then transfer the remaining equities (without selling them) to Vanguard.  Have them sell them in 2016 once you figure out what you want to buy.  Otherwise it can take awhile for your old firm to sell and get the check to you and for you to send it to Vanguard. Selling in 2016 will generate a gain for that year. 

Two things.  Run this in taxcaster to see which year it makes sense for you to sell.  It may make a difference if you have a much lower or higher income in one year or the other.  Second, call Vanguard to find out if they can hold that fund, and also how much they will charge to sell it. 

[BlackAngel]

I don't have a broker, I bought this fund directly from Oakmark. And I only keep tax records back 7 years so I don't have any access to early transactions.

Oakmark wants me to select my choice of Cost Basis Method. Their choices are:

Average Cost
First In, First Out
High Cost, First Out
Last In, First Out
Loss/Gain Utilization
Low Cost, First Out
Specific Lot Identification

I guess I'll have to select Average Cost and pay the price for not keeping detailed records.

[MDM]

I don't have a broker, I bought this fund directly from Oakmark. And I only keep tax records back 7 years so I don't have any access to early transactions.
...
I guess I'll have to select Average Cost and pay the price for not keeping detailed records.

Have you asked Oakmark if they have records? 

[mizchief]

+1 to asking Oakmark if they kept records.  Ours did and snail mailed them to us.  If you can do this, you'll be able realize a lot more losses by adding up the losses in the individual lots. 
 

[mizchief]

If you have a relatively low income (10-15% federal income tax brackets) you will pay 0% federal tax on long term capital gains; states tax probably  different.  So definitely run your numbers in taxcaster and see how much you'll pay in each tax year.

[AdrianC]

I guess I'll have to select Average Cost and pay the price for not keeping detailed records.

If you're selling all your shares and have never sold any before average cost is fine. It's all long term gains.

[BlackAngel]

I will be selling all of my shares and closing the account. Also, I have never sold any before. I'll check with Oakmark when I get home again to see if they have records. I'm in the 28% tax bracket.

[AdrianC]

I will be selling all of my shares and closing the account. Also, I have never sold any before. I'll check with Oakmark when I get home again to see if they have records. I'm in the 28% tax bracket.

I'm sure they will have the records, but it doesn't matter which method you choose, does it?

You put $x in, including reinvested distributions, will get $y back and will pay long term cap gains on ($y - $x).

I've been doing similar clean up work. Getting it all to Vanguard has been a breath of fresh air.

[MDM]

I will be selling all of my shares and closing the account. Also, I have never sold any before. I'll check with Oakmark when I get home again to see if they have records. I'm in the 28% tax bracket.

I'm sure they will have the records, but it doesn't matter which method you choose, does it?

You put $x in, including reinvested distributions, will get $y back and will pay long term cap gains on ($y - $x).

I've been doing similar clean up work. Getting it all to Vanguard has been a breath of fresh air.

When selling all the shares, all the methods give the same answer.  OP's real problem, it seems, is not knowing the total "$x" (as used in the quote above).  The IRS would be happy to let him use $0 for any shares purchased prior to his current records, but with any luck a higher amount can be supported.