Author Topic: Learning how to finally start selling  (Read 1318 times)

Miss Piggybank

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Learning how to finally start selling
« on: January 06, 2021, 01:21:50 PM »
I'm very appreciative of those who share their advice and expertise here. I am now FIREd and moving from pretty much only buying investments to selling--either just for money to live on, or selling out of a brokerage account to continue to move money into my Roth. Here are the decisions I've made this week:
1. Decision: What to sell.
Early on I bought a variety of funds in my Vanguard account, before moving to a strategy of all total market fund. So my plan is to free up cash by selling off the other funds, choosing those with the highest expense ratio first.
2. Decision: When to sell.
I want to invest in my Roth for 2021 ASAP, and to do that I need to sell some Vang funds in my brokerage account and then buy in my Roth acct. I think I can do this as an "exchange" in Vanguard. I always try to invest my Roth money as early as possible in the year, and since the dividend reinvestment doesn't happen until March, selling this month should avoid the "accidental wash sale" issue I've read about. So the Roth money should at least be asap. After that, I need to come up with a better schedule than “when I feel I need money” : )
Decision: Choosing a cost-basis for sales.
I don't know if this is relevant since the market is at an all-time high, and with the smaller funds I'll probably be selling all my shares. But in principle, I understand going with the “Spec ID” option in choosing what to sell is optimal, so I'm going to go with that, and select the most expensive shares that are at least a year old. I think that will maximize possible tax-loss while not inadvertently making long-term gains into short-term gains.

Thanks to anyone who's read this far : ) Just writing it out helped me think it through, but if anyone has thoughts I'd love to hear them. Moving from buying to selling is a big step for me.

Frankies Girl

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Re: Learning how to finally start selling
« Reply #1 on: January 06, 2021, 01:34:34 PM »
I don't know about the selling off to fund IRAs as I'm done with that part, but I just went through some of this recently regarding my taxable account and got some eye-opening advice regarding taxable selling and cap gains and cost basis if you want to check it out.
https://forum.mrmoneymustache.com/ask-a-mustachian/quick-(i-hope)-question-which-account-should-i-take-the-money

Basically, the fact that many investment companies default to "average cost basis" in taxable and anything purchased/sold using that setting is locked in to that forever. It's not as bad for me, but still annoying to have a choice removed (thank dog I'm able to sell and still realize cap gains without paying anything but if I'd not realized and done this 10 years from now that might be a bit more painful a lesson). *

Your idea to sell primarily the old stuff (so only LTCG generated) is good, but my understanding is also if you do have the ability to see actual cost basis (instead of average) you may want to examine how much room you've got in the tax bracket before you're taxed at all for cap gains if that is in play. It may be a good idea to check the oldest funds that have lower expense ratios (again, if actual cost basis) because if the market does stay steady/rise, you're going to have even more cap gains over time once you sell those off. But again, I'm a noob, so hopefully someone that really understands this and how to optimize your selloff will set you on the right path.




*I can't believe I didn't know some of this before, but at least I know now and it's not like I screwed anything thank goodness, just not optimized as I'd have liked but I'm still learning how things work. It's both scary and exciting!

Miss Piggybank

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Re: Learning how to finally start selling
« Reply #2 on: January 06, 2021, 05:27:00 PM »
Thanks, that's very helpful! I may not have to worry about taxes much at all, really, at least for now, but it's good to know all the issues.

markbike528CBX

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Re: Learning how to finally start selling
« Reply #3 on: January 06, 2021, 05:46:38 PM »
Instead of buying to maintain a desired or mandated by IPS asset allocation, just sell the over-allocation type of asset.
ONLY IF you need the money, or the asset allocation is + or - 20% out of whack, then you could just rebalance.

Wintergreen78

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Re: Learning how to finally start selling
« Reply #4 on: January 06, 2021, 06:21:03 PM »
I don't know about the selling off to fund IRAs as I'm done with that part, but I just went through some of this recently regarding my taxable account and got some eye-opening advice regarding taxable selling and cap gains and cost basis if you want to check it out.
https://forum.mrmoneymustache.com/ask-a-mustachian/quick-(i-hope)-question-which-account-should-i-take-the-money

Basically, the fact that many investment companies default to "average cost basis" in taxable and anything purchased/sold using that setting is locked in to that forever. It's not as bad for me, but still annoying to have a choice removed (thank dog I'm able to sell and still realize cap gains without paying anything but if I'd not realized and done this 10 years from now that might be a bit more painful a lesson). *

Your idea to sell primarily the old stuff (so only LTCG generated) is good, but my understanding is also if you do have the ability to see actual cost basis (instead of average) you may want to examine how much room you've got in the tax bracket before you're taxed at all for cap gains if that is in play. It may be a good idea to check the oldest funds that have lower expense ratios (again, if actual cost basis) because if the market does stay steady/rise, you're going to have even more cap gains over time once you sell those off. But again, I'm a noob, so hopefully someone that really understands this and how to optimize your selloff will set you on the right path.




*I can't believe I didn't know some of this before, but at least I know now and it's not like I screwed anything thank goodness, just not optimized as I'd have liked but I'm still learning how things work. It's both scary and exciting!

Thanks for your write-up in the other thread! It hit the big points I’d consider:

1. If you have an ACA plan, track your taxable income per year to make sure you stay in the bracket you want to stay in.
2. Try to take capital gains where you can each year to step up the cost basis. If you don’t need the cash you can reinvest.

I agree with strategy of starting off by selling funds you don’t want, either because they have high expense ratios or because they don’t match your desired asset allocation. I’ve been on a schedule of doing a check-in every three months. I like to keep at least six months’ worth of cash in checking/savings. I’ve had my dividends set to automatically get transferred to my checking account. Then I sell whatever extra I need every three months to top up my checking account.

Rebalancing in your IRA is good if you don’t want to end up with capital gains.

I’ve just used the average cost basis. Digging in to figure out the other option seemed tedious to me.

bacchi

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Re: Learning how to finally start selling
« Reply #5 on: January 06, 2021, 07:16:00 PM »
You need earned income to contribute to an IRA.

Miss Piggybank

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Re: Learning how to finally start selling
« Reply #6 on: January 06, 2021, 09:03:01 PM »
I didn't know you could only use earned income for a Roth--Thank you so much for that information!

Frankies Girl

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Re: Learning how to finally start selling
« Reply #7 on: January 06, 2021, 09:16:51 PM »
Oh! I missed that you are FIREd and bacchi is super smart and also right about the earned income part.

If you're like me (FIRE) then you have taxable income coming in, but it's not earned income. You have to have (I believe) income from work/w2 type situations to fund an IRA unless you are married and your spouse is still working. You can fund an IRA (either Roth or traditional) as a spousal contribution up to any earned income you or they receive.

A good article on this: https://www.schwab.com/resource-center/insights/content/can-you-contribute-to-an-ira-if-you-don-t-have-a-job

See this is also one of those I should have known it but didn't until someone else told me type situations I learned along the way.
« Last Edit: January 06, 2021, 09:19:12 PM by Frankies Girl »

Miss Piggybank

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Re: Learning how to finally start selling
« Reply #8 on: January 07, 2021, 08:05:39 AM »
"I should have known it but didn't until someone else told me" indeed, thanks for the article link and making me feel less dumb : ) Now that I'm FIREd (and I'm not married), I guess I'll be waiting until the end of each year to see if I earned any wage-type income and can contribute to a Roth or not. 

 

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