Author Topic: Q's about DIY TLH with Vanguard  (Read 671 times)

sipsubsonic

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Q's about DIY TLH with Vanguard
« on: July 27, 2018, 08:54:15 AM »
I have decided that I am making the move to Vanguard and am opening a taxable account. My intention is to do DIY Tax loss/gain harvesting and rebalancing. I've got enough to start with VTSAX. For 2018 and 2019 I'll be in a Tax Gain Harvesting situation (0% tax rate), after that will be a tax loss harvesting situation. Just hoping to double check with the community that I have everything straight. From my research (reading JCollins, MadFI, and others) I've established the following:

Tax gain harvesting can only occur after holding for one year (so I would probably do it a final time at the end of 2019). Make sure it is set to cost basis method is set to "Specific Identification" accounting, and no automatic reinvestment of dividends or investment from paycheck. What I need help with is the timing of investments. So each quarter I can manually reinvest my dividends. Each paycheck I can manually invest if necessary. But it seems like over time there will be a ton of "lots" created which can make the tax loss harvesting quite complex to avoid wash sales, as well as dealing with the problem of qualified vs. nonqualified dividends. If I am switching between three "partner" total stock funds I feel like keeping a rotation going while investing money twice a month and avoiding wash sales could be a challenge...

Questions:

1. What timing would people recommend for investment/reinvestment? Is it always as soon as any money is available? Or wait for a certain period of the quarter/year?

2. Are there specific times when one should or shouldn't tax loss harvest? I know that when there is a significant loss, you CAN TLH, but what about considerations for qualified/nonqualified dividends? Then after harvesting, don't I have to hold those investments for a certain amount of time before I can sell again?

3. How do I determine which fund to reinvest in amongst the "partner" total stock funds?

4. In theory everytime I invest new money, or reinvest money, I should plug it into a spreadsheet in order to rebalance my asset allocation?

Could someone with experience reassure me, or correct me? Also, links to more specific tutorials would be appreciated!

MustacheAndaHalf

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Re: Q's about DIY TLH with Vanguard
« Reply #1 on: July 27, 2018, 10:11:45 AM »
One warning: Vanguard does not default to (Spec)ific lot (ID)entification), which it appreviates "SpecID".  But Vanguard does track the individual lots for you, in the "cost basis" page of your account.  That's a very important page for estimating taxes, and tax payments, also.

I prefer to have pairs of ETFs that are very similar, but in my opinion not "substantially identical" (the IRS term).  If the funds track a different index and/or have a different provider (Vanguard vs iShares vs Schwab ...) I believe they aren't a problem for IRS rules.  But all I've done is read some books, so convince yourself before you decide what the IRS allows.

Take "Vanguard S&P 500" and "Vanguard Total Stock Market".  When you sell Vanguard Total Stock Market for a loss, you buy S&P 500.  You incur a loss on your taxes, but you invest in something very similar (~80% overlap).

Do you know about the "wash sale" rule? 
If you made a purchase (including "reinvesting dividends") within the past 30 days, you can't get a tax benefit from selling at a loss.  Or if you forget that you sold at a loss, and buy some more of that same asset, you incur the wash sale rule and don't get to claim it as a loss at that time.