Author Topic: Rebalancing/reallocating triggering a taxable event?  (Read 1434 times)

FabricStache

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Rebalancing/reallocating triggering a taxable event?
« on: February 26, 2015, 02:13:11 PM »
Earlier this year was the first time I've taken my investment into my own hands.  I quit my job last year.  I'm not FI/RE yet but the company had piled 4 additional full time jobs onto me through numerous reorganizations over the years and I couldn't/wouldn't do it anymore.  I rolled over my company's 401K at Fidelity into a rollover IRA at Vanguard.  I put my money into a 3 fund portfolio (VTI, BND, VXUS) after some research.  My money has been sitting around dying by a million paper cuts from fees and low returns like 0.01% so I felt a sense of urgency to make the move.  The Vanguard person told me I can change the allocation whenever I wanted without incurring any additional fees so I thought I could just make adjustments later.  Now I'm reading about taxable events and I'm worried about making changes.

Will I trigger a taxable event every time I make an allocation change, whether it's rebalancing or adding different fund all together?  I'm not working so I can't contribute to my rollover IRA.  Am I thinking of opening a taxable account and investing some of my savings and would like to maybe have VXUS in that account instead.  I'm thinking I would want to be taxed at capital gains rates when I pull it out instead of ordinary income.  Is this a bad idea?

Eric

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Re: Rebalancing/reallocating triggering a taxable event?
« Reply #1 on: February 26, 2015, 02:17:57 PM »
Selling in an IRA isn't a taxable event.  You're only taxed (at regular income rates) upon withdrawal.

If you rebalance in a taxable account, then yes, that's a taxable event because you received capital gains.  But since capital gains aren't applicable to an IRA (again, regular income tax), you can rebalance there without tax ramifications.

FabricStache

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Re: Rebalancing/reallocating triggering a taxable event?
« Reply #2 on: February 26, 2015, 02:20:49 PM »
Thanks Eric.  I'm learning slowly but surely.