The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: FabricStache on February 26, 2015, 02:13:11 PM
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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?
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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.
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Thanks Eric. I'm learning slowly but surely.