Author Topic: Successful TLH, now what?  (Read 633 times)

Travis

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Successful TLH, now what?
« on: January 01, 2019, 04:41:17 PM »
I completed a Tax Loss Harvest on the 31st converting some VTSAX to VFIAX and VFWAX to VTIAX.  Just let these portfolios sit or should I be looking to recombine them at some point?

degrom7

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Successful TLH, now what?
« Reply #1 on: January 01, 2019, 06:45:14 PM »
You have to wait 30 days before or after you sell to repurchase VTSAX to avoid a wash sale.


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Fields of Gold

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Re: Successful TLH, now what?
« Reply #2 on: January 01, 2019, 07:04:52 PM »
If the market goes up from here, then switching back to VTSAX and VFWAX after only 31 days could create short-term taxable capital gains at your ordinary tax rate.  Might want to wait until a dip 31 days later that brings another harvest opportunity to combine back into VTSAX and VFWAX.

After a year and if the market still hasn't dropped, the gains from switching back would be at your long-term capital gains rate.  Not worth paying any taxes to combine them again if the funds have similar returns (like VTSAX and VFIAX).  The general rule is to harvest into a replacement fund that you would be comfortable holding for a very long time.
« Last Edit: January 01, 2019, 07:14:49 PM by Fields of Gold »

Travis

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Re: Successful TLH, now what?
« Reply #3 on: January 01, 2019, 07:23:17 PM »
You have to wait 30 days before or after you sell to repurchase VTSAX to avoid a wash sale.


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Vanguard won't even let me make another purchase for the next 30 days so no issues there.

If the market goes up from here, then switching back to VTSAX and VFWAX after only 31 days could create short-term taxable capital gains at your ordinary tax rate.  Might want to wait until a dip 31 days later that brings another harvest opportunity to combine back into VTSAX and VFWAX.

After a year and if the market still hasn't dropped, the gains from switching back would be at your long-term capital gains rate.  Not worth paying any taxes to combine them again if the funds have similar returns (like VTSAX and VFIAX).  The general rule is to harvest into a replacement fund that you would be comfortable holding for a very long time.

So it there's no immediate financial purpose to selling the new fund, just let it ride in perpetuity?

Fields of Gold

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Re: Successful TLH, now what?
« Reply #4 on: January 01, 2019, 07:46:35 PM »
So it there's no immediate financial purpose to selling the new fund, just let it ride in perpetuity?

Can't write about VFWAX (never owned it).

VTSAX and VFIAX have basically the same returns over the long run.  In the short-term, one fund may outperform the other.  But years later, they have performed similarly.  That's not guaranteed to repeat in the future:  e.g. if US corporate/tax law changes to benefit the megacaps or small/mid-caps companies to the detriment of the other, for example. 

Also, VFIAX has 30 day S.E.C. yield 1.97% (100% qualified dividends). VTSAX's S.E.C. yeild is 1.87%, and it self-reported that the fund distributed 5% nonqualified dividends in 2018.  Some minor financial differences.

seattlecyclone

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Re: Successful TLH, now what?
« Reply #5 on: January 02, 2019, 07:39:00 AM »
I have done loss harvesting in the past with I think those same pairs of domestic and international stock funds. Before you harvest the losses in the first place you should pick an alternate fund that you would be happy enough holding indefinitely if the market goes up enough in that first 30 days to make the tax cost of switching back be unpalatable.

I still have some VFIAX from years ago that I'm holding onto. I haven't switched back to VTSAX because the VFIAX is still in capital gains territory, and the overall composition and performance of the two funds is similar enough that paying the capital gains tax isn't worth it. For this specific pair of funds, look into VEXAX. While VFIAX is the biggest ~500 stocks, VEXAX is everything else in VTSAX. If you expect you'll be holding your VFIAX for a while and you really want the full market exposure, just buy approximately 25% as much VEXAX as you have of VFIAX.