The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: Aardvark on June 18, 2021, 10:47:58 AM
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I feel as though I am too heavy in the SP500 (IVV and SCHB).
I'd like to sell some of these positions, but I don't understand the tax implications of doing so.
What should I be considering?
Any insights would be much apprecaited!
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1) Length of time you will have held the shares you sell. This determines whether the gain or loss is short term or long term.
2) The amount you will receive for each share compared with the amount you paid for that share. This determines whether you have a gain or loss.
How have you been getting your Form 1040 done?
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If you own these in a taxable brokerage account, leave them be.
Rebalance by buying and selling in a tax-advantaged account (i.e. 401(k), IRA) where there will be no tax consequences to do so.
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1) Length of time you will have held the shares you sell. This determines whether the gain or loss is short term or long term.
If you've held <= 1 year it will be a short term gain, which is taxed at the same rate as ordinary income. If you've held > 1 year it will be a long term gain that is taxed between 0% and 23.8% depending on total income from all sources.
If you own these in a taxable brokerage account, leave them be.
Rebalance by buying and selling in a tax-advantaged account (i.e. 401(k), IRA) where there will be no tax consequences to do so.
Agreed. Here's some good information on approximating the total stock market (https://www.bogleheads.org/wiki/Approximating_total_stock_market) if that's what you're trying to do. Short version around 80% of S&P 500 and 20% of a completion/extended market index will do it.
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I feel as though I am too heavy in the SP500 (IVV and SCHB).
I'd like to sell some of these positions, but I don't understand the tax implications of doing so.
What should I be considering?
SCHB is a broad market index with over 2500+ holdings. It is not an S&P 500 ETF, so you might want to keep that.
https://etfdb.com/etf/SCHB/#holdings
And here's another idea: instead of selling IVV (S&P 500), invest to balance it out. The S&P 500 is 80% of the market by market cap, so divide your IVV asset value by 4, and that's what you should invest in Vanguard Extended Market ETF (VXF)
https://investor.vanguard.com/etf/profile/vxf
If you have $40k in IVV, that's focused on the S&P 500.
But if you then invest $10k in VXF, that's on the mid/small cap outside the S&P 500
Combine 4 IVV : 1 VXF and you get $50k invested in the total stock market.
That also avoids selling, since it only impacts your new investments.
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Sorry for the late reply everybody - I really appreciate these responses!