Good points on the charity donations not saving much of anything and losing a chunk of money besides, and the break even point on selling and getting away from Valic.
I'm just not seeing other ways to reduce income, so it appears that she has the first world problem of just having too much money.
I've been running more in-depth numbers, and while most of her funds have both deferred and back load fees (OMG, how is this even legal??) the term limits have expired on both, so she should not incur any fees for selling from the funds themselves, just for Valic's sell fees. At least, I would think it would be better to sell while still at Valic so there is no question on the cost basis as I'm not sure if shifting the funds over in kind might somehow reset the clock on that.
I need to call and find out the sell fees at Valic. I dread that, as I'm sure I'm going to get the runaround and just learning how much it will cost to get out of Valic is going to make me sick to my stomach. I'll also be calling my assigned guy at Fido to pick his brain. I pay nothing for him due to my account size, and I would think with the size of my mom's portfolio and it coming over to Fido, he'd be happy to help.
According to the boilerplate on Fido's website:
A transaction fee is similar to a brokerage fee or commission which you pay when you buy or sell a stock. For some funds available through Fidelity you are required to pay a transaction fee. However, you will not pay a sales load on Transaction Fee (TF) funds. You will only be charged a transaction fee when you buy a FundsNetwork TF fund, not when you sell one. All other fees and expenses described in a fund's prospectus still apply. You can choose to buy or sell shares directly from the fund itself or its principal underwriter or distributor without paying a transaction fee to Fidelity.
Online Transaction Fees: $49.95 for most funds. Certain funds will have a transaction fee of $75. To identify any applicable transaction fees associated with the purchase of a given fund, please refer to the "Fees and Distributions" tab.
Fidelity Automated Service Telephone (FAST): 25% off representative-assisted rates, Maximum: $187.50, Minimum:$75
Representative-Assisted: 0.75% of principal, Maximum: $250, Minimum: $100
Automatic Investment: $5 per transaction, after the initial investment.
SO I have to check to see if these fund really would be subject to no sale fee, and also if the cost basis will track after transferring to a new account (I would think so if we have proof from her old statements, but have to be 100% sure).
And technically, we could have her just use the RMDs towards her taxes, offsetting the selling off of the funds (and pay the difference for the cap gains), but when I add in using her RMD as a tax payment, and then the 78K cap gains, she's in the 28% tax rate, and she would owe a total of around 18K in taxes (her regular tax owed plus the cap gains tax) if we didn't do any donations.
Adding in 10K in donations only drops her tax liability by a few hundred, so I'm wondering if it's best to just bite the bullet and pay the 18K in taxes (which would be for her 2015 tax year) to get everything sorted out now and have her in index funds going forward, and hold on making donations to offset taxes. She still donates every year, and she has a nice bequest in her will for her favorite charities, but I can't see donating tens of thousands right this minute to save almost nothing... doesn't make much sense to me.
We've also discussed that she'd be able to leave her accounts to her heirs with stepped up basis applying as well, which while morbid to think about, is also a factor in whether it is more prudent to sell now or wait. She isn't in great health, and she's comfortable talking about mortality, but it makes me feel sad/bad. I'm trying to be logical on all of this, but it's still an uncomfortable subject.
So what would you do in this situation?
Sell off and pay 18K in taxes total plus sell charges to wipe the slate clean and get a streamlined portfolio, or just keep the funds "as is," since they technically are showing moderate growth despite the horrible expense ratio/fees? Transfer over, and sell off portions over time to lessen the tax hit?
None of these are the obvious choice, and while I know if it was me, I'd lean to just selling now to get it over with and paying the tax, is that the best move for my mother's situation? And are these the only moves we really have available?