Author Topic: what to do with old individual stocks  (Read 1249 times)

Case

  • Pencil Stache
  • ****
  • Posts: 787
what to do with old individual stocks
« on: January 20, 2020, 09:28:10 AM »
I'm looking for a logic check to verify I'm taking the right path, or suggestions if I am wrong:

I have some COP and PSX which I received as a gift a very long ago as a child.  It has grown from a few thousand dollars to $55,000 in value.  The dividends have been continually reinvested but no other additional purchases have been made.  Therefore I have multiple tens of thousands of dollars of potential taxable gains.

I would rather invest my money in VTSAX or similar, but do not want to trigger capital gains.  Therefore, my plan is to wait until retirement and then start to cash this thing out once my income is low.... however, thanks to my building stache, at retirement I will be making ~$80,000-ish per year (combines with wife).  That is optimized so that on average all of my non-retirement-account advantages stock sales trigger no taxes (~$40,000 per person ($80,000 with spouse) gets 0% long term gains tax, per the IRS limit)... but when you throw in additional from trying to sell the COP/PSX it will get tricky.  And therefore I would need to hold onto it until the stock market tanks and there is a year where I have losses to offset the gains.

Is my logic sound?  Any other advice?

trollwithamustache

  • Pencil Stache
  • ****
  • Posts: 728
Re: what to do with old individual stocks
« Reply #1 on: January 20, 2020, 09:39:01 AM »
So... you've got Long Term gains...

1.Are you at the 20% rate now or the 15% rate?
2. How does your state tax the LT gains?
3. What are you willing to pay take the volatility/risk out of COP/PSX and get into an index fund?

Personally I like PSX and would hold out for the break on cap gains or the next run up in oil. (ie if PSX more than doubles in the next 5 years maybe that changes the logic)

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #2 on: January 20, 2020, 09:50:15 AM »
So... you've got Long Term gains...

1.Are you at the 20% rate now or the 15% rate?
2. How does your state tax the LT gains?
3. What are you willing to pay take the volatility/risk out of COP/PSX and get into an index fund?

Personally I like PSX and would hold out for the break on cap gains or the next run up in oil. (ie if PSX more than doubles in the next 5 years maybe that changes the logic)

1.  at the 15%.
2.  Delaware at 6.6%.  However, I don't know where I'll live during retirement.  I might be in DE for a little bit of retirement, but I am trying to decide where to live.
3.  I don't know precisely.  I too like PSX and am not to crazy about COP, but generally I invest no time trying to predict individual stocks).  I have no idea how oil companies will adapt as oil-based transportation (slowly) converts to renewable;  I have no idea how one oil company compares to another.  And while I think the demand for oil-derived chemicals (e.g. PSX) has a lot of longevity to it that renewable-based chemicals will be very very slow to compete with, I do now know how much reduced demand for overall oil will affect that... So ideally, I'd rather disconnect from these individual stocks as it seems very risky compared to an index fund.  But yes, I had also been thinking of waiting until COP and or PSX seem to reach more of a peak than a trough. 

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11662
  • Age: 61
  • Location: NorCal
Re: what to do with old individual stocks
« Reply #3 on: January 20, 2020, 09:51:20 AM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #4 on: January 20, 2020, 10:06:00 AM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

How are no taxes owed?

TheAnonOne

  • Handlebar Stache
  • *****
  • Posts: 1564
Re: what to do with old individual stocks
« Reply #5 on: January 20, 2020, 10:43:14 AM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

How are no taxes owed?

He is basically just doing either...

1. a transfer in kind (something like this, not actually selling the stocks)
2. basically "donating it" to himself (his charity)

trollwithamustache

  • Pencil Stache
  • ****
  • Posts: 728
Re: what to do with old individual stocks
« Reply #6 on: January 20, 2020, 12:32:08 PM »
 Donation is a very interesting idea. you can donate the appreciated stock, then not pay taxes on the appreciate. You get to write off the full value of your donation.

from OP's paragraph on COP and PSX, its likely worth it to you to pay some taxes to lock some funds into something you might be more enthusiastic in your arguments in favor of the investment. What you do with it also does not have to be all or nothing.

Buffaloski Boris

  • Pencil Stache
  • ****
  • Posts: 882
  • A Very Stupid Personģ️ Outed as Russian Bot
Re: what to do with old individual stocks
« Reply #7 on: January 20, 2020, 02:08:26 PM »
Is the tax situation going to change? To me itís kind of silly to spend a dollar, or pass up a dollar to save say 22 cents in taxes.

My question would be: if I had $55000, would I use it to buy these stocks?  If the answer is no, then why do I still own them?

redhead84

  • 5 O'Clock Shadow
  • *
  • Posts: 56
Re: what to do with old individual stocks
« Reply #8 on: January 20, 2020, 02:22:45 PM »
My husband and I have the same problem multiplied by 5. We have a significant single stock investment comprised of gifted shares with zero tax basis. DH has spent the last few years kicking himself for not selling and reinvesting while he was an unemployed college student.

I wish I had some wisdom for you. In our situation, we are not touching those shares. The dividends are being reinvested into index funds, and all of our after tax contributions also go into index funds. With time, the % of our net worth represented by the single stock investment will become less significant.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11662
  • Age: 61
  • Location: NorCal
Re: what to do with old individual stocks
« Reply #9 on: January 20, 2020, 02:32:19 PM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

How are no taxes owed?

He is basically just doing either...

1. a transfer in kind (something like this, not actually selling the stocks)
2. basically "donating it" to himself (his charity)
A Donor Advised Fund gives you the tax write off in the current year and then you can distribute it to your preferred charities whenever you want. You pay no taxes, because it's going to charity. You can invest it as aggressively or conservatively as you want. What you can never do is have the money back.

I am not unwilling to pay the taxes at all, but I see this as a way of stretching my charity dollars. If i do it this way, it lets me give away more money, which makes me happy! Of course, it's nowhere near $55k...

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #10 on: January 20, 2020, 02:40:52 PM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

How are no taxes owed?

He is basically just doing either...

1. a transfer in kind (something like this, not actually selling the stocks)
2. basically "donating it" to himself (his charity)
A Donor Advised Fund gives you the tax write off in the current year and then you can distribute it to your preferred charities whenever you want. You pay no taxes, because it's going to charity. You can invest it as aggressively or conservatively as you want. What you can never do is have the money back.

I am not unwilling to pay the taxes at all, but I see this as a way of stretching my charity dollars. If i do it this way, it lets me give away more money, which makes me happy! Of course, it's nowhere near $55k...

Thanks, an interesting idea.  I could use this is a long-term vehicle for donations, which I planned to eventually do more significantly.

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #11 on: January 20, 2020, 02:42:02 PM »
My husband and I have the same problem multiplied by 5. We have a significant single stock investment comprised of gifted shares with zero tax basis. DH has spent the last few years kicking himself for not selling and reinvesting while he was an unemployed college student.

I wish I had some wisdom for you. In our situation, we are not touching those shares. The dividends are being reinvested into index funds, and all of our after tax contributions also go into index funds. With time, the % of our net worth represented by the single stock investment will become less significant.

Hmmm.. perhaps I should be redirecting the dividends as you are....

Stimpy

  • Stubble
  • **
  • Posts: 170
  • Age: 36
  • Location: Middle of Nowhere
Re: what to do with old individual stocks
« Reply #12 on: January 20, 2020, 02:43:40 PM »
Personally, I would just sell it and take the hit.   15%(21.6% including state) will be nothing in the long run and I assume your in this for the long run.

If you wait for a crash, as you have stated, yea the total taxes coming out won't be as much BUT, neither will your investment.   It MIGHT even be a loss in price bigger then the 15% (21.6%) you would have paid in taxes at current value, which technically means your losing MORE money then if you would have just sold now!

Of course, I also like the suggestion of donating it.  That also it a very reasonable move, and will result in no taxes for yourself.  That is something to consider anyway.

Just my two cents.

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #13 on: January 20, 2020, 03:05:34 PM »
Personally, I would just sell it and take the hit.   15%(21.6% including state) will be nothing in the long run and I assume your in this for the long run.

If you wait for a crash, as you have stated, yea the total taxes coming out won't be as much BUT, neither will your investment.   It MIGHT even be a loss in price bigger then the 15% (21.6%) you would have paid in taxes at current value, which technically means your losing MORE money then if you would have just sold now!

Of course, I also like the suggestion of donating it.  That also it a very reasonable move, and will result in no taxes for yourself.  That is something to consider anyway.

Just my two cents.

You bring up a good point, thanks.  Keep the eyes on the prize; I want to optimize my total money, not the growth of the stock or the minimization of the taxes.

terran

  • Magnum Stache
  • ******
  • Posts: 2549
Re: what to do with old individual stocks
« Reply #14 on: January 20, 2020, 03:14:42 PM »
Sounds like you're going to be in the 15% bracket whenever you sell, so no advantage keeping it to sell later (unless you plan to move to a lower tax state), and you'll lower risk by diversifying. I would either sell now, or donate (either charity or donor advised fund) if that's something you do anyway. Definitely stop reinvesting the dividends at the very least.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11662
  • Age: 61
  • Location: NorCal
Re: what to do with old individual stocks
« Reply #15 on: January 21, 2020, 08:18:06 AM »
Sounds like you're going to be in the 15% bracket whenever you sell, so no advantage keeping it to sell later (unless you plan to move to a lower tax state), and you'll lower risk by diversifying. I would either sell now, or donate (either charity or donor advised fund) if that's something you do anyway. Definitely stop reinvesting the dividends at the very least.
Just want to clarify that a DAF can only be used for charitable giving. So DAF=charity.

Also, the dividends on my old stock automatically reinvest via DRIP, but there are fees to do do, which are too high, IMO. I'll be happy to see them go away. This thread has inspired me to get it into the DAF this year. Accountability for the win!

terran

  • Magnum Stache
  • ******
  • Posts: 2549
Re: what to do with old individual stocks
« Reply #16 on: January 21, 2020, 08:54:04 AM »
Sounds like you're going to be in the 15% bracket whenever you sell, so no advantage keeping it to sell later (unless you plan to move to a lower tax state), and you'll lower risk by diversifying. I would either sell now, or donate (either charity or donor advised fund) if that's something you do anyway. Definitely stop reinvesting the dividends at the very least.
Just want to clarify that a DAF can only be used for charitable giving. So DAF=charity.

Good point. I meant to distinguish between giving a lump sum to a charity all in one year or giving the lump sum to the DAF so the charitable giving can be stretched out, but you're right that it's important to understand that the DAF doesn't increase the number of available giving options (only the timing).

Case

  • Pencil Stache
  • ****
  • Posts: 787
Re: what to do with old individual stocks
« Reply #17 on: January 24, 2020, 06:52:13 AM »
I'm looking for a logic check to verify I'm taking the right path, or suggestions if I am wrong:

I have some COP and PSX which I received as a gift a very long ago as a child.  It has grown from a few thousand dollars to $55,000 in value.  The dividends have been continually reinvested but no other additional purchases have been made.  Therefore I have multiple tens of thousands of dollars of potential taxable gains.

I would rather invest my money in VTSAX or similar, but do not want to trigger capital gains.  Therefore, my plan is to wait until retirement and then start to cash this thing out once my income is low.... however, thanks to my building stache, at retirement I will be making ~$80,000-ish per year (combines with wife).  That is optimized so that on average all of my non-retirement-account advantages stock sales trigger no taxes (~$40,000 per person ($80,000 with spouse) gets 0% long term gains tax, per the IRS limit)... but when you throw in additional from trying to sell the COP/PSX it will get tricky.  And therefore I would need to hold onto it until the stock market tanks and there is a year where I have losses to offset the gains.

Is my logic sound?  Any other advice?

How about this alternative idea:  i could tax loss harvest (havenít actually done this yet) and use it to offset later capital gains from selling this.

E.g. sell VTSAX when market drops and than repurchase VIMAX or whatever, then use the loss to offset the cop/psx gains.  Since the s&p500 may correlate to cop/psx, i may need to hold onto the loss till an ideal time so that COP isnt sold at a trough.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 11662
  • Age: 61
  • Location: NorCal
Re: what to do with old individual stocks
« Reply #18 on: January 24, 2020, 07:04:45 AM »
Sounds like you're going to be in the 15% bracket whenever you sell, so no advantage keeping it to sell later (unless you plan to move to a lower tax state), and you'll lower risk by diversifying. I would either sell now, or donate (either charity or donor advised fund) if that's something you do anyway. Definitely stop reinvesting the dividends at the very least.
Just want to clarify that a DAF can only be used for charitable giving. So DAF=charity.

Good point. I meant to distinguish between giving a lump sum to a charity all in one year or giving the lump sum to the DAF so the charitable giving can be stretched out, but you're right that it's important to understand that the DAF doesn't increase the number of available giving options (only the timing).
Sorta. The DAF is invested in one of Fidelity's new-ish zero fee total stock market options. It has grown considerably since I started it, so it is actually giving me more options. Since my DAF is relatively small, I felt no need to have a balanced portfolio, so the gains have been fun to experience. If the market should tank, I'll just pull more money from other sources to continue giving as usual.

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1032
  • Location: Cincinnati
Re: what to do with old individual stocks
« Reply #19 on: January 24, 2020, 07:20:07 AM »
I read the OP and was going to suggest a DAF...you all beat me to it. So one more vote for DAF.

We did one late last year with Fidelity. Should have done it a long time ago.

BeanCounter

  • Handlebar Stache
  • *****
  • Posts: 1464
Re: what to do with old individual stocks
« Reply #20 on: January 24, 2020, 08:33:36 AM »
I have a much smaller amount of highly appreciated stock from my very first job, circa 1976-1980. This year, I have resolved to move it into my Donor Advised Fund. No taxes will be owed, and it can continue to grow  there until I'm ready to disburse it.

How are no taxes owed?
Iím doing this with some old inherited stock and so far am quite pleased with it. Our account is through Fidelity.

He is basically just doing either...

1. a transfer in kind (something like this, not actually selling the stocks)
2. basically "donating it" to himself (his charity)
A Donor Advised Fund gives you the tax write off in the current year and then you can distribute it to your preferred charities whenever you want. You pay no taxes, because it's going to charity. You can invest it as aggressively or conservatively as you want. What you can never do is have the money back.

I am not unwilling to pay the taxes at all, but I see this as a way of stretching my charity dollars. If i do it this way, it lets me give away more money, which makes me happy! Of course, it's nowhere near $55k...

ChpBstrd

  • Handlebar Stache
  • *****
  • Posts: 1747
Re: what to do with old individual stocks
« Reply #21 on: January 27, 2020, 11:14:20 AM »
Devilís advocate- why not just hold them forever?

You pay no taxes this way, other than on dividends. You hold this as the last pool of stocks you would ever sell in retirement, which makes them something like a backup plan in the event of severe personal misfortune. You would sell these and pay the taxes the year you had astronomical medical bills or a house fire - events that would lower your taxes anyway. Is your diversification optimal? No, but neither is Bill Gatesí or the companiesí own execs. The cost of the taxes will likely exceed the benefits of being in an index fund rather than these stocks.

2 other ideas:

1) Sell calls on the shares until they are called away, in the hopes of earning enough to cover the taxes.
2) Transfer the shares to a Roth as your annual $6k contribution for the next several years. Then trade out of the shares inside the Roth account, triggering no taxes.

halftimeprof

  • 5 O'Clock Shadow
  • *
  • Posts: 8
Re: what to do with old individual stocks
« Reply #22 on: January 28, 2020, 10:38:38 AM »
In addition to setting up a Donor Advised Fund, we have been using two other strategies.  First, we've been annually gifting some individual stocks with long-term appreciations to our son, who will graduate from college soon, but will also be taking some extra classes part time after he graduates and will be either unemployed or part-time employed for a year or two.  He can sell the appreciated stocks without paying capital gains during that window after college but before he is bringing in much income of his own.

Second, we plan to sell some of these individual stocks after we fully retire (in a few years), but before we start drawing social security or withdrawing from our tax-advantaged retirement accounts, using the money from the individual stock sales as our income for a year or two.  This plan may, however, be sabotaged by rising dividend and capital gain income from non-retirement accounts.


MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1960
Re: what to do with old individual stocks
« Reply #23 on: January 28, 2020, 08:31:36 PM »
It sounds like now through retirement you'll be in the 15% tax bracket.  For a married couple, the 15% bracket extends from $78,751 to $250,000 (the literal bracket extends higher, but net investment income tax kicks in at $250k - see https://www.irs.gov/taxtopics/tc559).  I don't think you're going to avoid paying 15% on shares you sell.

If you want to donate to charity, then I'd be the 5th or 20th person suggesting you use a "donor advised fund".  When you donate stocks without selling them (and they have been held over a year), you can skip paying taxes on the gains, and take the full value as a donation.  Fidelity and Schwab are better than Vanguard, in my view, because they offer lower minimums to start ($5,000).

You could also take the view that it's better to delay taxes - to avoid selling now, because you'd owe taxes.  That lets more of your money grow for a longer period of time.

There's also diversification - how big is this stock allocation, relative to your other investments?  If it's small, maybe the concentration in the energy sector doesn't mean as much.  If you were just starting out, anything that happens to those two companies has a huge impact.  The larger the share of your portfolio, the more you should reduce the risk and sell these two energy companies.

Just so you know, right now oil is at a rather low price, and fears of the virus outbreak in Wuhan are causing people to cancel travel plans - and further drop the price of oil.  Energy companies are doing worse than average right now, and it would be reasonable to expect conditions get better for them within a year or two.