Author Topic: Looking for assistance handling wife's taxable investments  (Read 2936 times)

cliner

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Looking for assistance handling wife's taxable investments
« on: July 19, 2018, 08:44:17 PM »
Recently married, my wife has a taxable account with Edward Jones. We want to cash it out to buy more VTSAX, but I wasn't sure how much tax would be owed. Is there a quick and dirty way to calculate that? Is it just capital gains tax since January 1?

Also, these returns look terrible... Or am I missing something?

Raymond Reddington

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Re: Looking for assistance handling wife's taxable investments
« Reply #1 on: July 19, 2018, 09:47:35 PM »
What are the investments? Were there any dividends that were reinvested?

If not, it should just be LT capital gains on the appreciation of the account, since it says there were no additional contributions. If there were dividends, then there will be ST gains as well on any dividends reinvested in the past year.

cliner

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Re: Looking for assistance handling wife's taxable investments
« Reply #2 on: July 19, 2018, 10:20:55 PM »
What are the investments? Were there any dividends that were reinvested?
Mutual funds, and yes

Quote
If not, it should just be LT capital gains on the appreciation of the account, since it says there were no additional contributions. If there were dividends, then there will be ST gains as well on any dividends reinvested in the past year.

Thanks for the info, I guess I should just look up how to calculate LT and ST gains tax, and that will help me figure out what we'll owe in April?

jacoavluha

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Re: Looking for assistance handling wife's taxable investments
« Reply #3 on: July 19, 2018, 10:27:38 PM »
Looks like your tax if you liquidated would be about $5000 times long term gains rate which could be 0-23.8% federal depending on your income level. Plus state tax.

I would liquidate now. Get away from EJ.

Raymond Reddington

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Re: Looking for assistance handling wife's taxable investments
« Reply #4 on: July 20, 2018, 12:09:04 AM »
What are the investments? Were there any dividends that were reinvested?
Mutual funds, and yes

Quote
If not, it should just be LT capital gains on the appreciation of the account, since it says there were no additional contributions. If there were dividends, then there will be ST gains as well on any dividends reinvested in the past year.

Thanks for the info, I guess I should just look up how to calculate LT and ST gains tax, and that will help me figure out what we'll owe in April?

LT gains are taxed at capital gains rate, as the previous poster mentioned, rate varies depending on income.
ST gains are taxed at ordinary income rates, so find your marginal tax bracket, and that's what you'll pay on those.

And yeah, run away from Edward Jones

h82goslw

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Re: Looking for assistance handling wife's taxable investments
« Reply #5 on: July 20, 2018, 03:35:16 AM »
Why not do a trustee to trustee transfer and then reinvest those funds at Vanguard. Then there’s no actual sale. 

cliner

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Re: Looking for assistance handling wife's taxable investments
« Reply #6 on: July 20, 2018, 06:31:33 AM »
Thanks everyone

Why not do a trustee to trustee transfer and then reinvest those funds at Vanguard. Then there’s no actual sale.

Is there an advantage of doing that with taxable accounts? Wouldn't I still pay the same capital gains tax? Sorry if I misunderstand, I've only ever had retirement investment accounts. Searching on google for a direct transfer/rollover taxable account only seems to return information on doing it for tax advantaged accounts

Car Jack

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Re: Looking for assistance handling wife's taxable investments
« Reply #7 on: July 20, 2018, 08:55:12 AM »
-2.29%?  Then add their $95 account closing fee.  You will have losses, no gains, no tax to pay.  Have the place where you're going to pull all the money out of there (liquidate it at EJ and pull out the cash).  Save copies of your statements now.  EJ is pretty much dirt bags and will not allow access when you pull all the money out.

Proud Foot

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Re: Looking for assistance handling wife's taxable investments
« Reply #8 on: July 20, 2018, 09:06:59 AM »
What mutual funds are you invested in?

Definitely get away from EJ and do a direct transfer of the securities to Vanguard.

Radagast

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Re: Looking for assistance handling wife's taxable investments
« Reply #9 on: July 20, 2018, 09:28:12 AM »
-2.29%?  Then add their $95 account closing fee.  You will have losses, no gains, no tax to pay.  Have the place where you're going to pull all the money out of there (liquidate it at EJ and pull out the cash).  Save copies of your statements now.  EJ is pretty much dirt bags and will not allow access when you pull all the money out.
No, it is positive 6.11% since start of 2015. -2.29 was 2015 only.

Consecutive losses in 2015 and 2016... that is hilariously bad. VTSAX returned more than 4% higher annualized from 2015 through now.

cliner

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Re: Looking for assistance handling wife's taxable investments
« Reply #10 on: July 20, 2018, 09:40:56 AM »
-2.29%?  Then add their $95 account closing fee.  You will have losses, no gains, no tax to pay.  Have the place where you're going to pull all the money out of there (liquidate it at EJ and pull out the cash).  Save copies of your statements now.  EJ is pretty much dirt bags and will not allow access when you pull all the money out.
No, it is positive 6.11% since start of 2015. -2.29 was 2015 only.

Consecutive losses in 2015 and 2016... that is hilariously bad. VTSAX returned more than 4% higher annualized from 2015 through now.

That's what I thought. I feel bad for her, she just didn't know better, and never checked on the performance. The thing that confuses me is how this advisor was ok with a client's account doing so poorly... Anyway we're moving it to vanguard, just not 100% sure how: liquidate vs direct transfer... Same capital gains tax, either way right? Since we'll likely be selling all to buy VTSAX.

What mutual funds are you invested in?
I'm away from PC now, will have to look again later. 10-15 different funds

Thanks again for y'all's help

Radagast

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Re: Looking for assistance handling wife's taxable investments
« Reply #11 on: July 20, 2018, 09:57:33 AM »
Same capital gains tax, either way right? Since we'll likely be selling all to buy VTSAX.
Correct, it will be the same regardless of where you sell your existing funds. From google search:
https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/
You will probably pay 0% or 15% for long term, and always your ordinary rate for short term.

MDM

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Re: Looking for assistance handling wife's taxable investments
« Reply #12 on: July 20, 2018, 10:40:47 AM »
...I wasn't sure how much tax would be owed. Is there a quick and dirty way to calculate that?
You could enter the capital gain amount, along with your other income, into the case study spreadsheet.

Other tools are also available if that one is not to your liking.

SunshineAZ

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Re: Looking for assistance handling wife's taxable investments
« Reply #13 on: July 20, 2018, 11:01:45 AM »
Thanks everyone

Why not do a trustee to trustee transfer and then reinvest those funds at Vanguard. Then there’s no actual sale.

Is there an advantage of doing that with taxable accounts? Wouldn't I still pay the same capital gains tax? Sorry if I misunderstand, I've only ever had retirement investment accounts. Searching on google for a direct transfer/rollover taxable account only seems to return information on doing it for tax advantaged accounts

Sorry to threadjack, but can you actually do that with a taxable account?  I have some funds in a taxable account at Fidelity that I have been wanting to move to Vanguard to consolidate, but I didn't want to take the tax hit.   I really want to simplify, so if I could do that, it would be great! 

MDM

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Re: Looking for assistance handling wife's taxable investments
« Reply #14 on: July 20, 2018, 12:18:40 PM »
Sorry to threadjack, but can you actually do that with a taxable account?  I have some funds in a taxable account at Fidelity that I have been wanting to move to Vanguard to consolidate, but I didn't want to take the tax hit.   I really want to simplify, so if I could do that, it would be great!
Usually yes.  Most brokerages, including Vanguard, will accept most funds and hold them for you.  You still pay whatever the fund charges, and the receiving brokerage may (or may not) charge you more to sell it than the original brokerage would.

jacoavluha

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Re: Looking for assistance handling wife's taxable investments
« Reply #15 on: July 20, 2018, 02:04:57 PM »
yes you could do an in-kind transfer of the securities (mutual fund shares, ETF shares, bond fund shares, individual stock shares, etc) from one brokerage account to another, for instance EJ to Vanguard, and this would avoid liquidation and resultant capital gains taxes due

but

this defeats the purpose, to a large degree, because the funds held at EJ probably carry a greater than average expense ratio, certainly more than VTSAX, and the same expense ratio would be applicable wherever the shares are held.

Sure, realizing the gains and incurring tax isn't ideal. But a high ER is constantly eroding returns. This is only a guess of course. Maybe EJ has you invested in a low fee index fund. (But I doubt it.)

seattlecyclone

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Re: Looking for assistance handling wife's taxable investments
« Reply #16 on: July 20, 2018, 03:16:01 PM »
Edward Jones is terrible. Their funds are terrible. You should sell them, pay whatever tax is owed, and consider it a lesson. The account balance is still small enough that it won't be a terribly expensive lesson in the grand scheme of things.

cliner

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Re: Looking for assistance handling wife's taxable investments
« Reply #17 on: July 20, 2018, 05:49:44 PM »
Sure, realizing the gains and incurring tax isn't ideal. But a high ER is constantly eroding returns. This is only a guess of course. Maybe EJ has you invested in a low fee index fund. (But I doubt it.)
I agree, and no, they're definitely not index funds

Edward Jones is terrible. Their funds are terrible. You should sell them, pay whatever tax is owed, and consider it a lesson. The account balance is still small enough that it won't be a terribly expensive lesson in the grand scheme of things.
Yup! She understands a bit more now. When we were still engaged, I checked her 401(k) and I was pleasantly surprised to find her money invested in Vanguard index funds. But this taxable account I hadn't gotten around to checking until recently.

Thanks again all for the info


Edit
One other thing came up. My wife is not a permanent resident yet. Does anyone know a comparable alternative to Vanguard for someone here on an H-1B, while we wait for green card? I saw another thread that recommended Fidelity, but just figured I'd ask here too.
« Last Edit: July 20, 2018, 06:38:17 PM by cliner »

Paul der Krake

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Re: Looking for assistance handling wife's taxable investments
« Reply #18 on: July 20, 2018, 07:20:24 PM »
Edit
One other thing came up. My wife is not a permanent resident yet. Does anyone know a comparable alternative to Vanguard for someone here on an H-1B, while we wait for green card? I saw another thread that recommended Fidelity, but just figured I'd ask here too.
You can invest with Vanguard on an H-1B but have to be sneaky about it because their customer service doesn't understand the difference between resident for tax purposes and immigration purposes, but they are notoriously hostile to foreign investors in general.

It's easier to go with Fidelity or Schwab, who both let you be as foreign as you want.

Paul der Krake

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Re: Looking for assistance handling wife's taxable investments
« Reply #19 on: July 20, 2018, 07:22:06 PM »
Also if you file for green card through marriage instead of waiting for her employer to do the petitioning that problem goes away in ~3 months, but that will run you a cool 2k, minimum.

MustacheAndaHalf

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Re: Looking for assistance handling wife's taxable investments
« Reply #20 on: July 20, 2018, 09:29:10 PM »
When you sell, the IRS wants a cut of profits.  Transferring from one brokerage to another doesn't count as selling.  To do that, you'd want to contact Vanguard (not EJ) about transferring your assets, and if Vanguard is able to transfer from EJ.  EJ is losing business, so don't call them about the transfer - reach out to the place you want the money to go.

If you must sell, the assets held over a year are taxed at 15% for most people.  A gain of $5k taxed at 15% would mean $750 in taxes.  Which isn't bad considering overall that's just 3% of the total $25,000.  It may be worth the tax hit to escape EJ if Vanguard isn't able to do a transfer.

While I prefer Vanguard in general, it sounds like your wife would be better off with a brokerage that is more friendly to international investors.  You might look at Schwab instead of Vanguard.  You can still pick low-cost index funds there - in fact, SCHB actually has a lower expense ratio than VTI (0.03% vs 0.04% expense ratio, both total stock market funds).

Raymond Reddington

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Re: Looking for assistance handling wife's taxable investments
« Reply #21 on: July 20, 2018, 10:24:05 PM »
If you do a direct transfer, the account will be in Vanguard but you will still hold the EJ funds with their greater expense ratios. So that doesn't sound like what you want to do. You can't both avoid taxes and change the investment vehicle.

Just pay the taxes, and start over.

cliner

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Re: Looking for assistance handling wife's taxable investments
« Reply #22 on: July 22, 2018, 04:16:37 PM »
Also if you file for green card through marriage instead of waiting for her employer to do the petitioning that problem goes away in ~3 months, but that will run you a cool 2k, minimum.
Thanks, we actually are doing the marriage/relative green card process. Hopefully the process will go quickly.

Edit
One other thing came up. My wife is not a permanent resident yet. Does anyone know a comparable alternative to Vanguard for someone here on an H-1B, while we wait for green card? I saw another thread that recommended Fidelity, but just figured I'd ask here too.
You can invest with Vanguard on an H-1B but have to be sneaky about it because their customer service doesn't understand the difference between resident for tax purposes and immigration purposes, but they are notoriously hostile to foreign investors in general.

It's easier to go with Fidelity or Schwab, who both let you be as foreign as you want.

Thanks! I figured it out, and we were able to set her up with a vanguard account. Apparently the only difference is my wife will have to submit paperwork through mail instead of doing it all electronically. No big deal.

When you sell, the IRS wants a cut of profits.

Just pay the taxes, and start over.

Yep! We've decided to sell all now, and pay the inevitable taxes.

Thanks again everyone for the help.