Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

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Topic Author
afr
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

livesoft wrote: Sun Jun 13, 2021 9:35 am
afr wrote: Fri Jun 04, 2021 11:13 amThe only choices that I'm given for both dividends and capital gains are either to reinvest, transfer to settlement fund, transfer to a bank account or send me a check.
Have your distributions from the health care fund go to your settlement account. When the distributions from the health care fund are in the settlement account, then use all the money in the settlement account to buy more shares of the Vanguard Total US Stock Market Index fund that you already own in your taxable brokerage account.
Thank you livesoft.
Last edited by afr on Sun Jun 13, 2021 10:58 am, edited 2 times in total.
Topic Author
afr
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

retiredjg wrote: Sun Jun 13, 2021 9:46 am
afr wrote: Sun Jun 13, 2021 9:30 am
retiredjg wrote: Sun Jun 13, 2021 6:42 am It is difficult to know the nature of your questions without combing through the entire thread from 5 years ago.

If you have several things in taxable and only want to add more money to one of them...then yes you could transfer the dividends and cap gains from the other funds to the settlement fund. And then use that to buy more of the thing you want.
Thank you retiredjg for the reply. And I'm assuming that will not set off a taxable event?
Putting the money into the settlement fund would not be a taxable event. I don't have a settlement fund and have never seen one used. I don't know if selling the settlement fund is a taxable event or not. However, if it is something like money market, it might be taxable but such a small event that it doesn't matter much.

I also have a question regarding the STAR holding in our non-deductible TIRA's. Would it be wise to use the TIRA just to hold something like TIPS or short-term TIPS(and direct dividends/cap gains to the new fund)? That way the account won't grow too much and thus limiting the amount of pro-rata tax hit I take converting to my ROTH when I retire in 6 yrs.
This question cannot be answered reliably because there is no context. But you are correct that holding only bonds in an IRA would be expected to reduce its growth compared to holding STAR fund there. But if you don't increase the stocks in some other part of your portfolio, your portfolio may also grow less.
Yes retiredjg, the settlement fund is a money market fund. That's the way Vanguard has it set up. As to exchanging the STAR fund in my TIRA for some type of bond fund, I'd have the stock index funds in my taxable account as well as my 401k(which is approximately 60% equity/40% fixed). And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Last edited by afr on Sun Jun 13, 2021 11:00 am, edited 1 time in total.
Topic Author
afr
Posts: 292
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
lazynovice
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by lazynovice »

afr wrote: Sun Jun 13, 2021 10:39 am
retiredjg wrote: Sun Jun 13, 2021 9:46 am
afr wrote: Sun Jun 13, 2021 9:30 am
retiredjg wrote: Sun Jun 13, 2021 6:42 am It is difficult to know the nature of your questions without combing through the entire thread from 5 years ago.

If you have several things in taxable and only want to add more money to one of them...then yes you could transfer the dividends and cap gains from the other funds to the settlement fund. And then use that to buy more of the thing you want.
Thank you retiredjg for the reply. And I'm assuming that will not set off a taxable event?
Putting the money into the settlement fund would not be a taxable event. I don't have a settlement fund and have never seen one used. I don't know if selling the settlement fund is a taxable event or not. However, if it is something like money market, it might be taxable but such a small event that it doesn't matter much.

I also have a question regarding the STAR holding in our non-deductible TIRA's. Would it be wise to use the TIRA just to hold something like TIPS or short-term TIPS(and direct dividends/cap gains to the new fund)? That way the account won't grow too much and thus limiting the amount of pro-rata tax hit I take converting to my ROTH when I retire in 6 yrs.
This question cannot be answered reliably because there is no context. But you are correct that holding only bonds in an IRA would be expected to reduce its growth compared to holding STAR fund there. But if you don't increase the stocks in some other part of your portfolio, your portfolio may also grow less.
Yes retiredjg, the settlement fund is a money market fund. That's the way Vanguard has it set up. As to exchanging the STAR fund in my TIRA for some type of bond fund, I'd have the stock index funds in my taxable account as well as my 401k(which is approximately 60% equity/40% fixed). And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanges in an IRA have no tax consequences.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
lazynovice
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Joined: Mon Apr 16, 2012 10:48 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by lazynovice »

afr wrote: Sun Jun 13, 2021 10:47 am
lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
livesoft
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by livesoft »

retiredjg wrote: Sun Jun 13, 2021 9:50 amLivesoft, is selling something in a settlement account a taxable event? Or is it some kind of special thing with no taxes?

Sorry, don't have one, never even seen one, and don't know how they work. I've always assumed it is something like a money market fund, but don't know that for sure.
It is like a money market fund, money market account, savings account, and similar. So sales are not reportable. Of course, if the account pays interest or dividends, one gets that included on a 1099.

IRS Publication 550 makes this distinction on that income:
IRS Pub 550 p. 20 wrote:Money Market Funds
Report amounts you receive from money market funds as dividend income. Money market
funds are a type of mutual fund and should not
be confused with bank money market accounts
that pay interest.
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retiredjg
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by retiredjg »

afr wrote: Sun Jun 13, 2021 10:39 am And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanging funds in an IRA is not a taxable event.
Topic Author
afr
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am
lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
Topic Author
afr
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Joined: Sun Apr 27, 2014 4:01 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

retiredjg wrote: Sun Jun 13, 2021 11:25 am
afr wrote: Sun Jun 13, 2021 10:39 am And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanging funds in an IRA is not a taxable event.
Thanks. Didn't think so. If I use my TIRA to hold just one or two bond funds, do you have any recommendations? Something such as short term inflation protected securities, total bond market index or possibly a muni fund?
retiredjg
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by retiredjg »

afr wrote: Sun Jun 13, 2021 12:00 pm
retiredjg wrote: Sun Jun 13, 2021 11:25 am
afr wrote: Sun Jun 13, 2021 10:39 am And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanging funds in an IRA is not a taxable event.
Thanks. Didn't think so. If I use my TIRA to hold just one or two bond funds, do you have any recommendations? Something such as short term inflation protected securities, total bond market index or possibly a muni fund?
Total bond is always a good recommendation. TIPS funds are getting a lot of attention lately because people seem to be worried about inflation right now. I'm not sure that younger people need them, but they don't seem inappropriate to me for a person nearing retirement.

Ordinarily, a muni fund is tax-exempt and not something you would choose for an IRA.
lazynovice
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by lazynovice »

afr wrote: Sun Jun 13, 2021 11:51 am
lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am
lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
For that fund, change the cost basis to specific ID. Then tell us how much you have in short term gains, short term losses, long term gains and long term losses.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
afr
Posts: 292
Joined: Sun Apr 27, 2014 4:01 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

lazynovice wrote: Sun Jun 13, 2021 12:42 pm
afr wrote: Sun Jun 13, 2021 11:51 am
lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am
lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
For that fund, change the cost basis to specific ID. Then tell us how much you have in short term gains, short term losses, long term gains and long term losses.
lazynovice, short term capital gain/loss-$117, long term capital gain/loss-$1600
lazynovice
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Joined: Mon Apr 16, 2012 10:48 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by lazynovice »

afr wrote: Sun Jun 13, 2021 1:46 pm
lazynovice wrote: Sun Jun 13, 2021 12:42 pm
afr wrote: Sun Jun 13, 2021 11:51 am
lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am

lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
For that fund, change the cost basis to specific ID. Then tell us how much you have in short term gains, short term losses, long term gains and long term losses.
lazynovice, short term capital gain/loss-$117, long term capital gain/loss-$1600
The short term gain will be taxed at your ordinary rate. Assuming you are in to top tax bracket that’s 37% plus a possible net investment tax of 3.8% plus state taxes.

The long term gain will be taxed at your capital gains rate, the highest rate being 20% plus a potential 3.8% net investment income tax and then state taxes.

The 3.8% applies if you make over 250k per year.

https://www.nerdwallet.com/article/taxe ... -tax-rates
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
afr
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

We are in the 24% tax bracket. Either way, it doesn’t sound like too much to ditch the fund.
Topic Author
afr
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

lazynovice wrote: Sun Jun 13, 2021 12:42 pm
afr wrote: Sun Jun 13, 2021 11:51 am
lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am
lazynovice wrote: Sun Jun 13, 2021 9:55 am A settlement account is almost always in a money market account. Values don’t fluctuate and there is no taxable event for moving the money around. The taxable event is the receipt of the dividend and that occurs whether you direct it to the settlement account or reinvest it.
lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
For that fund, change the cost basis to specific ID. Then tell us how much you have in short term gains, short term losses, long term gains and long term losses.
What’s the rationale to change cost basis to specific ID? And just for that fund only?
lazynovice
Posts: 1868
Joined: Mon Apr 16, 2012 10:48 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by lazynovice »

afr wrote: Sun Jun 13, 2021 3:16 pm
lazynovice wrote: Sun Jun 13, 2021 12:42 pm
afr wrote: Sun Jun 13, 2021 11:51 am
lazynovice wrote: Sun Jun 13, 2021 11:11 am
afr wrote: Sun Jun 13, 2021 10:47 am

lazynovice thank you for the reply. I would be taking both the dividend and capital gains(from the health care fund) and redirecting to the total stock fund in my taxable account. I'd also assume the tax hit would not be too great since the current balance of the health care holding is a little over $15,000.
I think you are confused by that “capital gains” label. You can only direct capital gains distributions which happen in December and March. The unrealized gains (market value minus cost basis) cannot be moved, exchanged or sold without paying taxes in a taxable account. Do you have the cost basis for that fund set up as specific ID? Are there some lots that have very small unrealized gains? You could sell those and pay very little in taxes.
The cost basis for all of my funds in our joint taxable account are set at average cost(Vanguard's default).The current market value of the health care fund is $15,400, total cost of $13,700; so a total gain of $1700.
For that fund, change the cost basis to specific ID. Then tell us how much you have in short term gains, short term losses, long term gains and long term losses.
What’s the rationale to change cost basis to specific ID? And just for that fund only?
I’d change it for all funds personally but I can’t tell you what to do.Every fund I own is set up as specific ID.

If you think the taxes are too high to sell it all, then you could choose the lots that will result in the lowest taxes and just sell those. If any lots had losses, you’d sell those first.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
afr
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Joined: Sun Apr 27, 2014 4:01 pm

Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by afr »

retiredjg wrote: Sun Jun 13, 2021 11:25 am
afr wrote: Sun Jun 13, 2021 10:39 am And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanging funds in an IRA is not a taxable event.
Now regarding the Roth IRA's my wife and I set up with Vanguard when we qualified income-wise; would you recommend exchanging our current STAR fund for the total stock market index fund?
retiredjg
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Re: Taxable account or non-deductible tIRA? [Discontinue nondeductible contributions?]

Post by retiredjg »

afr wrote: Sun Jun 13, 2021 6:15 pm
retiredjg wrote: Sun Jun 13, 2021 11:25 am
afr wrote: Sun Jun 13, 2021 10:39 am And I also assume exchanging the balance of my STAR fund in my TIRA to a bond fund would not set off a taxable event?
Exchanging funds in an IRA is not a taxable event.
Now regarding the Roth IRA's my wife and I set up with Vanguard when we qualified income-wise; would you recommend exchanging our current STAR fund for the total stock market index fund?
You seem to be looking at each account without considering the portfolio. Questions like this cannot be answered accurately without seeing the portfolio as a whole and knowing what stock to bond ratio you want in your portfolio.

However, if you are reducing stocks in the IRA then increasing stocks in the Roth IRAs makes some sense. Whether it achieves what you want is unknown because we are not seeing your whole portfolio.
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