Stupid question 12948593: Setting things up for TLH

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barliss2
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Joined: Tue Jan 21, 2020 4:10 pm

Stupid question 12948593: Setting things up for TLH

Post by barliss2 »

Hi there,

I feel like I've read the wiki on TLH 9 million times, so if I missed this somewhere, please be kind and patient with me ;-)

I'm a little confused on to what to do here:
-I've stopped reinvesting in one specific fund throughout my (and my husband's) taxable accounts
-So in Dec 30 (and March/June/Sept), those dividends should magically appear in my settlement fund and that day (or the next or whenever) I invest that settlement fund money back into my fund

My question is, am I not supposed to invest any new money in between those months?
If so, what do you do with that money in the interim?
Do you put it in a savings account to at least accrue some interest before dumping the money in with the div/settlement money in Dec/Mar/Jun/Sept?
Do you still automatically fund your account, but rather you automatically fund your settlement fund (to avoid having to do the extra step of transferring money from savings to settlement) and then wait for Dec/Mar/Jun/Sept to act?
Or do you still invest your money as per usual in your fund, every month (or bi-monthly, or whatever), and the only thing you've turned off is the REINVEST DIVIDEND button?

Many thanks!
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Re: Stupid question 12948593: Setting things up for TLH

Post by livesoft »

One can invest money at any time that they want. I don't stop investing money into the things that I might want to TLH. Somehow on this forum misinformation has been spreading. I guess that is because people are afraid of math or of reading instructions of tax forms or something else.

I myself just invest money per usual. We don't even have a savings account. Investing per usual may give one more TLH opportunities, too.

I don't even think it is necessary to turn off automatic dividend reinvestment. One day more people will understand why that is the case.
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Savvy
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Re: Stupid question 12948593: Setting things up for TLH

Post by Savvy »

Hello! Not an expert, but what I do for my taxable account is track Specific ID, and I do not reinvest dividends. When I receive a dividend payment in my settlement account (say it's $300), I send it back to my checking so my settlement is empty. Then, next time I put money in taxable, I just send it from my checking (say, $3,000). I try to invest at most once a month, just to keep things simple, but it's probably closer to once every 2 months that I put in new money.
Topic Author
barliss2
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Re: Stupid question 12948593: Setting things up for TLH

Post by barliss2 »

livesoft wrote: Mon Dec 21, 2020 10:34 am One can invest money at any time that they want. I don't stop investing money into the things that I might want to TLH. Somehow on this forum misinformation has been spreading. I guess that is because people are afraid of math or of reading instructions of tax forms or something else.

I myself just invest money per usual. We don't even have a savings account. Investing per usual may give one more TLH opportunities, too.

I don't even think it is necessary to turn off automatic dividend reinvestment. One day more people will understand why that is the case.
Hi there. Can you back up why it isn't necessary to turn off auto div reinvestments?
livesoft
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Re: Stupid question 12948593: Setting things up for TLH

Post by livesoft »

barliss2 wrote: Mon Dec 21, 2020 10:59 am Hi there. Can you back up why it isn't necessary to turn off auto div reinvestments?
1. Wash sales are not illegal.

2. Wash sales are now tracked by your financial institutions.

3. Wash sales are easily reported on your tax return by tax prep software.

4. Wash sales created by dividend reinvestment in the same account do NOT hurt you. Part of the loss may be temporarily disallowed, but one can simply sell the shares purchased by automatic dividend reinvestment in order to have the temporarily-disallowed loss applied.

5. Most dividend reinvestment does not create a wash sale anyways.

6. I could go on and on ....
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Topic Author
barliss2
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Re: Stupid question 12948593: Setting things up for TLH

Post by barliss2 »

livesoft wrote: Mon Dec 21, 2020 11:03 am
barliss2 wrote: Mon Dec 21, 2020 10:59 am Hi there. Can you back up why it isn't necessary to turn off auto div reinvestments?
1. Wash sales are not illegal.

2. Wash sales are now tracked by your financial institutions.

3. Wash sales are easily reported on your tax return by tax prep software.

4. Wash sales created by dividend reinvestment in the same account do NOT hurt you. Part of the loss may be temporarily disallowed, but one can simply sell the shares purchased by automatic dividend reinvestment in order to have the temporarily-disallowed loss applied.

5. Most dividend reinvestment does not create a wash sale anyways.

6. I could go on and on ....
Thanks. Here is where my 101 guide says otherwise, which is why I'm questioning you: https://www.bogleheads.org/wiki/User:La ... _beginners

Obv not needing to take money out, and do a bunch of stuff every 4 months would be a great time saver, so I'm intrigued but wary. As you're the first to tell me about this in all my readings (wikis, blogs, here).

But the bogleheads wiki also says it's going under a major reconstruction, so perhaps that's something getting revised? I do not know. If you happen to know where there's a .gov post that confirms what you're saying I'd truly appreciate the link. Many thanks!
rkhusky
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Re: Stupid question 12948593: Setting things up for TLH

Post by rkhusky »

Creating a wash sale by purchasing in a taxable account is not a big issue, because you can sell those shares and recoup your disallowed loss. However, many people try to avoid even that and keep their taxes simpler.

Creating a wash sale by purchasing in a tax-advantaged account is worse, because the loss is permanently disallowed. But even this might not a big deal if the amount is very small.

I just put my taxable dividends in my sweep account and then use them for future purchase or for paying expenses. I don't sweat the small stuff by having every dollar invested in stocks/bonds. Sometimes my sweep balance reaches $10K.

When purchasing shares, I don't buy for less than $1K.
lazynovice
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Re: Stupid question 12948593: Setting things up for TLH

Post by lazynovice »

barliss2 wrote: Mon Dec 21, 2020 11:09 am
livesoft wrote: Mon Dec 21, 2020 11:03 am
barliss2 wrote: Mon Dec 21, 2020 10:59 am Hi there. Can you back up why it isn't necessary to turn off auto div reinvestments?
1. Wash sales are not illegal.

2. Wash sales are now tracked by your financial institutions.

3. Wash sales are easily reported on your tax return by tax prep software.

4. Wash sales created by dividend reinvestment in the same account do NOT hurt you. Part of the loss may be temporarily disallowed, but one can simply sell the shares purchased by automatic dividend reinvestment in order to have the temporarily-disallowed loss applied.

5. Most dividend reinvestment does not create a wash sale anyways.

6. I could go on and on ....
Thanks. Here is where my 101 guide says otherwise, which is why I'm questioning you: https://www.bogleheads.org/wiki/User:La ... _beginners

Obv not needing to take money out, and do a bunch of stuff every 4 months would be a great time saver, so I'm intrigued but wary. As you're the first to tell me about this in all my readings (wikis, blogs, here).

But the bogleheads wiki also says it's going under a major reconstruction, so perhaps that's something getting revised? I do not know. If you happen to know where there's a .gov post that confirms what you're saying I'd truly appreciate the link. Many thanks!
In the link you posted, it says this:

“What happens if you have a purchase within that window? It's no big deal--it just means an equal amount of "harvested" losses will simply be disallowed as wash sales.” And-

“Switch back to automatic reinvestment of dividends and capital gains (or not. If you're going to be a tax loss farmer you should probably leave it off). Switch back to automatic investments of new money (or not--again, your choice--but if you want to avoid problems, leave it off).”

To answer your question directly- you invest as you always would every month or two weeks or whatever. Because presumably most of the time the values are increasing. When they decrease enough to harvest a loss, sell the shares that are in the red and any shares (of that fund) you have bought in the last 31 days. And then do not buy anymore shares of that fund for 31 days. Turning off reinvestment of dividends just helps you to not inadvertently buy more shares in that window.

The wiki says “Ideally you would not buy any shares 30 days before you TLH” Well sure, that’s true, but you don’t know when the market is going to go down. In the real world the shares you are most likely to TLH are ones you bought most recently.
livesoft
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Re: Stupid question 12948593: Setting things up for TLH

Post by livesoft »

barliss2 wrote: Mon Dec 21, 2020 11:09 amIf you happen to know where there's a .gov post that confirms what you're saying I'd truly appreciate the link. Many thanks!
Well, what IS the .gov post that you have read yourself? Got a link? Thanks!
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Topic Author
barliss2
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Re: Stupid question 12948593: Setting things up for TLH

Post by barliss2 »

livesoft wrote: Mon Dec 21, 2020 3:19 pm
barliss2 wrote: Mon Dec 21, 2020 11:09 amIf you happen to know where there's a .gov post that confirms what you're saying I'd truly appreciate the link. Many thanks!
Well, what IS the .gov post that you have read yourself? Got a link? Thanks!
I do not. But I'm kinda going by what bogleheads, blogs, and books have said--so I'm curious as to this new/different/old, but not talked about theory is coming from. If we don't have to do these things, then why are so many places saying to do them? Why make it hard on us just to waste our valuable time if wash sales don't matter?
livesoft
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Re: Stupid question 12948593: Setting things up for TLH

Post by livesoft »

Wash sales do matter if the disallowed loss in a taxable account is created by a purchase in a tax-advantaged accounts.

Also, it wasn't too long ago that financial institutions did not have to inform an investor of any wash sales they made. That has changed in the past few years.

Finally, you will find that financial journalists are often less experienced about things than they would have you believe. They also may have chosen journalism as a career because they were innumerate and afraid of doing their own tax returns.

Anyways about 5 years ago, I created wash sales to show bogleheads.org that they were not a big deal: viewtopic.php?t=179414 Unfortunately, all the image hosting went away which showed explicitly all the details.
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