Portfolio Review - how to exit Advisor and be as tax efficient as possible

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Topic Author
rshocka
Posts: 54
Joined: Thu Oct 24, 2019 12:54 pm

Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

Hi all, I've been researching Bogleheads more as of late, and I recognize this is a bad legacy lineup that was setup (mostly through work with an Ameriprise account that I still have active). I've been slowly learning more, and I know I need to change, but the tax implications of how to do it given where I am today and likely in the future has had me stalled at making a change. Just going through this exercise and formatting this properly has really been eye-opening.

Lastly, I would like to be FI by 45 if possible. I also recognize that I'm not necessarily in a career field where my increased current earnings are guaranteed past a a handful more years. Thus, I'm working hard to get my ducks in a row and make sure I maximize savings and get the house in order in the event that I think it's likely my next position (estimated in ~5 years) offers a smaller % of my current compensation and annual contributions.

Thanks in advance for the wisdom and advice from this forum in proceeding.


Emergency funds: Yes

Debt: $45,000 @ 1.99% for 34 months. $0 debt on house (market estimate of ~$600k)

Tax Filing Status: Married Filing Jointly,

Tax Rate: 35% Federal, 5% State (Alabama)

State of Residence: Alabama

Age:39, 2 children (under 6)

Desired Asset allocation: 85% stocks / 15% bonds
Desired International allocation: 10% of stocks
Very open to feedback on AA

Investment portfolio current size is ~ $2.6 M.

Current assets

TAXABLE ACCOUNTS:
1% cash (for investing – do not include emergency funds)

1.32% ISHARES S&P MID CAP 400 VALUEETF (IJJ) 0.25
3.13% SPDR SERIES TRUST S&P DIVIDEND ETF (SDY) 0.35
4.66% ISHARES EDGE MSCI MIN VOLATILITY ETF (USMV) 0.15
1.75% SELECT SECTOR TR REAL ESTATE SPDR ETF (XLRE) 0.13

Current Capital Gains on Directly Above Section : +$54,314.50 [+24.61%]

0.95% CAPITAL WORLD GROWTH & INCOME CL F1 (CWGFX) 0.82
4.47% EATON VANCE ATLANTA CAP SMID CAP CL A (EAASX)
3.25% EATON VANCE ATLANTA CAP SMID CAP CL C (ECASX) 1.9
2.71% COLUMBIA EMERGING MARKETS CL C (EEMCX) 2.29
18.4% FIDELITY ADVISOR GROWTH OPPTYS CL C (FACGX) 1.8
3.30% FIDELITY ADVISOR GROWTH OPPTYS CL I (FAGCX) 0.78
0.45% NUVEEN LTD TERM MUN BOND CL C2 (FLTCX) 0.98
0.53% INVESCO DIVERSIFIED DIVIDEND CL A (LCEAX)
1.05% INVESCO DIVERSIFIED DIVIDEND CL C (LCEVX) 1.56
4.19% LORD ABBETT ULTRA SHORT BOND CL A (LUBAX) 0.42
0.61% MFS MID CAP VALUE CL A (MVCAX)
0.59% MFS MID CAP VALUE CL C (MVCCX) 1.83
4.99% INVESCO OPPENHEIMER INTL GROWTH CL C(OIGCX) 1.85
3.00% COLUMBIA STRATEGIC MUN INCOME CL C (RTCEX) 1.56
0.64% WESTERN ASSET SHORT DURATION MUN INCOME CL C (SHDLX) 0.9

Current Capital Gains on Directly Above Section: +$474,282.94 [+59.83%] - can break it out by fund but largest CG by far are in the FAGCX and FACGX (which have actually been performing well)

TAX DEFERRED ACCOUNTS:
His Empower work 401k
No current company match - I was planning on moving these over to index funds soon.

0.35% American Funds 2040 Target Date Retire R6 RFGTX 0.38
0.70% JP Morgan Emerging Markets Equity R6 JEMWX 0.79
9.32% T. MFS Growth R6 RRBGX 0.57


His Roth IRA

3.80% VANGUARD GROWTH ETF VUG 0.04
0.32% EATON VANCE ATLANTA CAP SMID CAP CL A EAASX 1.17
0.59% EATON VANCE ATLANTA CAP SMID CAP CL C ECASX 1.9
0.19% FRANKLIN INCOME CL C FCISX 1.12
0.31% FRANKLIN INCOME CL A1 FKINX 0.62
0.19% INVESCO OPPENHEIMER INTL DIVERSIFIED CL A OIDAX
0.13% INVESCO OPPENHEIMER INTL DIVERSIFIED CL C OIDCX 2.02
0.34% FRANKLIN MUTUAL GLOBAL DISCOVERY CL A TEDIX 1.23
0.09% FRANKLIN MUTUAL GLOBAL DISCOVERY CL C TEDSX 1.98


Her Roth IRA

0.54% VANGUARD INTERMEDIATE TERM CORP BOND ETF VCIT 0.07
2.91% VANGUARD TOTAL STOCK MARKET ETF VTI 0.03
0.48% VANGUARD TOTAL INTL STOCK INDEX FUND ETF VXUS 0.09


Her 401k
She Hasn’t worked there for 6+ years

0.61% Vanguard U.S. Growth Fund Admiral™ Shares VWUAX 0.28
0.61% Vanguard Mid-Cap Index Fund Admiral Shares VIMAX 0.05
0.62% Vanguard 500 Index Fund Admiral Shares VFIAX 0.04
0.61% Vanguard Mid-Cap Value Index Fund Admiral Shares VMVAX 0.07
0.59% Vanguard Developed Markets Index Fund Admiral Shares VTMGX 0.07


Her TSP
0.33% L2050 (0.04)


Contributions

New annual Contributions
$19,500 his 401k (no standard or expected employer match. In 10 years, company matched 100% one year, but depends on company’s yearly success)
$6,000 his IRA/Roth IRA
$6,000 her IRA/Roth IRA
$180-200k taxable (for retirement, not short term goals)


Main Questions are around exiting out of this Ameriprise set of funds
1. Clearly there are a lot of mutual funds here that I need to exit out of. I recognize this should have been done a long time ago, so unfortunately that’s water under the bridge now but would like to help make moves for my long-term future. Most of these are still C class shares though many of them will be converting to A class shares in the next year to two (though I’ll assume that doesn’t matter at this point). Ultimately, I'd like to significantly simplify and get towards a 3 fund portfolio and something that's a lot more tax-efficient. I’m most interested in the best way to exit out of these (even if over a longer period of time) to avoid a huge tax hit. The Roth and Taxable accounts are held within Ameriprise Financial. I could use some counsel on exiting out of this many funds and entering into a more simplified, lower cost portfolio. The

2. I already have mid 6 figures invested in a Vanguard fund, so I'm guessing that may be one of the better options to work with to consider transferring over in kind?

3. Also, someone one mentioned turning off reinvest of dividends immediately, and I wasn't sure why that was?

4. I've been contributing to IRA then converting it to Roth though I wonder if that's the right move if I may have lower income 7-10 years from now.

If I can provide any other additional details, I'd be happy to do so. Thanks!
Pandemic Bangs
Posts: 375
Joined: Sat Dec 26, 2020 2:49 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by Pandemic Bangs »

Lots of assets -- congrats! That's terrific.

I suspect you are in a high-CG bracket. The rest here is predicated on that.

I would move the taxable to VG or Schwab or Fido and ask ahead of time what can move in kind. (And ask about a transfer bonus at the same time.) Then you can take your time and assess what the biggest "emergencies" are wrt CG and ER, and if you can offset them with corresponding loss-harvesting.

If it were me and I were in a major city, I would speak to a Schwab rep and have them run your taxable list and see what can transfer in kind. There may be a transaction fee to sell once it has moved but I think that is trumped by the ability to sell tactically (i.e., not all at once).

Once you have moved, you can prioritize. Obviously, a high-ER fund with limited gains is the first to get sold and reconstituted as a low-cost index. In a similar situation, and as we accumulated bigger and fewer pieces, we could use loss-harvesting to offset the gains from selling the stinkers.
Wait 'til I get my money right | Then you can't tell me nothing, right?
Topic Author
rshocka
Posts: 54
Joined: Thu Oct 24, 2019 12:54 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

Thanks Pandemic Bangs. I appreciate the response as this is an area that having analysis paralysis keeps me in the bad state that I'm in, but I don't also want to make a mistake with what I would consider to be substantial tax implications for me if I do things the wrong way.

Are you inferring that Schwab could help run that list where as a Vanguard representative could not? I have a USAA account which technically converted to Schwab recently so while I thought I didn't have a Schwab account, I suppose I actually do now.

Does anyone else have any other advice / counsel on the best steps moving forward?
little_star
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Joined: Tue Jun 16, 2020 5:08 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by little_star »

rshocka wrote: Sun Jan 24, 2021 2:45 pm
3. Also, someone one mentioned turning off reinvest of dividends immediately, and I wasn't sure why that was?

4. I've been contributing to IRA then converting it to Roth though I wonder if that's the right move if I may have lower income 7-10 years from now.
Congratulations on your success! In regards to the above questions, turning off the re-investment of dividends and capital gains is one way to slowly siphon off your current investments without incurring *extra* tax, since you will already owe taxes on the dividends and capital gains distributions. You should see an option - either for each fund individually or for your account as a whole - regarding the disposition of dividends and capital gains distributions in your account preferences. Choose to have them deposited into your settlement account (or the equivalent) rather than reinvested.

It sounds like you are doing the backdoor Roth process. If that is the case, and you have no pre-tax traditional IRAs, your income 7-10 years from now is not relevant. In the backdoor Roth process, you are taking already taxed dollars, putting them (briefly) in a traditional IRA (since there are no income limits on contributing to a traditional IRA), and then converting the traditional IRA to a Roth IRA. Since the funds in the traditional IRA were non-deductible, the only additional taxes you will owe are on any gains between the time of contribution and conversion. That said, if you do have pre-tax dollars in a traditional IRA (rollover, SEP, SIMPLE, etc), then you are in the realm of the pro-rata rule and the previous becomes much more complicated. Nonetheless, if you are completing the most simple, straightforward, version of the backdoor Roth process, you should keep doing so, since $$ in Roth are more favorable than $$ in taxable, and both are equivalently taxed going in.
desiderium
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Joined: Sat Jan 04, 2014 10:08 am

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by desiderium »

At the risk of introducing a distracting issue, here is one suggestion:

Think about charitable giving for the next 5+ years. Donate this amount to a donor advised fund, by transferring highly appreciated assets from high-fee funds. The tax deduction may offset capital gains realized from selling some of the other funds.
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goingup
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Joined: Tue Jan 26, 2010 12:02 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by goingup »

Just a few suggestions:
If your funds are still held at Ameriprise, transfer in-kind to a new broker. I'd suggest Schwab. I'm a Vanguard fan, but Schwab is more nimble I think. You start by contacting Schwab and they will work with you and Ameriprise to "pull" the funds over. Make sure the cost basis transfers completely before you sell your funds.

You'll have to decide whether to self-manage at Schwab or if you want an advisor. Make sure you understand your options and the costs/fees involved.

Cleaning up the taxable account takes more thought due to tax consequences. Consolidating tiny funds or those minimal gains should be easy. Funds with large gains can be swapped for index funds during market dips to help offset capital gains. Meantime, turn off dividend reinvestments in those funds you don't want to keep.

Changing funds in tax-advantaged accounts can be done at any time. Of course, choosing index funds makes good sense. I personally hold different funds in our taxable account than tax-deferred because our taxable account is much larger and that makes it easy to Tax Loss Harvest. (Not everyone thinks this is important.)
Topic Author
rshocka
Posts: 54
Joined: Thu Oct 24, 2019 12:54 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

goingup wrote: Mon Jan 25, 2021 11:26 am Just a few suggestions:
If your funds are still held at Ameriprise, transfer in-kind to a new broker. I'd suggest Schwab. I'm a Vanguard fan, but Schwab is more nimble I think. You start by contacting Schwab and they will work with you and Ameriprise to "pull" the funds over. Make sure the cost basis transfers completely before you sell your funds.

You'll have to decide whether to self-manage at Schwab or if you want an advisor. Make sure you understand your options and the costs/fees involved.

Cleaning up the taxable account takes more thought due to tax consequences. Consolidating tiny funds or those minimal gains should be easy. Funds with large gains can be swapped for index funds during market dips to help offset capital gains. Meantime, turn off dividend reinvestments in those funds you don't want to keep.

Changing funds in tax-advantaged accounts can be done at any time. Of course, choosing index funds makes good sense. I personally hold different funds in our taxable account than tax-deferred because our taxable account is much larger and that makes it easy to Tax Loss Harvest. (Not everyone thinks this is important.)
Thanks Goingup. Can you remind me why the importance of turning off the dividend reinvestments? Is that just so any of the profit on those does not go back in the funds (compiling more CGs) and instead would go into a cash pool to be allocated however I see fit?

Lastly, which funds do you keep in taxable vs. tax-advantaged if you mind sharing?
Topic Author
rshocka
Posts: 54
Joined: Thu Oct 24, 2019 12:54 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

desiderium wrote: Mon Jan 25, 2021 11:00 am At the risk of introducing a distracting issue, here is one suggestion:

Think about charitable giving for the next 5+ years. Donate this amount to a donor advised fund, by transferring highly appreciated assets from high-fee funds. The tax deduction may offset capital gains realized from selling some of the other funds.
Thanks Desiderium. I am not as educated on the DAFs, but I've seen several people bring them up in conversations and this looks like it could be a good idea around that considering we do a fair amount of charitable giving each year. Unfortunately, this past year was the first year I donated stock/funds which was a nice way to unload about $45k of the OIGCX funds that I had been eager to aggressively lower my position on. Wish I would have known about that the last 5 years, but can't change that now and maybe the DAF is the way to fast forward into the future on it.
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retired@50
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Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by retired@50 »

rshocka wrote: Mon Jan 25, 2021 4:47 pm Lastly, which funds do you keep in taxable vs. tax-advantaged if you mind sharing?
For some reading on which investments should be in taxable vs. tax-advantaged, see link below.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Very generally, put bond index funds in tax-deferred accounts and stock index funds can go everywhere else.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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BL
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Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by BL »

Reinvesting dividends is simply a purchase. If you plan to get rid of them, why buy more? Also, buying means starting a new clock, which has to get to 1 year to make any capital gains on that sale Long Term (with a lower tax than Short Term which would be taxed at ordinary tax rates.)

I believe Vanguard doesn't charge for selling load American Funds, as an example. I would have a list and see if you can read them off or e-mail them to be checked. Others would have a cost for selling which may be higher at the new or the old location. I believe it is good to know before you act.

Be sure to print out or save a copy of your current funds and cost basis. Cost basis includes both original cost and any reinvestments in each fund. If you want a partial sale, consider Specific ID instead of Average Cost when you sell. If you sell all of a fund, it doesn't matter because you get the same number. Access to web sites tend to get locked when you transfer your funds away from them.
Topic Author
rshocka
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Joined: Thu Oct 24, 2019 12:54 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

retired@50 wrote: Mon Jan 25, 2021 5:07 pm
rshocka wrote: Mon Jan 25, 2021 4:47 pm Lastly, which funds do you keep in taxable vs. tax-advantaged if you mind sharing?
For some reading on which investments should be in taxable vs. tax-advantaged, see link below.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Very generally, put bond index funds in tax-deferred accounts and stock index funds can go everywhere else.

Regards,
thanks Retired@50. I will read through this further and your overall summary is in line with what I was thinking on bonds vs. stock indexes.
Topic Author
rshocka
Posts: 54
Joined: Thu Oct 24, 2019 12:54 pm

Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by rshocka »

BL wrote: Mon Jan 25, 2021 9:14 pm Reinvesting dividends is simply a purchase. If you plan to get rid of them, why buy more? Also, buying means starting a new clock, which has to get to 1 year to make any capital gains on that sale Long Term (with a lower tax than Short Term which would be taxed at ordinary tax rates.)

*makes sense.

I believe Vanguard doesn't charge for selling load American Funds, as an example. I would have a list and see if you can read them off or e-mail them to be checked. Others would have a cost for selling which may be higher at the new or the old location. I believe it is good to know before you act.

*good feedback.

Be sure to print out or save a copy of your current funds and cost basis. Cost basis includes both original cost and any reinvestments in each fund. If you want a partial sale, consider Specific ID instead of Average Cost when you sell. If you sell all of a fund, it doesn't matter because you get the same number. Access to web sites tend to get locked when you transfer your funds away from them.
*I recall hearing this as well.
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goingup
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Re: Portfolio Review - how to exit Advisor and be as tax efficient as possible

Post by goingup »

rshocka wrote: Mon Jan 25, 2021 4:47 pm
goingup wrote: Mon Jan 25, 2021 11:26 am Just a few suggestions:
If your funds are still held at Ameriprise, transfer in-kind to a new broker. I'd suggest Schwab. I'm a Vanguard fan, but Schwab is more nimble I think. You start by contacting Schwab and they will work with you and Ameriprise to "pull" the funds over. Make sure the cost basis transfers completely before you sell your funds.

You'll have to decide whether to self-manage at Schwab or if you want an advisor. Make sure you understand your options and the costs/fees involved.

Cleaning up the taxable account takes more thought due to tax consequences. Consolidating tiny funds or those minimal gains should be easy. Funds with large gains can be swapped for index funds during market dips to help offset capital gains. Meantime, turn off dividend reinvestments in those funds you don't want to keep.

Changing funds in tax-advantaged accounts can be done at any time. Of course, choosing index funds makes good sense. I personally hold different funds in our taxable account than tax-deferred because our taxable account is much larger and that makes it easy to Tax Loss Harvest. (Not everyone thinks this is important.)
Thanks Goingup. Can you remind me why the importance of turning off the dividend reinvestments? Is that just so any of the profit on those does not go back in the funds (compiling more CGs) and instead would go into a cash pool to be allocated however I see fit?

Lastly, which funds do you keep in taxable vs. tax-advantaged if you mind sharing?
Yes, it's about capital gains. Don't reinvest divs into funds you ultimately don't want to own. Why buy more shares? In taxable accounts, it's better to direct the cash to a settlement account from which you'll purchase the funds you want to own. It's fine to reinvest divs in tax-advantaged accounts right now, even if you ultimately don't want to own the fund. I think it's best in those accounts to stay invested with dividend distributions.

For our taxable account we keep broad tax-efficient index funds. Total US Market, Total International, Muni bond funds. In tax deferred there are Total Bond funds, Balanced funds. As other posters have noted, it's about tax-efficiency, especially when you are high-income.
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