need advice on avoiding capital gains tax

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wineme2
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Joined: Mon Dec 06, 2021 9:40 pm

need advice on avoiding capital gains tax

Post by wineme2 »

[Split from Subject: need advice on avoiding capital gains tax into new topic by Moderator Misenplace]
I have a related question: I hold several Lifestrategy and Target Retirement funds in my taxable account, which makes it messy to rebalance. All of these funds hold underlying Vanguard ETFs, but charge slightly higher portfolio fees than the ETFs (~0.1% vs ~0.05%). I have significant longterm capital gains (~50% of the balances) whicj I do not want to trigger.

Is it possible to sell these balanced funds and buy the underlying ETFs and declare it as a wash sale, thus deferring paying the capital gains tax? Example: LifeStrategy Moderate Growth = 36%/24%/28%/12% VTI/VXUS/BND/BNDX. In other words, is the fund substantially equal to its underlying ETFs?
exodusNH
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Joined: Wed Jan 06, 2021 7:21 pm

Re: need advice on avoiding capital gains tax

Post by exodusNH »

wineme2 wrote: Mon Dec 06, 2021 9:53 pm [Split from Subject: need advice on avoiding capital gains tax into new topic by Moderator Misenplace]
I have a related question: I hold several Lifestrategy and Target Retirement funds in my taxable account, which makes it messy to rebalance. All of these funds hold underlying Vanguard ETFs, but charge slightly higher portfolio fees than the ETFs (~0.1% vs ~0.05%). I have significant longterm capital gains (~50% of the balances) whicj I do not want to trigger.

Is it possible to sell these balanced funds and buy the underlying ETFs and declare it as a wash sale, thus deferring paying the capital gains tax? Example: LifeStrategy Moderate Growth = 36%/24%/28%/12% VTI/VXUS/BND/BNDX. In other words, is the fund substantially equal to its underlying ETFs?
Wash sale would only apply to the number of shares transacted in the 30-day look back and forward windows.

Vanguard plans on dropping the ERs of the TDFs early next year.

There's no way, short of donating the funds or dying to get the step up basis, to avoid the gains. If you really want out, you'll probably have to spend a few years converting to the top of your tax bracket / NIIT threshold. Paying 15% capital gains isn't the worst thing.
venkman
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Joined: Tue Mar 14, 2017 10:33 pm

Re: need advice on avoiding capital gains tax

Post by venkman »

Wash sale rules only apply to losses, not gains.
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celia
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Location: SoCal

Re: need advice on avoiding capital gains tax

Post by celia »

If the expected gains are in a taxable account, you could donate shares to a Donor Advised Fund and get a charitable deduction (if you itemize).

Or you could break down the Target fund into it’s proportional underlying funds (on paper). Then learn to do the calcs needed for rebalancing. It is possible you can rebalance without selling anything by using future additions to the account (including dividends) to buy more of the fund(s) you are lacking. You would be paying taxes on the dividends as if they were LTCGs, while helping to re-balance.
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