Tax planning software for intestment trades?

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martincmartin
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Tax planning software for intestment trades?

Post by martincmartin »

My asset allocation is all wrong, so I need to make some trades. But a little over half is in taxable accounts, so I need to be mindful of tax consequences.

When I retire, my tax bracket changes drastically.

I want to do Roth conversion after retirement, and also an annual rebalancing. I'll want to fill up, say, the 12% tax bracket with my Roth conversion, but the amount depends on things like income/capital gains generated by annual rebalancing, as well as dividends, both qualified and non-qualified.

Oh and in retirement I need to sell some investments for living expenses, kid's college, weddings, etc.

I could try to figure all this out on my own with yet another crazy spreadsheet or Python program, but ... is there software out there that will help me understand what to sell and buy, from which funds, in which accounts, to achieve my goals while minimizing taxes?
SnowBog
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Re: Tax planning software for intestment trades?

Post by SnowBog »

If you haven't yet, take a look at RPM https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

Otherwise I think you are mixing a few different things together, that might be easier on their own.

Maintaining an AA.

Ideally, if possible just do rebalancing in your tax-deferred account, where you have no tax implications. You can check out the tools section of https://www.bogleheads.org/wiki/Asset_a ... e_accounts.

Personally, I use my own spreadsheet (Excel with financial data types so I just update how many shares I own, and it looks up the price of the fund and calculates the current value).

For AA, I have a summary table, which adds up the amount of "bonds", "stocks", etc. and shows them as a % of the total. I have a "target" AA, and then a calculation to show how much (if any) I need to rebalance (if AA is off by more than 5% or 20% of that particular target value).

My spreadsheet does have two "future change" values to help me plan where to invest and/or how much to rebalance.

One is any remaining planned "contributions". My spouse has yet to max out their retirement savings this year, so it shows the remaining amount they'll contribute as a "contribution" for the fund(s) they'll buy.

The other is for "adjustments" which are normally manual. This let's me "mock up" my planned actions for the year, and see the impact on my AA (I calculate my projected year end AA based on those "future" changes as well).

So I might end up being out of balance temporarily, but so long as I'll back in balance with planned investments I rarely change anything.

Tax planning

I have a separate sheet I maintain for estimated taxes. Predominantly, it's driven by W2 income.

But I do maintain a summary of unearned income details (aka interest, dividends, short-term gains, long-term gains).

For both I project year end amounts, and then do my own basic tax estimates for federal and state based on those. (I also use this to help with estimated taxes and ensuring we meet "safe harbor".)

This let's me quickly evaluate the impact of recognizing a $2k loss, $5k of STCG or waiting until LTCG, etc.

As my rebalancing is entirely done in tax-deferred, I don't have tax implications... But if I did, that's how I'd address it...
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martincmartin
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Re: Tax planning software for intestment trades?

Post by martincmartin »

SnowBog wrote: Fri Sep 24, 2021 8:58 pm If you haven't yet, take a look at RPM https://www.bogleheads.org/wiki/Retiree_Portfolio_Model
I hadn't seen that, thanks!
Excel with financial data types so I just update how many shares I own, and it looks up the price of the fund and calculates the current value.
I didn't know about that either, thanks for the tip. Google spreadsheets has something similar.

My current problem is this: I have REITs and bonds in my taxable account -- oops! -- and I'm overweight equities. So I need to sell the REITs and bonds, and buy them in my tax advantaged accounts.

But if I sell them all at once, I get a big capital gains hit. So should I wait until next year, when my tax bracket is lower? Should I not explicitly rebalance them at all, instead just draw them down first for living expenses? And what's the right way to think about this, compare expected dividends/interest of leaving them vs capital gains hit of moving them? If I want to do Roth conversion at the same time, say to fill out the 12% income tax bracket, do the capital gains from selling REITs/bonds mean I should reduce my Roth conversion? In that case, how do I decide which to do first, move REITs/bonds to tax advantaged vs Roth conversion?
livesoft
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Re: Tax planning software for intestment trades?

Post by livesoft »

martincmartin wrote: Fri Sep 24, 2021 9:40 amI could try to figure all this out on my own with yet another crazy spreadsheet or Python program, but ... is there software out there that will help me understand what to sell and buy, from which funds, in which accounts, to achieve my goals while minimizing taxes?
No. There is no such software that at the click of a button in a user interface a magic best answer will appear. I just use my brain and some general principles and do fine.
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SnowBog
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Re: Tax planning software for intestment trades?

Post by SnowBog »

martincmartin wrote: Sat Sep 25, 2021 7:48 am My current problem is this: I have REITs and bonds in my taxable account -- oops! -- and I'm overweight equities. So I need to sell the REITs and bonds, and buy them in my tax advantaged accounts.

But if I sell them all at once, I get a big capital gains hit. So should I wait until next year, when my tax bracket is lower? Should I not explicitly rebalance them at all, instead just draw them down first for living expenses? And what's the right way to think about this, compare expected dividends/interest of leaving them vs capital gains hit of moving them? If I want to do Roth conversion at the same time, say to fill out the 12% income tax bracket, do the capital gains from selling REITs/bonds mean I should reduce my Roth conversion? In that case, how do I decide which to do first, move REITs/bonds to tax advantaged vs Roth conversion?
While what you have may not be optimal, it's not the end of the world. And I doubt it's bad enough to force you to incur the taxes to change it.

Bond yields are at historic lows, so any taxes on dividends are minimal. I don't personally hold REITs, but I thought recent law changes removed some of their tax drag as well.

So I'd think less about these particular funds, and more about the big picture.

Overall is your AA in balance?

If not, can you rebalance within your tax-deferred accounts?

And is there enough room there to maintain AA for the foreseeable future?

My guess is you don't need to change the funds you are worried about. And that let's you focus on Roth conversions.

Having said that, you may want to look at any "lots" that have losses, and start to Tax Loss Harvest any lots you can. You should also turn off dividend reinvestment on those funds, so you can avoid growing them anymore.
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retired@50
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Re: Tax planning software for intestment trades?

Post by retired@50 »

martincmartin wrote: Sat Sep 25, 2021 7:48 am My current problem is this: I have REITs and bonds in my taxable account -- oops! -- and I'm overweight equities. So I need to sell the REITs and bonds, and buy them in my tax advantaged accounts.

But if I sell them all at once, I get a big capital gains hit. So should I wait until next year, when my tax bracket is lower? Should I not explicitly rebalance them at all, instead just draw them down first for living expenses? And what's the right way to think about this, compare expected dividends/interest of leaving them vs capital gains hit of moving them? If I want to do Roth conversion at the same time, say to fill out the 12% income tax bracket, do the capital gains from selling REITs/bonds mean I should reduce my Roth conversion? In that case, how do I decide which to do first, move REITs/bonds to tax advantaged vs Roth conversion?
This wiki link on paying a tax cost to switch funds might help.
https://www.bogleheads.org/wiki/Paying_ ... itch_funds

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
sycamore
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Re: Tax planning software for intestment trades?

Post by sycamore »

Agree that there's no calculator to do all you want.

I think a big problem is you have too many questions to come up with a single "right" approach. And some of the questions require making guesses about future market returns and tax rates. Suggest you settle for a "good enough" approach, e.g., one that gives you some of the advantages of various approaches - it won't be optimal but it won't be the worst. Making incremental changes is a good way to get out of a rut and allow you to better understand how to make further improvements.

Regarding this part:
martincmartin wrote: Sat Sep 25, 2021 7:48 am If I want to do Roth conversion at the same time, say to fill out the 12% income tax bracket, do the capital gains from selling REITs/bonds mean I should reduce my Roth conversion? In that case, how do I decide which to do first, move REITs/bonds to tax advantaged vs Roth conversion?
This first one is easy: yes, capital gains from selling REITs/bonds does add to your taxable income and thus reduces the room you have to do Roth conversions.

Which to do first depends on your priorities. Do you want to clean up your taxable account and AA first and foremost? Or do you want to take advantage of Roth conversions while you can? Or minimize taxes? Or <some other thing>?

Not knowing your priorities, I suggest both selling some of your REITs/bonds and some Roth conversions this. Unless your current AA is so far out of whack or causing you to lose sleep, it's unlikely that making gradual portfolio changes will hurt.

I haven't checked your posting history, but you'll probably get the best advice if you'll provide info as described in Asking Portfolio Questions.
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Re: Tax planning software for intestment trades?

Post by grabiner »

retired@50 wrote: Sat Sep 25, 2021 11:30 am
martincmartin wrote: Sat Sep 25, 2021 7:48 am My current problem is this: I have REITs and bonds in my taxable account -- oops! -- and I'm overweight equities. So I need to sell the REITs and bonds, and buy them in my tax advantaged accounts.

But if I sell them all at once, I get a big capital gains hit. So should I wait until next year, when my tax bracket is lower? Should I not explicitly rebalance them at all, instead just draw them down first for living expenses? And what's the right way to think about this, compare expected dividends/interest of leaving them vs capital gains hit of moving them? If I want to do Roth conversion at the same time, say to fill out the 12% income tax bracket, do the capital gains from selling REITs/bonds mean I should reduce my Roth conversion? In that case, how do I decide which to do first, move REITs/bonds to tax advantaged vs Roth conversion?
This wiki link on paying a tax cost to switch funds might help.
https://www.bogleheads.org/wiki/Paying_ ... itch_funds
At current yields, bonds in a taxable account aren't too bad, so there is no reason to sell them for a gain unless you need to switch funds for other reasons. (For example, if you are in the 32% bracket, selling taxable bonds to buy munis will give you a tax benefit in the long run, although I don't think that applies to the OP.)

REITs probably should be sold. If you would have to sell enough next year to fill up the 0% capital gains rate, then you're paying 15% for anything else either this year or next.
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dratkinson
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Re: Tax planning software for intestment trades?

Post by dratkinson »

You may have to settle for a close answer, instead of an exact answer, because of the unknowns.

You could try excel1040.com as a tax tool. (Might be easier/faster to use than your current tax s/w.)
You'll need to make some simplifying assumption for planning purposes.
--Enter your last tax return data to create a known tax return baseline.
--Assume your investment distribution tomorrow, will resemble today's.
--Assume the future tax code, will resemble today's.

You'll need a spreadsheet to model each tax year. (Just wagging...)
--Beginning account/fund balance.
--Changes. Sales, purchases, conversions, RMDs....
--Growth. Assume equities grow at ~7%/yr, bonds ~1.5%. (Update as seems appropriate.)
--New money. Excess of salary/SS/....
--Ending account/fund balance.

Lather, rinse, repeat each Jan to account for last year's actual changes, account/fund balance, tax code changes (a tax code sunset is promised), ....

Project your financial picture from now until you are satisfied.


Might want to determine your equilibrium tax rate, so you know how many tax brackets you can advance to make your changes.
See: https://www.kitces.com/blog/tax-rate-eq ... nversions/
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