TLH when tracking same indices in taxable, IRA, and 401Ks

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pnw_guy
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TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

My wife and I have a very straightforward portfolio. We're 70% US total stock market and 30% total international stock market. We also maintain roughly this same balance in our taxable account (shared), IRAs, and 401Ks. The only difference is that in our taxable we use EFTS, whereas our IRAs and admiral mutual fund shares and our 401Ks use institutional shares, all through Vanguard.

My question is what would be the simplest way to take advantage of tax lost harvesting in our taxable account. We've only had it a couple of years, so almost virtually all of our shares are underwater. We have about $18K to harvest, so the effort seems worth it.

The problem is creating a wash sale. I know there's some controversy about whether a 401K can trigger a wash sale, whereas the IRAs are a more cut-and-dry 'yes'. So my question is what should I do to harvest the losses in my taxable account. Should I just change the funds in the tax advantaged accounts to track slightly different indices so that the dividends (likely in June) won't trigger a wash sale? Something else?

I'm not sure what's the easiest path forward.
mega317
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by mega317 »

It's all actually pretty easy once you do it once. I would exchange the taxable shares with a loss for a similar but not substantially identical fund. One that you'd be comfortable holding long-term, because if the market goes up in the 30 days you're holding it you'd have a tax cost to switch back.

Without knowing more details about your portfolio it's harder to give specific recommendations.
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

All the details of the portfolio are in the post. We have 70/30 US and international equities. In the taxable, they are ETFs. In tax advantaged, they are mutual funds. And in all cases, they are with Vanguard.

The issue with your suggestion I think is that dividend reinvestment in our tax advantages accounts will create a wash sale for the tax loss harvesting we do in our taxable account.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

Deleted duplicate post.
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baconavocado
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by baconavocado »

I'm doing TLH this week and I simply turned off the auto reinvest dividends/cap gains in other accounts with similar funds. If you have an automatic investment, e.g., through payroll deduction, you would have to change that as well.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by tashnewbie »

What exactly are the ETFs and funds you have in each account?
shess
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by shess »

Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.

One option would be to turn off automatic dividend reinvestment in the IRA/401k accounts, and direct new investments to cash, and then just deal with manually reinvesting the resulting cash after you are clear of the wash-sale window. If you're really pedantic, you could manually invest those funds in something appropriately different, but I don't think you'll derail your retirement plans by letting a bit of cash sit idle for a few extra weeks before deploying it.

Another option would be to just have slightly different funds in your IRA/401k accounts than your taxable account. Like VEU rather than VXUS for international (or their mutual-fund share classes). On this front, I think people get WAY overboard on being precise. For instance, I use a Vanguard S&P500 index in my 401k and a Vanguard total-market index in taxable. I definitely could go calculate how much of the completion index to pair with the S&P500 index to get it exactly comparable to the total-market fund, but IMHO it most likely doesn't matter. By this I mean that I can pump the symbols into Portfolio Visualizer or similar, and I _will_ find that the results differ over a very long period, but the difference is minor enough that it feels error-bar sized - basically, either fund does the job I intended it to do. They are different funds, so one will "win" for whatever your definition of "win" is, but my job isn't to pick winners at this level.

Don't get me wrong, I really do prefer to have all of them lined up in tidy little arrangements. But in the end, that's just my mind liking order. I have theories on why to prefer VXUS over VEU or VTI over VOO, but if I'm honest with myself I know that I can't conclusively prove anything beyond a kind of "It stands to reason" type of argument. So I try not to let perfect become the enemy of good enough in cases like this where there's another factor like TLH to account for.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by mega317 »

shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
An interesting topic. With all the TLH talk recently I don't think I've seen this specific issue addressed. There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account. My reading of Pub 550 would include any type of account.
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
An interesting topic. With all the TLH talk recently I don't think I've seen this specific issue addressed. There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account. My reading of Pub 550 would include any type of account.
I think the other reason that people feel like they don't count is because they are not explicitly listed. I'm not saying that the interpretation is right or not. I'm merely saying that I think is the argument that some people are making.

They also point out that - to our knowledge - there has never been a verified case where the IRS has indicated that a 401K triggered a wash sale. Though maybe such a case has recently emerged.
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

shess wrote: Tue May 24, 2022 2:59 pm One option would be to turn off automatic dividend reinvestment in the IRA/401k accounts, and direct new investments to cash, and then just deal with manually reinvesting the resulting cash after you are clear of the wash-sale window. If you're really pedantic, you could manually invest those funds in something appropriately different, but I don't think you'll derail your retirement plans by letting a bit of cash sit idle for a few extra weeks before deploying it.
This seems like too much work to me for the 401Ks. The IRAs would be easy enough because they are through Vanguard.
shess wrote: Tue May 24, 2022 2:59 pm Another option would be to just have slightly different funds in your IRA/401k accounts than your taxable account. Like VEU rather than VXUS for international (or their mutual-fund share classes). On this front, I think people get WAY overboard on being precise. For instance, I use a Vanguard S&P500 index in my 401k and a Vanguard total-market index in taxable. I definitely could go calculate how much of the completion index to pair with the S&P500 index to get it exactly comparable to the total-market fund, but IMHO it most likely doesn't matter. By this I mean that I can pump the symbols into Portfolio Visualizer or similar, and I _will_ find that the results differ over a very long period, but the difference is minor enough that it feels error-bar sized - basically, either fund does the job I intended it to do. They are different funds, so one will "win" for whatever your definition of "win" is, but my job isn't to pick winners at this level.

Don't get me wrong, I really do prefer to have all of them lined up in tidy little arrangements. But in the end, that's just my mind liking order. I have theories on why to prefer VXUS over VEU or VTI over VOO, but if I'm honest with myself I know that I can't conclusively prove anything beyond a kind of "It stands to reason" type of argument. So I try not to let perfect become the enemy of good enough in cases like this where there's another factor like TLH to account for.
I recognize that having different funds in tax advantaged and taxable accounts can be beneficial. In the future, I'll keep that in mind. What I need help with is my present situation (i.e., things are nice and tidy because the same indices are tracked in all accounts).
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

tashnewbie wrote: Tue May 24, 2022 2:58 pm What exactly are the ETFs and funds you have in each account?
Taxable: VTI (70%) and VXUS (30%)
Tax-advantaged: VTSAX (70%) and VTIAX (30%), though in the 401K's it is the institutional version of these mutual founds.
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retiredjg
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by retiredjg »

This seems like a harvest worth doing....$18k in losses.

Can you exchange everything that might cause a wash sale in the IRAs and 401ks to target funds, then sell your funds in taxable at a loss? If I understand correctly, that would mean no wash sales. Then (after 30 days) start rebuilding the portfolio in such a way that this is not a problem in the future.

Or don't rebuild differently. I suppose you could go right back to what you had and not do any more TLHing for several years if you wanted to. The $18k in losses will last awhile.

If it were my portfolio, I'd set it up so that I could always do a TLH at a moment's notice, without even looking at any other accounts to see if a wash sale could happen (because I'd just rather not have to deal with it). But that's just me.
tashnewbie
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by tashnewbie »

pnw_guy wrote: Tue May 24, 2022 4:30 pm
tashnewbie wrote: Tue May 24, 2022 2:58 pm What exactly are the ETFs and funds you have in each account?
Taxable: VTI (70%) and VXUS (30%)
Tax-advantaged: VTSAX (70%) and VTIAX (30%), though in the 401K's it is the institutional version of these mutual founds.
What you could do is turn off automatic reinvestment of dividends in the IRAs. My understanding is that most 401ks don't allow you to change that, but you should do so if you can.

Do you know when the dividends will be paid next month in the 401ks? I think it's June 23 for VITSX, which means it's too late for you to TLH and be outside the TLH window (i.e., more than 30 days before payment of the dividends). You could pause the 401k contributions and wait until 30 days after the dividend payments to do TLH. Edit: But, as retiredjg mentioned above, you could sell the 401k holdings, and because you wouldn't own the funds on the dividend record date, you wouldn't get the June dividend, so you'd be free to TLH after you sell the 401k holdings.

Moving forward, it'd be better to use different funds in taxable than the other accounts. If you decide to TLH the ETFs in taxable, you could make new contributions to the TLH partner you select.
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

tashnewbie wrote: Tue May 24, 2022 4:42 pm
pnw_guy wrote: Tue May 24, 2022 4:30 pm
tashnewbie wrote: Tue May 24, 2022 2:58 pm What exactly are the ETFs and funds you have in each account?
Taxable: VTI (70%) and VXUS (30%)
Tax-advantaged: VTSAX (70%) and VTIAX (30%), though in the 401K's it is the institutional version of these mutual founds.
What you could do is turn off automatic reinvestment of dividends in the IRAs. My understanding is that most 401ks don't allow you to change that, but you should do so if you can.
This is what I was considering. Pausing dividends in the IRA and taking a gamble that ignoring the dividends in our 401Ks won't bite me in the butt.
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retiredjg
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by retiredjg »

Do you actually see dividends in your 401ks? Some don't do it that way.
BigJohn
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by BigJohn »

I’m retired so dividend reinvestment in taxable turned off but it’s on in my IRAs. To avoid wash sale worries as much as possible, I keep different TLH partners in taxable vs my IRAs. Using US as the example, right now I have TSM in taxable and S&P 500 in my IRAs. If the opportunity to TLH comes up I’ll be selling TSM to buy S&P 500 but reinvestments in IRAs won’t matter. Assuming that I now have most of my taxable account in S&P 500, once I’m outside the TLH window, I’ll swap my IRAs to TSM regardless of the price movement with no worries about capital gains. 30 days after that, I’m ready to TLH S&P 500 should the opportunity present itself. Not perfect if/when you get some of both in taxable but I know which one will be a TLH option first so it works for me.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by rkhusky »

mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account.
This sort of reasoning is complete conjecture because neither the courts nor IRS have ever exempted an account type from the wash sale law. So no one has any idea what criteria would be necessary for an account type to get an exemption.

The wash sale law says “the taxpayer has acquired” without referring to any type of account. If the taxpayer has acquired substantially identical replacement shares within the wash sale window, he has a wash sale.

Also note that you sign your tax return under threat of perjury if you know anything to be untrue.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by mega317 »

pnw_guy wrote: Tue May 24, 2022 4:48 pm ....taking a gamble that ignoring the dividends in our 401Ks won't bite me in the butt.
It's not much of a gamble. It's more like your interpretation of rules that have not been clearly defined by the IRS and are not being enforced anyway.

I'm not advocating for this but one could also operate with the belief that that IRS hasn't specified Earth days maybe it's Saturn days and could repurchase shares after 12 Earth days. Nothing would happen to that person either. It's honor system. Doesn't make it right or legal. My only point is you won't get bitten in the butt.
Last edited by mega317 on Tue May 24, 2022 5:35 pm, edited 1 time in total.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by mega317 »

rkhusky wrote: Tue May 24, 2022 5:23 pm
mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account.
This sort of reasoning is complete conjecture because neither the courts nor IRS have ever exempted an account type from the wash sale law. So no one has any idea what criteria would be necessary for an account type to get an exemption.

The wash sale law says “the taxpayer has acquired” without referring to any type of account. If the taxpayer has acquired substantially identical replacement shares within the wash sale window, he has a wash sale.

Also note that you sign your tax return under threat of perjury if you know anything to be untrue.
This is all true. But then some people note that Pub 550 goes on to specify taxable accounts and IRAs. Why would the IRS do that when point 1. says "buy substantially identical stock or securities"? No one knows and they haven't told us. Presumably there was a reason for the further clarification. Maybe the author of that section just isn't a good writer. My reading is that whenever the reason is, it's NOT to exclude 401ks.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by rkhusky »

mega317 wrote: Tue May 24, 2022 5:34 pm But then some people note that Pub 550 goes on to specify taxable accounts and IRAs. Why would the IRS do that when point 1. says "buy substantially identical stock or securities"? No one knows and they haven't told us. Presumably there was a reason for the further clarification. My reading is that whenever the reason is, it's NOT to exclude 401ks.
Yes. And I don’t know why Pub 550 doesn’t mention trusts, when one of the landmark wash sale cases involved a taxpayer trying to evade the wash sale law through a trust.

I suppose the IRS is made up of fallible humans who make mistakes and don’t always write consistently, just like the rest of us. Plus the publications are held to a lower standard and are no substitute for the law.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

rkhusky wrote: Tue May 24, 2022 5:23 pm
mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account.
This sort of reasoning is complete conjecture because neither the courts nor IRS have ever exempted an account type from the wash sale law. So no one has any idea what criteria would be necessary for an account type to get an exemption.

The wash sale law says “the taxpayer has acquired” without referring to any type of account. If the taxpayer has acquired substantially identical replacement shares within the wash sale window, he has a wash sale.

Also note that you sign your tax return under threat of perjury if you know anything to be untrue.
That’s just the thing though - I don’t know what the rules are exactly. No one does.

No perjury for me 😂
mega317
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by mega317 »

I guess a question that covers everything in the world not just taxes is, if you don't know every detail of a law and case history around that law, and follow the government's (flawed) published guideline as best you can, how far do the consequences extend when you inadvertently break the law? I know ignorance does not absolve you but it's hard to imagine a court that would do anything but collect back taxes when you followed the letter of IRS publications in a way that clashed with old case law. IANAL but that ain't perjury. If you drop a digit on 1040 Line 1 that's a different story.

Edit: ok here's a question about Pub 550 page 56. Is there a difference between "buy" (point 1), and "acquire" (points 2-4)?
Affable at 50
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by Affable at 50 »

pnw_guy wrote: Tue May 24, 2022 5:45 pm
rkhusky wrote: Tue May 24, 2022 5:23 pm
mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account.
This sort of reasoning is complete conjecture because neither the courts nor IRS have ever exempted an account type from the wash sale law. So no one has any idea what criteria would be necessary for an account type to get an exemption.

The wash sale law says “the taxpayer has acquired” without referring to any type of account. If the taxpayer has acquired substantially identical replacement shares within the wash sale window, he has a wash sale.

Also note that you sign your tax return under threat of perjury if you know anything to be untrue.
That’s just the thing though - I don’t know what the rules are exactly. No one does.

No perjury for me 😂
You constructed your portfolio to be simple for you and your wife when there were clear alternatives. Tax loss harvesting was not a priority. Now you’re an asking a bunch of strangers on the Internet if it ok to play dumb. It’s a stupid risk to take. If your losses are disallowed they are lost forever.

Fix your IRA by choosing funds that are not substantially similar from the funds you hold in your taxable account. Wait for the day that the conditions are safe to perform the tax loss harvest and then proceed.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by rkhusky »

mega317 wrote: Tue May 24, 2022 5:51 pm Edit: ok here's a question about Pub 550 page 56. Is there a difference between "buy" (point 1), and "acquire" (points 2-4)?
The wash sale law uses “acquire”, which is defined as “purchase” or “exchange”.

RR 2008-05 used “purchase” and “acquire”, which was defined as “purchase” or “exchange”.

The IRS pub author was probably trying to use simpler language.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by island »

pnw_guy wrote: Tue May 24, 2022 4:30 pm
tashnewbie wrote: Tue May 24, 2022 2:58 pm What exactly are the ETFs and funds you have in each account?
Taxable: VTI (70%) and VXUS (30%)
Tax-advantaged: VTSAX (70%) and VTIAX (30%), though in the 401K's it is the institutional version of these mutual founds.
Please consider editing your original post to include the funds you own there. Might get more responses specific to your situation and many people don't read the whole thread.

Good Q though and I'll be following this thread since in same situation.

Spouse and have the same fund Vanguard (VTSAX) fund in joint taxable, both our Roths, and a Vanguard version of it without a symbol in my 401K. Not sure what to change since that is our favored fund. Trying to think thru the options.
Turning off reinvestment does seem like a hassle and seems would only be few windows to reinvest in same fund if the TLHing is ongoing. 2nd choice would be VFIAX, so maybe I change my Roth to that, but then wouldn't I need a 3rd THL partner if repeatedly TLHing back and forth between those? Not interested in adding the complexity that would come from moving beyond Vanguard for Fidelity, Schawb funds, but wouldn't those total market index funds track the same indices anyway?
By the time I figure this out, the TLH window will prob pass. :oops:
So much easier to TLH from funds one no longer want to hold!
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by placeholder »

mega317 wrote: Tue May 24, 2022 3:05 pm An interesting topic. With all the TLH talk recently I don't think I've seen this specific issue addressed. There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account. My reading of Pub 550 would include any type of account.
The reason I don't think so is that they are trusts and not accounts held by the taxpayer which is very clear if you read the reason in the revenue ruling so the wording that's in 550 is not sufficient or there would have been no reason for the revenue ruling and if there was one it wouldn't be based on old court cases involving trusts and level of control if the existing regulations just applied across the board.
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pnw_guy
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

Affable at 50 wrote: Tue May 24, 2022 6:09 pm
pnw_guy wrote: Tue May 24, 2022 5:45 pm
rkhusky wrote: Tue May 24, 2022 5:23 pm
mega317 wrote: Tue May 24, 2022 3:05 pm
shess wrote: Tue May 24, 2022 2:59 pm Personally, I'd play it safe and not push my luck on whether wash sales apply across these boundaries.
There are some who feel 401ks do not "count". I think one rationalization was that you have limited options in a 401k whereas you can buy anything you want in an IRA or taxable account.
This sort of reasoning is complete conjecture because neither the courts nor IRS have ever exempted an account type from the wash sale law. So no one has any idea what criteria would be necessary for an account type to get an exemption.

The wash sale law says “the taxpayer has acquired” without referring to any type of account. If the taxpayer has acquired substantially identical replacement shares within the wash sale window, he has a wash sale.

Also note that you sign your tax return under threat of perjury if you know anything to be untrue.
That’s just the thing though - I don’t know what the rules are exactly. No one does.

No perjury for me 😂
You constructed your portfolio to be simple for you and your wife when there were clear alternatives. Tax loss harvesting was not a priority. Now you’re an asking a bunch of strangers on the Internet if it ok to play dumb. It’s a stupid risk to take. If your losses are disallowed they are lost forever.

Fix your IRA by choosing funds that are not substantially similar from the funds you hold in your taxable account. Wait for the day that the conditions are safe to perform the tax loss harvest and then proceed.
I can easily change the IRA funds to avoid a wash sale. I can’t change the 401Ks because of limited options.

Just want to clarify that you weren’t completely right. Yes, we value simplicity all else being equal, but sometimes you got to work with the funds that your employer offers.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by Global100 »

I personally would not hold VTI in a taxable account and VTSAX in an IRA account or vice versa. Since both of those are different share classes of the same fund, an accidental purchase or dividend reinvestment could create a wash sale and permanent disallowance. Accounting a wash sale between shares of VTI and VTSAX could take more effort than a wash sale involving only VTI or only VTSAX. If this inadvertently happens in the future, then see the second scenario of this thread: viewtopic.php?p=4303513#p4303513

Otherwise: during a wash sale period, check that the dividend reinvestment setting is off and take screen shots to show the brokerage if the system messes up by causing a wash.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by placeholder »

Global100 wrote: Tue May 24, 2022 7:29 pm I personally would not hold VTI in a taxable account and VTSAX in an IRA account or vice versa.
I think that's almost a certainty as vanguard can do tax free exchanges between share classes so they have to be beyond substantially identical to essentially identical.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by rkhusky »

pnw_guy wrote: Tue May 24, 2022 5:45 pm That’s just the thing though - I don’t know what the rules are exactly. No one does.
The main portion of the wash sale law is just one sentence. It is quite easy to understand.
In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under section 165 unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business.
About the only difficult matter is what "substantially identical" means. In the case of identical investments, the meaning is quite clear.
pnw_guy wrote: Tue May 24, 2022 7:11 pm I can’t change the 401Ks because of limited options.
Probably more accurate to say you don't "want" to change the investments in the 401k. And you don't have to if you are careful when TLH'ing.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by rkhusky »

mega317 wrote: Tue May 24, 2022 5:51 pm I guess a question that covers everything in the world not just taxes is, if you don't know every detail of a law and case history around that law, and follow the government's (flawed) published guideline as best you can, how far do the consequences extend when you inadvertently break the law? I know ignorance does not absolve you but it's hard to imagine a court that would do anything but collect back taxes when you followed the letter of IRS publications in a way that clashed with old case law. IANAL but that ain't perjury. If you drop a digit on 1040 Line 1 that's a different story.
In the unlikely event the taxpayer is audited and the auditor catches the wash sale, the taxpayer is very likely to just owe past taxes, interest and/or penalties. Perhaps if the taxpayer is someone important that the IRS wants to make an example of and has proof of some significant attempt at tax evasion, they might go further.

The guidance from the publication is accurate, just incomplete. People are using the absence of something to infer the presence of something else. The Supreme Court ruled that in order to take a deduction the taxpayer should be able to point to the law that specifically allows the deduction. Incomplete language in an IRS publication doesn't fit that criteria.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by Global100 »

rkhusky wrote: Tue May 24, 2022 8:15 pm In the unlikely event the taxpayer is audited and the auditor catches the wash sale, the taxpayer is very likely to just owe past taxes, interest and/or penalties.
Perhaps the audit would direct the taxpayer to find the washes (for at least a couple years), adjust them on Form 8949, and then amend tax returns. Hours of work, or pay a CPA to handle it.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by shess »

pnw_guy wrote: Tue May 24, 2022 7:11 pm I can easily change the IRA funds to avoid a wash sale. I can’t change the 401Ks because of limited options.
You can easily avoid the entire problem by not selling for a loss. This line of reasoning doesn't seem very strong, to me. Fortunately, I'm not an auditor.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

Post by pnw_guy »

Can an administrator close this thread?

It’s devolved into what might count (or not) as a wash sale. That wasn’t really the point since this has been beaten to death elsewhere.
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Re: TLH when tracking same indices in taxable, IRA, and 401Ks

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