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Any advantage to lock in gains for taxes?

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I have my first taxable investment account for a couple years now. It is shares of an index fund with Vanguard - VFIAX. I have never sold anything and my understanding is that they tax on average gains but am not completely sure how that is different. If you don't buy and index fund like this can you choose to sell your recent purchase vs older ones?

Are there any advantages to lock in gains? What I am really interested is there any advantage to opening a new account every couple years to reset this average gain? They say my unrealized gains are roughly 25% of the value. I like being able to auto deposit a little in here each week and would like to increase my investment a little more. 

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If you are single and after all deductions your income is < $37,950, it would be a good idea to sell to bring your income up to $37,950. There is NO federal tax on long term capital gains in the 10% and 15% tax brackets. You would just have to pay state income taxes. You can buy back the funds immediately with no issues if you sold all funds with a gain.

You can pick and choose what individual shares that you want to sell. It would be a good idea to do this at the time of selling.

If you are getting an ACA subsidy, it is not worth it to lock in your gains as your subsidy will go down.

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JepJepJep said:   If you are single and after all deductions your income is < $37,950, it would be a good idea to sell to bring your income up to $37,950. There is NO federal tax on long term capital gains on the 10% and 15% tax brackets. You would just have to pay state income taxes. You can buy back the funds immediately with no issues if you sold all funds with a gain.

You can pick and choose what individual shares that you want to sell. It would be a good idea to do this at the time of selling.

If you are getting an ACA subsidy, it is not worth it to lock in your gains as your subsidy will go down.

Regarding the ACA subsidies, you need to use a subsidy calculator to see how the additional income affects the subsidy. I assume that just like tax tables (where you can earn slightly more income without paying higher taxes), you can possibly earn slightly more money without having a lower subsidy.

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Thanks for the reply. I will be well over the 37,950 mark and I don't have an ACA subsidy. So no advantage to sell?

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I thought with mutual fund in taxable account you will have to pay capital gain annually even if you do not sell. That's what I assume box 2a on the 1099-DIV is for. So there is no unrealized gain beyond the current year YTD.

The situation you described seems to only be applicable if you own the ETF instead of mutual fund (in this case VOO instead of VFIAX).

Is my understanding wrong?

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I would imagine too, that in the event the fund later goes down you then have a bigger "loss" you can deduct on your taxes if you step up the gain by locking it in and rebuying. In any case, if it doesn't affect things like the above- ACA/assistance/student loan payment etc. you may as well pay the lower rate up front than you would if your income increased etc and your capital gains rate went up. I guess if you're planning on moving to no income tax state, that should be considered as well.

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t0s9476 said:   I thought with mutual fund in taxable account you will have to pay capital gain annually even if you do not sell. That's what I assume box 2a on the 1099-DIV is for. So there is no unrealized gain beyond the current year YTD.

Dividends and capital gain distributions are activities within the fund, even if you don't sell. Not the same as the capital gain or loss which occurs when you sell.

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danimous said:   I have my first taxable investment account for a couple years now. It is shares of an index fund with Vanguard - VFIAX. I have never sold anything and my understanding is that they tax on average gains but am not completely sure how that is different. If you don't buy and index fund like this can you choose to sell your recent purchase vs older ones?

Are there any advantages to lock in gains? What I am really interested is there any advantage to opening a new account every couple years to reset this average gain? They say my unrealized gains are roughly 25% of the value. I like being able to auto deposit a little in here each week and would like to increase my investment a little more. 

  I'm not quite sure I understand your question, and I don't know where you are buying VFIAX, Vanguard directly?

I suppose you could sell your holdings, pay capital gains tax, and immediately repurchase, which would reset the cost basis for future capital gains. I wouldn't do that, myself. You can and should continue to add to your investments in any event.

My holdings are at Fidelity and they make it very easy to sell specific shares. That means that when you sell you can select which shares, w/ different purchase prices, you want to sell, making it much easier to manage the tax effects. Check with Vanguard (or whoever your broker is) to see if they have this capability.

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Yes, I am buying them directly from Vanguard. I just looked into selling them and average cost was their default but you can sell by first in, or specific ones. I just checked my tax forms and they gave me a 1099-DIV which only shows dividends.

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3c3 said:   Dividends and capital gain distributions are activities within the fund, even if you don't sell. Not the same as the capital gain or loss which occurs when you sell.
 

 
Thanks. I just looked at my 1099B and saw the STG & LTG from the sale reported there.

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danimous said:   Yes, I am buying them directly from Vanguard. I just looked into selling them and average cost was their default but you can sell by first in, or specific ones. I just checked my tax forms and they gave me a 1099-DIV which only shows dividends.
  I think there is some misunderstanding here, confusing two very different things.

If you own mutual funds, you will receive distributions during the year. This can be dividends and/or LT/ST capital gains, depending on the fund. These distributions are reported to you and the IRS on the 1099.

If you sell shares, you will have a LT and/or ST capital gain or loss, depending on which shares you sell. This capital gain/loss only occurs if you actually sell some shares. This too will be reported, on a separate part of the 1099. But if you don't sell any, you won't have this capital gain or loss -- it's only 'realized' when you sell the shares.

E.g., if you buy a share for $50 on Jan 1 and hold it, you will receive distribution(s) during the year, and you have pay tax on those. If the share is worth $100 on Dec 31, you have a 'gain' of $50 but it's only on paper, not realized, because you didn't sell it. You do not have to pay tax on an increase in the value of the share until you actually sell it.

I'm still not completely clear on your question/concern, but I hope this helps. All of the above should not in any way deter you from continuing to make investments in your selected funds.

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Since you are not needing the money, consider doing some of this activity in a ROTH IRA which voids the tax issue forever if you do not take the money until age 65. There are some favorable exceptions which you should read up on.

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The primary advantage is helping to fund the federal government (and state government if you pay state income tax).

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I am meeting the 5500 limit on the roth.... Can I do 5500 X 2 (for me and the wife) or is it just 5500 max?

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5500 goes to your account in 2016, 5500 goes to wife's account in 2016, then 5500 goes to your account for 2017 and 5500 goes to wife's account in 2017.

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danimous said:   I am meeting the 5500 limit on the roth.... Can I do 5500 X 2 (for me and the wife) or is it just 5500 max?
  The I in IRA stands for individual. The accounts are individually owned and the limits are per individual. Nominally, each person can contribute the smaller of 5.5k (if under 50) and their earned income. For a married couple filing MFJ, as long as one person has earned income, both can contribute (11k income to contribute the max).

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