I have a taxable account and a traditional IRA at Vanguard. Both have
index funds in Vanguard ETFs. For ease of discussion, let's say my
RMD is $20,000 but I need only $4,000 of that for living expenses.
I'm planning to sell $20,000 worth in the traditional IRA, transfer
$4,000 of proceeds to my bank and the other $16,000 to the taxable
account, and then buy shares of the same ETFs I sold in the IRA. In
this way I'll avoid locking in most of this year's losses in fund
values. Of course the whole $20,000 will be declared as ordinary
income on my 2022 return.
Question 1: Are there any tax pitfalls to this strategy? (I don't
think this would be a wash sale, since the capital loss will be in
the IRA and therefore I couldn't get any tax benefit from it anyway.
But please correct me if I'm wrong, or if I could be creating some
other tax problem.)
Question 2: My basis in the new shares purchased in the taxable
account will be that day's price, not original cost when I bought
them in the IRA, right?
Question 3: I'd prefer to transfer the $16,000 to my Roth, but I
don't expect any earned income this year. With no earned income I
can't put that traditional IRA money into the Roth, right?
Thanks!
--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...
--
On Monday, September 12, 2022 at 12:28:00 PM UTC-4, Stan Brown wrote:
I have a taxable account and a traditional IRA at Vanguard. Both have
index funds in Vanguard ETFs. For ease of discussion, let's say my
RMD is $20,000 but I need only $4,000 of that for living expenses.
I'm planning to sell $20,000 worth in the traditional IRA, transfer
$4,000 of proceeds to my bank and the other $16,000 to the taxable
account, and then buy shares of the same ETFs I sold in the IRA. In
this way I'll avoid locking in most of this year's losses in fund
values. Of course the whole $20,000 will be declared as ordinary
income on my 2022 return.
An easier method would be to transfer the $20,000 of ETFs directly to the taxable account (distribution in kind) and then sell $4,000 for your living expenses.
On Mon, 12 Sep 2022 15:51:25 EDT, ira smilovitz wrote:
On Monday, September 12, 2022 at 12:28:00 PM UTC-4, Stan Brown wrote:
I have a taxable account and a traditional IRA at Vanguard. Both have index funds in Vanguard ETFs. For ease of discussion, let's say my
RMD is $20,000 but I need only $4,000 of that for living expenses.
I'm planning to sell $20,000 worth in the traditional IRA, transfer $4,000 of proceeds to my bank and the other $16,000 to the taxable account, and then buy shares of the same ETFs I sold in the IRA. In
this way I'll avoid locking in most of this year's losses in fund
values. Of course the whole $20,000 will be declared as ordinary
income on my 2022 return.
An easier method would be to transfer the $20,000 of ETFs directly to the taxable account (distribution in kind) and then sell $4,000 for your living expenses.Thanks for replying, Ian. I've been trying to find out whether
Vanguard offers that option -- their telephone support has
deteriorated severely in the past months -- but the bottom line is
that they do not. They support contributions in kind, but not
distributions in kind.
Just to confirm: if I sell shares in my traditional IRA, then move
the cash to my taxable account and use it to buy shares in the same
funds, I don't have any issue with the wash-sale rule, right?
And I'm not creating some other tax problem by doing this, right?
--
Stan Brown, Tehachapi, California, USA https://BrownMath.com/
Shikata ga nai...
--
Either they're giving you wrong information or you are not
understanding them. You cannot, by law, make a contribution in kind
to a retirement account. You can make a broker-to-broker rollover
to a retirement account. I have not heard of any broker that will
not do a distribution in-kind from a retirement account to a
taxable account except for certain classes of investments that are
restricted to retirement accounts (perhaps a special class of mutual
fund shares).
If you sell within the IRA, distribute cash, and then buy in the
taxable account, you will not have a wash sale because you didn't
receive any tax benefit from the loss.
Note that if you do this in the opposite direction, sell for a loss
in a taxable account and then buy in a retirement account, the loss
is lost forever. You cannot claim the loss and there is no effect
to adjusting the cost basis within the retirement account.
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