Personal Investments • Insight and Advice on My Portfolio, Insurance Needs and Estate Planning

1. Tax Loss Harvesting (TLH) Strategy
If I hold VTI and VOO in a taxable brokerage account, and the market goes down, some tax lots could be eligible for tax loss harvesting (TLH). For example, if I sell some tax lots of VTI and buy VV or sell some tax lots of VOO and buy VUG, I would end up with four positions: VTI, VOO, VV, and VUG.

- Would this complicate my portfolio management moving forward?
- Is it generally better to sell the entire position to keep things simple when doing TLH?
- Given recent market volatility, for example, VOO had certain recent tax lots with a loss of $3k. With my net worth, is it worth doing a tax lot swap or a full position swap with VUG?

- No... you're going back to two positions 31 days after then TLH event.
- No... only sell the lots that are at a loss, that you are specifically trying to harvest a capital gains loss from.
- You'd move only the lots at a loss into VUG, wait 31 days and move VUG back into VOO. You're only using VUG and VV temporarily (for at least 31 days, but not much longer). To avoid complications with selling VV or VUG at a loss, you probably want to limit your TLH to quarterly or once a year, not monthly.

2. 401(k) Allocation and Roth Conversions
Our 401(k) accounts are allocated as follows:

- He/Spouse: $350k (pre-tax + Roth of $45k) that has PRIMECAP investment option. The plan allows "in-plan Roth conversions." Should we wait until early retirement to do Roth conversions, or start now? 100% is invested in VIIIX (S&P500 index).
- She: $110k (pre-tax). The plan recently allowed Roth contributions, which we will start next month. This account does not include PRIMECAP (mainly John Hancock funds with high ER). I’m checking plan details (takes time to obtain those from HR), but it seems that in-plan Roth conversions are not allowed. The plan has a 0.42% admin fee on AUM per year (!!!). 100% is invested in JHVIT (S&P500 index) with 0.05% ER.
- With a MFJ gross income of ~$230k and AGI of ~$190k for MFJ, does it make sense to shift to Roth for both of us?

Everyone's situation is unique, so you should run the numbers yourself to see what's the strategy with the minimum total tax burden over your expected lifetime. The generic advice is to wait until early retirement to do Roth Conversions which has two advantages: a) you continue to get an immediate tax-break for contributions to Trad; b) when you do Trad->Roth conversions in early retirement (before SocSec) you might be in a lower tax bracket so the conversion has a lower tax burden than the added tax for making after-tax Roth 401k contributions (or an in-plan conversion).

High earners generally do better with Trad now and Trad->Roth conversion in early retirement (they should also have an easier time generating a Taxable account large enough to live off of until they decide to claim SocSec, so mostly LTCG tax instead of ordinary income tax until that claim-date, so Roth conversions cost less in taxes owed during that time window).

3. Taxable vs. Roth Allocation
Our current allocation has about 63% in a taxable account. Given our situation, does it make sense to shift more to Roth accounts?

Roth contributions at your income level are expensive. You should still put $14K/yr ($7K each) into his & her Roth IRAs via backdoor contributions. But the higher contribution limit for 401ks should be Trad for the tax break now. Taxable supports you until you complete your Roth conversions and up until you claim SocSec. Again, generic advice that may not hold up when you run your actual numbers (pensions that kick in at 55/retirement age with no option to delay can throw a wrench into targeting low income in early retirement), but hopefully you can see why the generic advice is what it is.

4. Actively Managed Funds
You mentioned PRIMECAP, which I wasn't aware of—thank you for that. Are there any other well-managed actively managed funds I should consider? I've mostly focused on passive index funds so far.

I don't particularly track active funds as I prefer index funds. The only reason I mentioned PRIMECAP is because it's available in your 401k and you're stuck with both VTI and VOO in Taxable (so should avoid those in any tax-advantaged account). VOO (or some 500 index) is typically the best choice in a 401k, but you can't pick that without the "whiff" of wash sales. You could always go with 500 Index in the 401k anyway and just hope it's never an issue, or that any issue is never caught by audit, but I already said most Bogleheads just try to avoid problems, not beat the odds of getting caught.

I'm sure there are a few other actively managed "gems" out there, I just don't look for them. The "Sage of Omaha's" Berkshire Hathaway is hard to miss and PRIMECAP was pointed out to me by another forum member as being in that same peer-group with Buffet's company (a very short list of peers I would guess).

Statistics: Posted by bonesly — Thu Sep 12, 2024 2:09 am — Replies 8 — Views 2488

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