We have discussed Portfolio Components and Asset Allocation so far, now we will discuss tax loss harvesting strategy.
Tax Loss Harvesting
In late 2008 and early 2009, losses were plentiful and recognizing those losses created valuable tax-loss carryforwards. While only $3,000 a year can be recognized, an unlimited amount can be carried forward to offset future gains. With U.S. stocks coming back, harvesting those losses even now is critical as equities are sold for any reason, including rebalancing.
Watch for Wash Sales
When doing tax-loss harvesting, be sure to watch out for wash sale rules, making sure that you don't buy back the same security within 30 days. To avoid having to exit stocks for a month when selling a broad stock index fund, consider buying a similar but not identical fund. For example, you could replace Vanguard Total Stock Index Fund ETF (VTI) with Schwab U.S. Broad Market ETF (SCHB). Because they follow different U.S. total stock indexes, this transaction should keep you clear of wash sale rules.
It's never fun to harvest losses, but it's the silver lining to the loss you have suffered.
Next, we will discuss Roth conversions and tax efficiency.
Tax Loss Harvesting
In late 2008 and early 2009, losses were plentiful and recognizing those losses created valuable tax-loss carryforwards. While only $3,000 a year can be recognized, an unlimited amount can be carried forward to offset future gains. With U.S. stocks coming back, harvesting those losses even now is critical as equities are sold for any reason, including rebalancing.
Watch for Wash Sales
When doing tax-loss harvesting, be sure to watch out for wash sale rules, making sure that you don't buy back the same security within 30 days. To avoid having to exit stocks for a month when selling a broad stock index fund, consider buying a similar but not identical fund. For example, you could replace Vanguard Total Stock Index Fund ETF (VTI) with Schwab U.S. Broad Market ETF (SCHB). Because they follow different U.S. total stock indexes, this transaction should keep you clear of wash sale rules.
It's never fun to harvest losses, but it's the silver lining to the loss you have suffered.
Next, we will discuss Roth conversions and tax efficiency.
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