Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Can you normally specify which shares are sold in a fund redemption?
Howdy Hank- Not sure about #1 ("most"), but neither American Funds nor American Century has their website set up for that. I do believe, though, that this can be done either by mail or phone. I haven't yet redeemed anything through Schwab, but I don't believe that their website is set for that either, even for their own house funds.
But doesn't this situation also depend upon your instructions for the account setup? All our stuff is set on "averaged cost", but the real sharp guys keep track of each and every purchase by date, and I seem to recall that they have discussed this in previous MFO threads. If I remember correctly (dubious premise right there) Ted sells his stuff by specific lot... I'm sure that he or one of the others may have better info for you.
Schwab does not let you specify lots for mutual fund sales, but you can choose your cost basis strategy. The default is average cost, but other options are FIFO, LIFO, Highest cost, Lowest cost and Tax Lot Optimizer (take short term losses first, then long term losses, then long term gains and finally short term gains).
Fund companies (and brokerages) are now required to accept your specifying which shares to sell. So the answer to #1 is yes.
The answer to the second question is maybe (based on my experience with a small but I believe representative sampling of fund companies and brokerages). Fidelity has had this feature for years, and for me has been the most valuable aspect of their service. (This, despite the frustrations I've had with their system, as I've posted here before.)
Schwab, in comparison, still requires you to specify which shares you are selling over the phone. They have told me that one can still place orders on line, but that if you want to indicate which shares you're selling, you'd need to call them after placing the order (but before the order settles). So perhaps the answer is a half no. Yes, you can place the sell order on line, even if you're selling specific shares. But no, you still have to call to get the bookkeeping right.
Here's the Boggleheads' wiki page on Vanguard (it's an excellent writeup and useful for understanding the issues, even outside of Vanguard). Vanguard lets you specify online the shares you're selling, but only "covered shares" (generally mutual fund shares purchased in 2012 or later, or stock shares purchased in 2011 or later). Vanguard's system is actually very nice, clean, easy to use as far as it goes. But you have to follow up with them (according to the wiki page, by email) to specify which of the uncovered (pre-2012) shares you're selling.
This may be typical of the more "enlightened" fund companies. American Century seems to work similarly - you can specify online which shares you're selling, but some older shares (appear to be pre-2010) are lumped together. Don't know how/whether they handle specific shares within this older lot. Legg Mason barely lets you sell shares online. And so on.
Most funds/brokers will allow you to indicate a default handling of sales (the term of art is a "standing order"). For example, what you described would be a highest cost first strategy. If you have a standing order at your fund company/brokerage that does what you want, then you're all set for "covered securities" (generally mutual fund shares purchased in 2012 or later, and stock shares purchased in 2011 or later). Not sure how they handle uncovered shares; unfortunately, that's part of your question.
Some places will allow you to place standing orders on a position by position basis. That is, if you have two funds in your brokerage account, you can specify a default treatment for each separately. Other places only handle standing orders on an account by account basis, so if you wanted different standing orders for two funds, you'd have to open two different accounts at the same brokerage.
If all of this sounds crazy, I think you're reading it right. Several years of advance notice, and the financial institutions still can't make it easy. The way each one handles things is different, and you have to check with the institution to see which hoops they are going to have you jump through. My suggestion - do this (gather information) well in advance of doing any actual sales. You'll save yourself a lot of grief by not having to scramble with them between the time you make the sale and the time the sale settles (generally end of day at a fund company, and T+1 at a brokerage) to get the record straight.
Reply to @Old_Joe: American Century's web site is set up for specific shares (as I noted in post below). I have a small legacy account there (which I keep simply because AC has from time-to-time put loads on funds, and I want to be a grandfathered investor just in case). So I was able to check.
Go to your account, click on the "I want to ..." sell, and you'll see a "Current Cost Basis Method". If you haven't set up specific lot (which is my default), you can click on "Override". When Specific Lot is selected, it shows all lots (at least from 1/2010 and on; pre-2010 lots are all lumped together.)
Reply to @mns: As I noted below, I had a long talk with Schwab not more than a week or two ago. What I was told was: 1) If you want to switch to or from average cost (as a default method) you have to use their paper form. (The IRS requires such a switch to be in writing, but that writing can be electronic - online; but Schwab doesn't support this.) 2) On a per-transaction basis, you can override the default (what you're calling a "strategy"). You do this by placing the order online and then calling them up to tell them how the sale should really be handled.
"The way each one handles things is different, and you have to check with the institution to see which hoops they are going to have you jump through."
See, you're missing the point. This is one of the great benefits of the government keeping hands off free enterprise. No stifling of innovation and entrepreneurship here, by gum!! If you don't like the setup at one place you're perfectly free to move someplace "better". Just close all your accounts, pay all your taxes, pay all your ill-gotten capital gains, file all your forms, hire all your attorneys and accountants, and stand by for a government audit. Nothing to it! (Recommend you check with Max to find the "better" places...)
Hi msf- yes, you are quite right on that, and thanks for the correction. I had in mind their older webpage version, but they did a very nice upgrade some time ago. I've not sold anything there by lot, so I hadn't paid much attention to the new setup. A/C has been a good shop for us for many years... no complaints at all.
I couldn't help thinking that if I owned a suite of houses and hired someone to manage them for me, would the manager dare think he/she can tell me what order I can sell my houses in?????
My world is upside down and I sit back daily and just watch it move along that way.
The thing is, that unlike houses, shares of a given security are identical, except for their labels (i.e. a tagging of each share by purchase date). And the neat thing is that these labels are interchangeable. A broker just sells identical shares - no labels, and then slaps a label on, after the fact, for those who care about the labels.
It isn't even a unique label. Suppose you bought 100 shares six months ago at $10, and bought 100 more shares six days ago at $11, and now you're selling 100 shares ...
Many brokers charge early redemption fees - for example, Fidelity charges a TF if you sell a share of an NTF fund within 60 days of buying it. Fidelity will slap on the 6 month label (FIFO) to the 100 shares you sold for the purpose of calculating early redemption fees. This works to your advantage (you avoid the TF), and even if you wanted to pay the fee, the broker wouldn't listen to you.
But for tax purposes, you would likely want to sell those 6 day shares. So if you ask nicely (make the phone call, send email, whatever the broker wants you to do), the broker will slap on the 6 day labelfor the purpose of calculating capital gains.
Here is some of the critical wording of this complex MI pension tax document:
As specified in the MI W-4P, companies over which Michigan has taxing jurisdiction are required to withhold Michigan tax from pension or annuity payments beginning January 1, 2012. If the pension administrator does not fall under Michigan jurisdiction, Michigan withholding is not required but the payer may perform voluntary withholding if requested by the recipient and agreed to by the payer.
The critical part above is that if one's pension plan payer is not located within the state of MI, the pension recipient (you) has the option of having taxes within from a periodic payment. I recall that your likely payer is MI based. Mine is out of state.
This link provides two other links that may be of benefit, too.
This link is broad based "michigan taxation of ira distribution". I suspect that your ira vendor will not provide tax advice on this issue.
I also suggest looking at the 4th item of the above list; which is to the state of MI tax area.
As legal wording in the MI pension tax groups pensions, annuities and ira's together by a wording subject, I believe they are treated similar.
As fully knowledgeable tax preparer, familiar with this first year of filings for this new tax would be your best legal source.
I had a wonderful link list for this new tax when it was first being put in place; but those links have all been deleted. You should be able to find more info with a proper word search on the subject.
Note: I do not have any tax withholding in place. One can be subject to a quarterly filing and/or penalty if any taxes are due at a tax year end; if one under-withheld taxes due.
I'm out of time today for anything further. Hopefully, this may help.
Comments
But doesn't this situation also depend upon your instructions for the account setup? All our stuff is set on "averaged cost", but the real sharp guys keep track of each and every purchase by date, and I seem to recall that they have discussed this in previous MFO threads. If I remember correctly (dubious premise right there) Ted sells his stuff by specific lot... I'm sure that he or one of the others may have better info for you.
Take care- OJ
The answer to the second question is maybe (based on my experience with a small but I believe representative sampling of fund companies and brokerages). Fidelity has had this feature for years, and for me has been the most valuable aspect of their service. (This, despite the frustrations I've had with their system, as I've posted here before.)
Schwab, in comparison, still requires you to specify which shares you are selling over the phone. They have told me that one can still place orders on line, but that if you want to indicate which shares you're selling, you'd need to call them after placing the order (but before the order settles). So perhaps the answer is a half no. Yes, you can place the sell order on line, even if you're selling specific shares. But no, you still have to call to get the bookkeeping right.
Here's the Boggleheads' wiki page on Vanguard (it's an excellent writeup and useful for understanding the issues, even outside of Vanguard). Vanguard lets you specify online the shares you're selling, but only "covered shares" (generally mutual fund shares purchased in 2012 or later, or stock shares purchased in 2011 or later). Vanguard's system is actually very nice, clean, easy to use as far as it goes. But you have to follow up with them (according to the wiki page, by email) to specify which of the uncovered (pre-2012) shares you're selling.
This may be typical of the more "enlightened" fund companies. American Century seems to work similarly - you can specify online which shares you're selling, but some older shares (appear to be pre-2010) are lumped together. Don't know how/whether they handle specific shares within this older lot. Legg Mason barely lets you sell shares online. And so on.
Most funds/brokers will allow you to indicate a default handling of sales (the term of art is a "standing order"). For example, what you described would be a highest cost first strategy. If you have a standing order at your fund company/brokerage that does what you want, then you're all set for "covered securities" (generally mutual fund shares purchased in 2012 or later, and stock shares purchased in 2011 or later). Not sure how they handle uncovered shares; unfortunately, that's part of your question.
Some places will allow you to place standing orders on a position by position basis. That is, if you have two funds in your brokerage account, you can specify a default treatment for each separately. Other places only handle standing orders on an account by account basis, so if you wanted different standing orders for two funds, you'd have to open two different accounts at the same brokerage.
If all of this sounds crazy, I think you're reading it right. Several years of advance notice, and the financial institutions still can't make it easy. The way each one handles things is different, and you have to check with the institution to see which hoops they are going to have you jump through. My suggestion - do this (gather information) well in advance of doing any actual sales. You'll save yourself a lot of grief by not having to scramble with them between the time you make the sale and the time the sale settles (generally end of day at a fund company, and T+1 at a brokerage) to get the record straight.
American Century's web site is set up for specific shares (as I noted in post below). I have a small legacy account there (which I keep simply because AC has from time-to-time put loads on funds, and I want to be a grandfathered investor just in case). So I was able to check.
Go to your account, click on the "I want to ..." sell, and you'll see a "Current Cost Basis Method". If you haven't set up specific lot (which is my default), you can click on "Override". When Specific Lot is selected, it shows all lots (at least from 1/2010 and on; pre-2010 lots are all lumped together.)
1) If you want to switch to or from average cost (as a default method) you have to use their paper form. (The IRS requires such a switch to be in writing, but that writing can be electronic - online; but Schwab doesn't support this.)
2) On a per-transaction basis, you can override the default (what you're calling a "strategy"). You do this by placing the order online and then calling them up to tell them how the sale should really be handled.
So I've been told. Haven't tried it out.
See, you're missing the point. This is one of the great benefits of the government keeping hands off free enterprise. No stifling of innovation and entrepreneurship here, by gum!! If you don't like the setup at one place you're perfectly free to move someplace "better". Just close all your accounts, pay all your taxes, pay all your ill-gotten capital gains, file all your forms, hire all your attorneys and accountants, and stand by for a government audit. Nothing to it! (Recommend you check with Max to find the "better" places...)
My world is upside down and I sit back daily and just watch it move along that way.
The thing is, that unlike houses, shares of a given security are identical, except for their labels (i.e. a tagging of each share by purchase date). And the neat thing is that these labels are interchangeable. A broker just sells identical shares - no labels, and then slaps a label on, after the fact, for those who care about the labels.
It isn't even a unique label. Suppose you bought 100 shares six months ago at $10, and bought 100 more shares six days ago at $11, and now you're selling 100 shares ...
Many brokers charge early redemption fees - for example, Fidelity charges a TF if you sell a share of an NTF fund within 60 days of buying it. Fidelity will slap on the 6 month label (FIFO) to the 100 shares you sold for the purpose of calculating early redemption fees. This works to your advantage (you avoid the TF), and even if you wanted to pay the fee, the broker wouldn't listen to you.
But for tax purposes, you would likely want to sell those 6 day shares. So if you ask nicely (make the phone call, send email, whatever the broker wants you to do), the broker will slap on the 6 day label for the purpose of calculating capital gains.
Which shares did you really sell?
Here is some of the critical wording of this complex MI pension tax document:
As specified in the MI W-4P, companies over which Michigan has taxing jurisdiction are required to withhold Michigan tax from pension or annuity payments beginning January 1, 2012. If the pension administrator does not fall under Michigan jurisdiction, Michigan withholding is not required but the payer may perform voluntary withholding if requested by the recipient and agreed to by the payer.
The critical part above is that if one's pension plan payer is not located within the state of MI, the pension recipient (you) has the option of having taxes within from a periodic payment. I recall that your likely payer is MI based. Mine is out of state.
This link provides two other links that may be of benefit, too.
This link is broad based "michigan taxation of ira distribution". I suspect that your ira vendor will not provide tax advice on this issue.
I also suggest looking at the 4th item of the above list; which is to the state of MI tax area.
As legal wording in the MI pension tax groups pensions, annuities and ira's together by a wording subject, I believe they are treated similar.
As fully knowledgeable tax preparer, familiar with this first year of filings for this new tax would be your best legal source.
I had a wonderful link list for this new tax when it was first being put in place; but those links have all been deleted. You should be able to find more info with a proper word search on the subject.
Note: I do not have any tax withholding in place. One can be subject to a quarterly filing and/or penalty if any taxes are due at a tax year end; if one under-withheld taxes due.
I'm out of time today for anything further. Hopefully, this may help.
Take care,
Catch