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I have a 401(k) through Ascensus. I would like to do tax loss harvesting with an index fund I hold in my taxable account and I want to make sure there is no possible wash sale in my 401(k). Therefore, I need to ensure my dividends are not reinvested in a similar fund, because it tracks the same index.

On the Ascensus website my options are 'Manage Investments' and 'Manage Contributions'. Do I just need to change my contributions to exclude the fund I am worried about a wash sale with? Or will dividends be reinvested in the same fund regardless, and therefore I'd need to rebalance completely away from that fund to avoid the possibility of a wash sale?

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  • I can’t prove it, but I really think you’re worrying over nothing, if for no other reason than because your 401k is in a non taxable account, and so there’s by definition no way (unless you do something like over-contribute) to do anything taxable in it until you disburse funds.
    – RonJohn
    Commented Dec 16, 2022 at 15:08
  • @RonJohn You're probably right, but the wash sale rule does explicitly mention IRAs, so actions inside in a non-taxable account can definitely have tax consequences.
    – Craig W
    Commented Dec 16, 2022 at 15:54
  • Very interesting. I still wouldn’t worry about automatic dividends.
    – RonJohn
    Commented Dec 16, 2022 at 17:49

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Ask your funds manager. There may be a web form, or you may have to do it by phone, or by paper, or your particular 401k may not expose that kind of control.

But I really don't think the wash sale rule applies here.

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  • Dividends are going to be fairly minor, and you can rebalance to draw them back out and put them elsewhere... I think I'm not understanding what problem you are trying to solve.
    – keshlam
    Commented Dec 16, 2022 at 3:57
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    I tax loss harvest fund X. Then less than 30 days later dividends from fund X in my 401(k) are automatically reinvested to buy more of fund X. Assuming you're conservative with tax law, part of my tax loss is now permanently disallowed due to wash sale rules. I would like to avoid this situation without having to dispose of my entire position in fund X in my 401(k).
    – Craig W
    Commented Dec 16, 2022 at 4:07
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    As far as I know, juggling within the 401k has no implications for purchases and sales in your non-401k accounts. Admittedly I don't own exactly the same funds in my non-retirement account as my retirement account, so I wouldn't run into a wash-sale issue across the two buckets even if it did exist... (In fact the only limits I've encountered on moving money around in the 401k are those imposed by the 401k itself to prevent "frequent trading", which are similar to not permitting wash sales but come from the 401k's policy rather than taxes ... as far as I know, anyway.)
    – keshlam
    Commented Dec 16, 2022 at 5:25
  • Agreed, it's a very conservative reading of the wash sale rule. But if it were simple enough to stop reinvesting dividends for a while without selling the entire position in my 401(k), I'd like to do so to avoid any possible issue.
    – Craig W
    Commented Dec 16, 2022 at 14:51
  • If you insist on doing this, talk to your 401k administrator. They're the ones who can tell you what's possible for your particular account. We can't help you, since you haven't told us who is administering your 401k... and even if you did we might not be able to help you since the details might depend on exactly what they have set up for your employer.
    – keshlam
    Commented Dec 16, 2022 at 20:48

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