How to transition your taxable account to Betterment, tax-efficiently
Transitioning assets from one taxable account to another should be done with care in order to avoid unnecessary taxes. Use the strategies below to transition a portfolio to Betterment. We recommend speaking with a tax advisor if you have questions about your specific tax implications.
Get the information you need
Using your account statements or information directly from your brokerage’s website, determine the holding period (based on purchase date) and tax basis (usually, the purchase price) of your current portfolio holdings. This is often available as a “cost basis report” or “gain/loss report”.
Sell losses
Holdings that are currently worth less than they were purchased for are in a loss, and selling these should not realize taxable gains. In fact, they may provide a tax benefit by offsetting other gains and up to $3,000 of ordinary income. Start by selling these first.
If you are selling the same ETFs as the ones in Betterment’s portfolio (or a fund that tracks the same index as one of our funds), wait 30 days after selling before depositing the cash to Betterment to avoid rebuying the same ETFs and potentially incurring a wash sale.
Transfer ETFs to Betterment
If you have ETFs with gains, you may be able to transfer them in-kind to your Betterment account, which avoids sale and any associated taxes. We support any ETF currently in the Betterment portfolio and potentially others. Please contact our customer service team if you’d like to do a transfer.
Manage taxes on capital gains
For any securities held more than one year, you will likely qualify for preferential tax treatment when you sell them You can sell these to offset any available losses taken or harvested in a year and pay no tax. After that, you can control the gains you realize each year by selling specific amounts. You’ll want to review your entire income tax picture and ensure you are not increasing your tax by moving into a new tax bracket solely due to the realized gains from the sale (as opposed to getting a raise at work). Also make sure that you have the money set aside to pay the taxes—there is no withholding on capital gains, like there is with ordinary wages.
Even if you pay some taxes in the current year, this decision can be worth it if you are saving on fees, or future taxes in the form of mutual fund capital gains distributions (all else being equal, ETFs are generally less likely to make such distributions) Use our Tax Switch Calculator to compare the break-even point.
Hold short-term gains
If you can’t offset all short and long-term gains with other losses, hold on to securities with embedded gains purchased a year ago or less, since these are taxed at a higher rate. For the majority of taxpayers, gains on investments held for a year or less are taxed at the same marginal rate as your ordinary income, the highest rate. Gains on investments held for more than a year are taxed at a lower rate than the short-term capital gains rate.
Moving the cash to Betterment
After executing the above strategies, you’ll have any uninvested cash and sale proceeds in your brokerage account. Transfer this to the bank account linked to your Betterment account, and log in to your Betterment account to make a deposit or set up auto-deposit.
