transfer accounts to Vanguard

[alloykat]

Hi All,

When I transfer my retirement and non-retirement accounts to Vanguard, the Vanguard  funds in those accounts will remain and the dividends can be reinvested. However, what about non-Vanguard funds--should they just remain as is continuing to grow minus financial advisor fees while still subject to respective fund account fees OR should they be converted to Vanguard index funds which will likely incur taxes/fees? Basically, which option is more financially prudent?

[PhysicianOnFIRE]

It depends on the type of account. Any investment held within a retirement account can be exchanged within the account for a lower cost (i.e. Vanguard fund if available) without tax consequences.

In a taxable brokerage account, you've got to consider the cost of staying with a less-than-ideal investment versus the cost of selling (capital gains taxes). The answer depends on many specific variables, including the ongoing fees in the investment, your cost basis, your current income tax bracket, and how taking capital gains might alter your current bracket, and more. There's no simple answer, but in general, it's better to liquidate a costly investment sooner than later.

Best,

-PoF

[alloykat]

Thank you PoF! Considering that the fees are generally higher in non-Vanguard investments and I am in a high tax bracket this year despite being on maternity leave for months, what am I looking for in the cost basis to make this decision---for example, if my cost basis for a particular fund is 200K then do I want to transfer to a Vanguard fund with a lower cost basis in order to avoid capital gains? Thus, it may make sense to sell things in waves too right? How does an economic downturn affect the decision?

 

[PhysicianOnFIRE]

It might make sense to sell "in waves" i.e. over multiple tax years to spread out the burden. If you sold some now, and some in January, the taxes would be spread out over two tax years.

Cost basis is simply what it cost you to purchase the investment. The difference between your cost basis (original purchase price) and price when you sell is your capital gain / loss. If you've got a large gain, you've got tax implications, i.e. capital gains taxes to pay. Read more in this post. You can't transfer to a Vanguard fund with a lower cost basis. You sell an asset, pay the tax at 1040 time, and buy something new, like a Vanguard index fund. The cost basis in the fund will the purchase price.

I hope that clears it up.

-PoF

[alloykat]

Thank you! The post was very helpful.