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  • Tax loss harvesting rules

    Hi all,

    Question for the experts since I am a novice. I am considering starting a taxable account with Betterment. I also have my retirement accounts 401k, Roth etc with fidelity and plan to keep separate from Betterment.

    Since Betterment provide tax loss harvesting with their funds usually vanguard funds. Would i be ok if I make sure that my Fidelty account stays away from vanguard funds to not violate and IRS wash rules.

    Thanks so much

  • #2
    Betterment's portfolios have several ishares ETFs as secondary partners:  IVE, IWS, IWN, IEMG.  They also use schwab ETFs.  Are you investing in any of these?  Or anything that tracks the same indices?  You can post what you have in your 401k and Roth IRA if you're not sure.

    https://www.betterment.com/portfolio/

    I tend to agree with what WCI has written re: Betterment - if you know enough to keep your 401k and Roth IRA from violating wash sale rules, you probably know enough to do tax loss harvesting on your own.

     

     

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    • #3
      Thanks for the reply.

      Just look at my funds all of them are Fidelity funds i.e. Fidelity freedom or other Fidelty type funds, minus one MFS fund.

      My understanding is as long as you hold funds That are not exact that should meet the IRS test, let's say my betterment account has a total Stock market Vanguard fund and I have a Fidelity total Stock market as well in an 401 k then I would not be violating the wash rule. Please let me know if I'm incorrect?

      The reason I'm going with a Robo advisor for my taxable account is 1. It's super cheap , I think for $100,000 it's $150 a year and you get six months for free so it will come out to about $75 for the first year. 2. I feel like I need some guidance and education which hopefully I would get from Betterment 3. I think they would do a better job with tax loss harvesting then I would.

      One last question does anyone know what would happen let's say betterment goes out of business? What happens to your account?


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      • #4
        The rule is that if a fund/ETF that is "substantially identical" is sold within 30 days of another that is bought, it could trigger a wash sale.  What does "substantially identical" mean?  The IRS has never issued clarification, but most investors try to avoid mixing funds/ETFs that track the same index (i.e. two that track the S&P 500).  Some investors do not worry about this and will push the envelope a little more.  You have to decide what you are comfortable with.

        With that being said, most of the time, different brokerages track different indices.  VTI, SCHB, and ITOT all track different total stock market indices.  So I do not know if there are any Fidelity funds that track the same index as Vanguard funds and thus in your words do not meet the IRS test.  You would have to look up what funds are in your 401k and see how they compare to the ETFs in Betterment.  Sounds like if all you have are exclusive Fidelity funds, like a target date fund, you'll be fine.

        Also, the IRS has never even ruled that 401k contributions can trigger wash sales (but they haven't said they're exempt, either).  That would probably only come to light if you came under audit, and even then, it sounds like you'd be a test case.  The IRA is definitely fair game though.

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        • #5
          Yes the general consensus on the interweb is that the funds should not track the same index, regardless of the company etc

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          • #6




            Betterment’s portfolios have several ishares ETFs as secondary partners:  IVE, IWS, IWN, IEMG.  They also use schwab ETFs.  Are you investing in any of these?  Or anything that tracks the same indices? 
            Click to expand...


            +1. As long as your Fidelity funds don't track the same indices as ANY of the potential Betterment main ETFs or TLH alternatives, then you should be good to go.

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