When transferring... best way to deal with taxable equities?

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When transferring... best way to deal with taxable equities?

Postby StormShadow » Fri May 03, 2013 6:07 pm

Hi guys.

So, as I had mentioned before in a prior post (http://www.bogleheads.org/forum/viewtopic.php?f=10&t=115019&start=100#p1677237), my mom decided to transfer her investments from one institution (Merrill Lynch Wealth Management) over to Vanguard. Ugh... included a rather unpleasant conversation with the financial advisor there. Funny how a financial advisor's personality can change instantly when you tell them you're taking your funds out, eh?

Her total investments are: $900k traditional IRA, $350k non-retirement taxable. About half of her investments are in ETF's and the other half in index mutual funds (of which several are Vanguard). To simplify things, we would like to switch everything over to a three-fund portfolio. But would it be better to wait until most of her non-retirement taxable gains switch over to long-term gains? Or should we just keep the funds as is if we're relatively comfortable with the asset allocation? It looks like all of the ETF's and funds have relatively low expense ratios (< 0.3% ER).

We initially were planning to have Merrill Lynch liquidate her IRA and send over a check to Vanguard, but since the conversation went so sour with the ML advisor we instead just placed an electronic "in kind"/custodian-to-custodian transfer. My thinking is that we'll just adjust everything once it arrives at Vanguard. Was that a bad move?
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Re: When transferring... best way to deal with taxable equit

Postby tfb » Fri May 03, 2013 6:11 pm

StormShadow wrote:We initially were planning to have Merrill Lynch liquidate her IRA and send over a check to Vanguard, but since the conversation went so sour with the ML advisor we instead just placed an electronic "in kind"/custodian-to-custodian transfer. My thinking is that we'll just adjust everything once it arrives at Vanguard. Was that a bad move?

Not a bad move. Be sure to obtain/keep cost basis records for the holdings in the taxable account.
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Re: When transferring... best way to deal with taxable equit

Postby Bradley » Fri May 03, 2013 6:14 pm

StormShadow wrote:Hi guys.

Funny how a financial advisor's personality can change instantly when you tell them you're taking yo since the conversation went so sour with the ML advisor ...............we instead just placed an electronic "in kind"/custodian-to-custodian transfer. My thinking is that we'll just adjust everything once it arrives at Vanguard. Was that a bad move?



Bravo, you did the right thing under a stressful situation. This will give you the ability to receive unbiased opinion on your products and allocation before making any changes.

Bradley
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Re: When transferring... best way to deal with taxable equit

Postby grabiner » Fri May 03, 2013 10:08 pm

StormShadow wrote:To simplify things, we would like to switch everything over to a three-fund portfolio. But would it be better to wait until most of her non-retirement taxable gains switch over to long-term gains?


How large are the short-term gains? If they aren't large, you expect to pay less in taxes by selling them now than by waiting until the gains become long-term, because the market is likely to go up. (And if the market goes down after you sell, you haven't lost anything, as you can harvest your losses in the new funds and take a short-term loss to offset your short-term gains.)

Or should we just keep the funds as is if we're relatively comfortable with the asset allocation? It looks like all of the ETF's and funds have relatively low expense ratios (< 0.3% ER).


You have to decide how much simplicity is worth. There is no tax reason to pay a 7.5% tax cost for selling a fund at double what you paid for it if you only save 0.2% per year in expenses, but the actual cost isn't that great, particularly since you will have to pay the tax when you sell it anyway.

Another alternative is to keep some funds which would be expensive to sell and plan to use them for charitable contributions.

(edited to fix quoting)
Last edited by grabiner on Mon Jun 03, 2013 8:21 pm, edited 1 time in total.
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Re: When transferring... best way to deal with taxable equit

Postby jimmy » Fri May 03, 2013 10:50 pm

The IRA you obviously don't have to worry about since cost basis isn't going to matter. As far as the taxable account cost basis should transfer over, new regulation requires broker/dealers to pass this information along but I think mutual funds don't go into effect until 2014. You're statements on ML should provide the cost basis data so if for some reason it doesn't transfer over you can provide this information to Vanguard to update it. ETF's are usually pretty easy unless you have been reinvesting dividends but the bottom line is if it doesn't transfer over it should be on you're ML statement.
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Re: When transferring... best way to deal with taxable equit

Postby umfundi » Fri May 03, 2013 11:06 pm

StormShadow wrote:Hi guys.

So, as I had mentioned before in a prior post (http://www.bogleheads.org/forum/viewtopic.php?f=10&t=115019&start=100#p1677237), my mom decided to transfer her investments from one institution (Merrill Lynch Wealth Management) over to Vanguard. Ugh... included a rather unpleasant conversation with the financial advisor there. Funny how a financial advisor's personality can change instantly when you tell them you're taking your funds out, eh?

Her total investments are: $900k traditional IRA, $350k non-retirement taxable. About half of her investments are in ETF's and the other half in index mutual funds (of which several are Vanguard). To simplify things, we would like to switch everything over to a three-fund portfolio. But would it be better to wait until most of her non-retirement taxable gains switch over to long-term gains? Or should we just keep the funds as is if we're relatively comfortable with the asset allocation? It looks like all of the ETF's and funds have relatively low expense ratios (< 0.3% ER).

We initially were planning to have Merrill Lynch liquidate her IRA and send over a check to Vanguard, but since the conversation went so sour with the ML advisor we instead just placed an electronic "in kind"/custodian-to-custodian transfer. My thinking is that we'll just adjust everything once it arrives at Vanguard. Was that a bad move?

Have you contacted Vanguard? They will assign a specialist to expedite the transfer. That person will then advise you on the best way forward.

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Re: When transferring... best way to deal with taxable equit

Postby StormShadow » Sat May 18, 2013 7:29 pm

Transfer was finalized this week!

We worked with one of Vanguard's concierge associates, who provided a phone number directly to his office. Very helpful and friendly guy. Made the whole transfer process smooth as silk.

Cost basis was easy to figure out, since all of her taxable investments were made this year. It came from a life insurance policy she collected after my father passed away. :( I have all of the taxable transactions saved as PDF's on my computer.

Yesterday, we made our first transaction with Vanguard's brokerage service. We're gradually liquidating the IRA ETF's and switching them into Vanguard Admiral funds. Happy to say that they were very patient and informative, as I have never traded an actual stock before... only bought/sold mutual funds. Got a quick intro into bid/ask/stop orders and whatnot.

I have to tell you, overall I have nothing but good things to say about Vanguard's level of service. Even when I started out with my own personal relatively puny accounts, I remember communicating back and forth with Vanguards associates and walking away feeling that they were genuinely trying to provide me with the very best advice. My first phone call, I actually spent over an hour with them (maybe two?) and hadn't actually made any transaction by the end of the conversation. Nor did I feel any pressure to do so. About a week or so later, I began transferring all my other investments over to Vanguard and have not looked back since.

:sharebeer
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Re: When transferring... best way to deal with taxable equit

Postby umfundi » Sat May 18, 2013 7:38 pm

:D :sharebeer

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