Exchange to Admiral shares in taxable account: Owe taxes?

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Exchange to Admiral shares in taxable account: Owe taxes?

Postby rjc32000 » Mon Jul 01, 2013 2:45 pm

I hold a taxable Vanguard account. As of today, I have ~$8k in Vanguard Total Stock Mrkt, and approx $4k in money market. Both have been held for less than a year. I'd like to exchange the full amount of both into Total Stk Mrk Index Admiral shares. Are there tax implications if I do this exchange? Any way to minimize any taxes? I'm very cost-conscious, but not to the point that I'll eat a bunch of taxes (I'm taxed at 28%) to save a few bucks in fees.

Thanks in advance for any assistance!
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby momar » Mon Jul 01, 2013 2:46 pm

Don't exchange the shares. Once you have 10K, you can convert the shares to admiral.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby camaro327 » Mon Jul 01, 2013 2:49 pm

Do as follows:

Day 1: Purchase $4,000 invester shares in total stock market.

Day 2: Convert (as suggested by momar to admiral shares. Call Vanguard if you want to make sure to get this right.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby gks » Mon Jul 01, 2013 2:50 pm

You don't have to do anything. When you get $10,000 in TSM Vanguard will automatically convert your shares to Admiral tax neutrally.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby frenchje » Mon Jul 01, 2013 3:09 pm

Just beware that the account won't automatically convert as soon as you cross that $10k threshold. I think there may be a threshold (possibly around $11k) or some time period that they account has to be above that $10k threshold before they do it automatically. Otherwise if you went over one day and then the next day it went back down then they would be moving people on that edge in and out all the time. Though if you want to, I believe there is a link to manually convert if you meet the $10k threshold.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby Flobes » Mon Jul 01, 2013 3:21 pm

I accomplished just this last week, on the phone, with a charming Vanguard rep.

In a single transaction, she quickly exchanged money out of Fund One, then sold all of my investor shares in Fund Two, and then bought the new amount of admiral shares in the Fund Two from the combined proceeds. Instant Admiral.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby rjc32000 » Mon Jul 01, 2013 3:49 pm

Thanks for all the help! Sounds like Vanguard should automatically convert from Investor to Admiral when I'm across approx $11k, which I will be barring any horrible stk mrkt declines over the next few days.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby archbish99 » Mon Jul 01, 2013 5:00 pm

I would go ahead and call Vanguard to do the conversion. It's always been quick and painless, and I'm not aware of a way to do it on the web site. (Though if there is a way to do a share class conversion, I'd be happy if someone would share.)
I'm not a financial advisor, I just play one on the Internet.
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby Epsilon Delta » Mon Jul 01, 2013 7:14 pm

Automatic conversion is quarterly. The cost of waiting for automatic conversion is a buck or two. To chill or not to chill, that is the question.

Vanguard FAQ wrote:(Note: Funds that meet the minimum investment amount for Admiral Shares are automatically converted on a quarterly basis.)
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby rjc32000 » Tue Jul 02, 2013 1:41 pm

Thanks again for all the assistance/suggestions. I bought approx $4k of Total Stk Indx Investor shares from money market account yesterday, which brought my total up to ~$12k. This morning when I logged into Vanguard and checked "balances and holdings" there was a little yellow button in my brokerage account listing that offered to exchange from Investor to Admiral funds. A few clicks later and it is done. Thanks!
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Re: Exchange to Admiral shares in taxable account: Owe taxes

Postby CABob » Tue Jul 02, 2013 4:35 pm

I think you have to do this in two steps. First you buy at least $2000 of TSM so that you have at least $10,000 in TSM using the money from the money market fund. Since this is a purchase it would not be a taxable event. Then you can request that the Investor shares be converted to Admiral shares. Vanguard can do this and it would not be a taxable event since you are just changing classes of shares within the same fund. Vanguard would probably do this without asking, but, making the request speeds the process.

Edit: Well I see that I am late to the responce since several other have already made the suggestion and in fact the OP has figured it out for himself.
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