VTI to VTSAX... taxable event?

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gvsucavie03
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VTI to VTSAX... taxable event?

Post by gvsucavie03 » Sat Jan 12, 2019 1:38 pm

I own shares of VTI in my taxable account. If I exchange to VTSAX, is this a taxable event (assuming there are some capital gains)? The reason for the change is the ability to purchase partial shares versus only being able to purchase whole shares of VTI. I don't really care for the ability to trade during the open market, I just started with VTI to invest prior to the $3,000 minimum for VTSAX.

Thanks!

02nz
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Re: VTI to VTSAX... taxable event?

Post by 02nz » Sat Jan 12, 2019 1:41 pm

Yes you'd be selling all shares of VTI and buying VTSAX, so it's a taxable event. In the opposite direction (mutual fund to ETFs) you could convert without tax implications.

John Laurens
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Re: VTI to VTSAX... taxable event?

Post by John Laurens » Sat Jan 12, 2019 1:44 pm

Same fund different share class. No taxable event. I’m not sure that Vangaurd will exchange VTI for the mutual fund in that direction. Do you have cap gains? Also isn’t VTI under $150 dollars per share? Is it worthwhile to add to your position in under $150 increments?

Regards,
John

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HueyLD
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Re: VTI to VTSAX... taxable event?

Post by HueyLD » Sat Jan 12, 2019 1:58 pm

gvsucavie03 wrote:
Sat Jan 12, 2019 1:38 pm
I own shares of VTI in my taxable account. If I exchange to VTSAX, is this a taxable event (assuming there are some capital gains)? The reason for the change is the ability to purchase partial shares versus only being able to purchase whole shares of VTI. I don't really care for the ability to trade during the open market, I just started with VTI to invest prior to the $3,000 minimum for VTSAX.
No, you cannot exchange from VTI to VTSAX. You must sell VTI first and then buy VTSAX. If held in taxable account, it will be a taxable event.

Vanguard says:

"Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?

Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don't allow for conversions.)

Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.

Keep in mind that you can't convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.

If you have a brokerage account at Vanguard, there's no charge to convert conventional shares to ETF Shares. If you have questions, call us at 866-499-8473."

stan1
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Re: VTI to VTSAX... taxable event?

Post by stan1 » Sat Jan 12, 2019 2:02 pm

John Laurens wrote:
Sat Jan 12, 2019 1:44 pm
Same fund different share class. No taxable event. I’m not sure that Vangaurd will exchange VTI for the mutual fund in that direction. Do you have cap gains? Also isn’t VTI under $150 dollars per share? Is it worthwhile to add to your position in under $150 increments?

Regards,
John
This is incorrect. You cannot convert from an ETF to a mutual fund share class. You would have to sell VTI, take a realized loss or gain, and buy VTSAX. Selling VTI at a loss and immediately buying VTSAX might be a wash sale. No one knows for sure but if share classes of the same Vanguard fund aren't "substantially identical" nothing is.

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gvsucavie03
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Re: VTI to VTSAX... taxable event?

Post by gvsucavie03 » Sat Jan 12, 2019 2:35 pm

I'm not looking to TLH, there isn't much tax I'm liable for, so I'm not concerned about a wash sale. My understanding is that a wash sale simply means I can't claim the capital loss but there's no penalty, correct?

Yes, partial shares under $150 are more convenient. I'm not wealthy by any means, so being fully invested each period is more important to me.

Topic Author
gvsucavie03
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Re: VTI to VTSAX... taxable event?

Post by gvsucavie03 » Sat Jan 12, 2019 2:43 pm

More perspective... I have a current total capital loss in VTI of 162.77 and I'm in the 12% tax bracket. Probably half of my shares I've held less than a year.

02nz
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Re: VTI to VTSAX... taxable event?

Post by 02nz » Sat Jan 12, 2019 2:53 pm

gvsucavie03 wrote:
Sat Jan 12, 2019 2:35 pm
I'm not looking to TLH, there isn't much tax I'm liable for, so I'm not concerned about a wash sale. My understanding is that a wash sale simply means I can't claim the capital loss but there's no penalty, correct?

Yes, partial shares under $150 are more convenient. I'm not wealthy by any means, so being fully invested each period is more important to me.
Correct, there's no penalty, the loss gets added to your basis so it's not "lost" forever.

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Earl Lemongrab
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Re: VTI to VTSAX... taxable event?

Post by Earl Lemongrab » Sat Jan 12, 2019 3:49 pm

I'm sure Vanguard COULD provide tax-free conversion from ETF to Admiral etc. but they don't. So yes, it would be a taxable event. If it's a loss, it would be interesting to see what Vanguard would do. The law wouldn't require them to report a wash sale, but there's a high probability that it would be.

inbox788
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Re: VTI to VTSAX... taxable event?

Post by inbox788 » Sat Jan 12, 2019 5:48 pm

Earl Lemongrab wrote:
Sat Jan 12, 2019 3:49 pm
I'm sure Vanguard COULD provide tax-free conversion from ETF to Admiral etc. but they don't. So yes, it would be a taxable event. If it's a loss, it would be interesting to see what Vanguard would do. The law wouldn't require them to report a wash sale, but there's a high probability that it would be.
That is so annoying! The wash sale rule can sometimes be so silly, especially for small amounts. I go out of my way to avoid the wash rule because it's simpler than trying to keep track and having to report them. This sometimes means I self-restrict trading for 30 days myself, which makes the trading restrictions of some Vanguard funds helpful in avoiding these troubles.
gvsucavie03 wrote:
Sat Jan 12, 2019 2:43 pm
More perspective... I have a current total capital loss in VTI of 162.77 and I'm in the 12% tax bracket. Probably half of my shares I've held less than a year.
I'd put in an order to make the trade when there is no gain or loss so as to avoid any capital gains or wash sales issues. With the market fluctuating the way it is, there should be opportunities to do so in the near future before the market goes either way too far. If you do it right, and there a re a few pennies or dollars discrepancy either way, I would simply ignore it.

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Earl Lemongrab
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Re: VTI to VTSAX... taxable event?

Post by Earl Lemongrab » Sat Jan 12, 2019 7:54 pm

The law only requires exact CUSIP securities in the same account. That's the easiest and most exact reporting. Custodians don't have to make judgment calls. I don't think it has been determined whether Vanguard will or will not report washes between share classes. Someone with a Vanguard account could volunteer to test in the next downturn.

venkman
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Re: VTI to VTSAX... taxable event?

Post by venkman » Sun Jan 13, 2019 12:24 am

gvsucavie03 wrote:
Sat Jan 12, 2019 2:43 pm
More perspective... I have a current total capital loss in VTI of 162.77 and I'm in the 12% tax bracket. Probably half of my shares I've held less than a year.
One thing to consider: If you're in the 12% income tax bracket, you should also be in the 0% capital gains bracket, which means you might eventually want to do Tax GAIN Harvesting (i.e. Purposely sell to realize gains, then immediately buy back the shares). This is very easy to do with ETF's, but harder with mutual funds, because Vanguard imposes frequent trading restrictions on many of its funds. If you sell shares to realize gains, you won't be allowed to buy more shares of the same fund for 30 days (though you can still do an exchange into a functionally equivalent fund, such as VFIAX).

Topic Author
gvsucavie03
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Re: VTI to VTSAX... taxable event?

Post by gvsucavie03 » Sun Jan 13, 2019 8:49 am

venkman wrote:
Sun Jan 13, 2019 12:24 am
gvsucavie03 wrote:
Sat Jan 12, 2019 2:43 pm
More perspective... I have a current total capital loss in VTI of 162.77 and I'm in the 12% tax bracket. Probably half of my shares I've held less than a year.
One thing to consider: If you're in the 12% income tax bracket, you should also be in the 0% capital gains bracket, which means you might eventually want to do Tax GAIN Harvesting (i.e. Purposely sell to realize gains, then immediately buy back the shares). This is very easy to do with ETF's, but harder with mutual funds, because Vanguard imposes frequent trading restrictions on many of its funds. If you sell shares to realize gains, you won't be allowed to buy more shares of the same fund for 30 days (though you can still do an exchange into a functionally equivalent fund, such as VFIAX).
0% LT, but I do fall in the bracket for ST cap gains. Most of those may be down from the past year anyway.

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