Conversion to BND in IRA at SCHWAB

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Topic Author
Rajsx
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Conversion to BND in IRA at SCHWAB

Post by Rajsx »

I transferred my long standing IRA account holding Vanguard Total Bond Index VBTLX from Vanguard to Schwab, now I want to sell VBTLX & buy BND . I do not have the cost basis of uncovered shares(bought in 2011 & before) of my VBTLX, could this transaction be viewed as a wash sale by IRS ??

1) Could a Wash Sale occur in an IRA. ??

2) Vanguard does not forward to Schwab the cost basis of uncovered shares VBTLX bought before end of 2011. How would the average cost basis apply.

In my research the Wash Sale rule does not apply in a IRA and the IRA distributions are all taxed at Ordinary Income rate. The cost basis information is not forwarded to IRS by the broker & does not really matter.

Has anybody did the conversions of Vanguard Mutual Funds to ETFs at an outside Brokerage ? How did it go ??

Thank you in advance for your input
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exodusNH
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Re: Conversion to BND in IRA at SCHWAB

Post by exodusNH »

Rajsx wrote: Thu Jan 13, 2022 5:49 pm I transferred my long standing IRA account holding Vanguard Total Bond Index VBTLX from Vanguard to Schwab, now I want to sell VBTLX & buy BND . I do not have the cost basis of uncovered shares(bought in 2011 & before) of my VBTLX, could this transaction be viewed as a wash sale by IRS ??

1) Could a Wash Sale occur in an IRA. ??

2) Vanguard does not forward to Schwab the cost basis of uncovered shares VBTLX bought before end of 2011. How would the average cost basis apply.

In my research the Wash Sale rule does not apply in a IRA and the IRA distributions are all taxed at Ordinary Income rate. The cost basis information is not forwarded to IRS by the broker & does not really matter.

Has anybody did the conversions of Vanguard Mutual Funds to ETFs at an outside Brokerage ? How did it go ??

Thank you in advance for your input
There's no basis in an IRA since when the money comes out, it's treated as income.

You're not converting VBTLX to BND. You're selling security A and buying security B. It's only possible to convert Vanguard funds to their ETFs at Vanguard, but VBTLX/BND can't be converted anywhere.

Wash sales rules absolutely apply when you hold the same or substantially similar security in your IRA. You could get around this by buying VGIT instead. Ultimately, BND is mostly US treasuries. After 31 days, you can go back to BND if you want.
sycamore
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Re: Conversion to BND in IRA at SCHWAB

Post by sycamore »

exodusNH wrote: Thu Jan 13, 2022 5:58 pm
Rajsx wrote: Thu Jan 13, 2022 5:49 pm I transferred my long standing IRA account holding Vanguard Total Bond Index VBTLX from Vanguard to Schwab, now I want to sell VBTLX & buy BND . I do not have the cost basis of uncovered shares(bought in 2011 & before) of my VBTLX...
There's no basis in an IRA since when the money comes out, it's treated as income.
...
^^ True insofar as all IRA contributions were deductible.

OP did you make non-deductible contributions to your IRA? Such contributions are considered your basis in the IRA. See https://www.bogleheads.org/wiki/Traditi ... g_of_basis.

But that's a different topic than a wash sale.
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goingup
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Re: Conversion to BND in IRA at SCHWAB

Post by goingup »

No tax consequences for buying/selling in an IRA.

You are just discussing an IRA, correct?
exodusNH
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Re: Conversion to BND in IRA at SCHWAB

Post by exodusNH »

sycamore wrote: Thu Jan 13, 2022 6:33 pm
exodusNH wrote: Thu Jan 13, 2022 5:58 pm
Rajsx wrote: Thu Jan 13, 2022 5:49 pm I transferred my long standing IRA account holding Vanguard Total Bond Index VBTLX from Vanguard to Schwab, now I want to sell VBTLX & buy BND . I do not have the cost basis of uncovered shares(bought in 2011 & before) of my VBTLX...
There's no basis in an IRA since when the money comes out, it's treated as income.
...
^^ True insofar as all IRA contributions were deductible.

OP did you make non-deductible contributions to your IRA? Such contributions are considered your basis in the IRA. See https://www.bogleheads.org/wiki/Traditi ... g_of_basis.

But that's a different topic than a wash sale.
Correct, but Vanguard wouldn't have that info. He would have had to document that and file it himself. Even then, the basis is the contribution amount as a total, not what the individual purchases were.

Besides, what kind of maniac does a non-deductible tIRA contribution? ;)
Topic Author
Rajsx
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Re: Conversion to BND in IRA at SCHWAB

Post by Rajsx »

I got answers from both Vanguard & Schwab Brokers today & the issue has been resolved (I hope).

As the funds are in a IRA, they do not file info to IRS & also there is no wash sale in an IRA account. So in my IRA Account at Schwab I sold Vanguard Total Bond Index mutual fund VBTLX & bought its ETF BND.

So, it really depends on the person/trader you get on the phone as to what answer you get.
One Schwab Trader says I need to find out basis in an IRA while VBTLX was in vanguard, & to day another Trader at Schwab says there is no basis in IRA & went ahead to buy the ETF BND after selling VBTLX.

In any case now my IRA funds are in BND being held at Schwab. That is the end (I hope) of the story.

Another often repeated suggestion here is when transferring funds across different brokers, CONVERT MUTUAL FUNDS into ETFs while at Vanguard & then transfer.
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livesoft
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Re: Conversion to BND in IRA at SCHWAB

Post by livesoft »

Rajsx wrote: Fri Jan 14, 2022 4:24 pmAnother often repeated suggestion here is when transferring funds across different brokers, CONVERT MUTUAL FUNDS into ETFs while at Vanguard & then transfer.
Even Vanguard will not convert VBTLX to BND. That info is right there on the Vanguard.com web site. At Vanguard, one would have to sell VBTLX in one or more transaction(s) and buy BND in one or more transaction(s). That would be no different than doing it at any other brokerage.
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livesoft
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Re: Conversion to BND in IRA at SCHWAB

Post by livesoft »

exodusNH wrote: Thu Jan 13, 2022 5:58 pmWash sales rules absolutely apply when you hold the same or substantially similar security in your IRA. You could get around this by buying VGIT instead. Ultimately, BND is mostly US treasuries. After 31 days, you can go back to BND if you want.
What?! If I sell BND at loss in an IRA and immediately re-buy BND in my IRA, there is no wash sale.

And "substantially similar" is not the term the IRS uses. It is "substantially identical." I can sell at a loss in taxable and immediately buy a substantially similar security in my IRA or in my taxable account and not create a wash sale. Example: Sell VTI at a loss in taxable and buy the substantially similar (but not substantially identical) ITOT.
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exodusNH
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Re: Conversion to BND in IRA at SCHWAB

Post by exodusNH »

livesoft wrote: Fri Jan 14, 2022 4:37 pm
exodusNH wrote: Thu Jan 13, 2022 5:58 pmWash sales rules absolutely apply when you hold the same or substantially similar security in your IRA. You could get around this by buying VGIT instead. Ultimately, BND is mostly US treasuries. After 31 days, you can go back to BND if you want.
What?! If I sell BND at loss in an IRA and immediately re-buy BND in my IRA, there is no wash sale.

And "substantially similar" is not the term the IRS uses. It is "substantially identical." I can sell at a loss in taxable and immediately buy a substantially similar security in my IRA or in my taxable account and not create a wash sale. Example: Sell VTI at a loss in taxable and buy the substantially similar (but not substantially identical) ITOT.
I misremembered the guidance, probably because "substantially identical" makes as much sense as "very unique." Gubbermint.

Obviously, wash sales don't matter in an IRA, but you the IRS does disallow losses between taxable and IRA.
nolesrule
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Re: Conversion to BND in IRA at SCHWAB

Post by nolesrule »

exodusNH wrote: Fri Jan 14, 2022 4:44 pm
livesoft wrote: Fri Jan 14, 2022 4:37 pm
exodusNH wrote: Thu Jan 13, 2022 5:58 pmWash sales rules absolutely apply when you hold the same or substantially similar security in your IRA. You could get around this by buying VGIT instead. Ultimately, BND is mostly US treasuries. After 31 days, you can go back to BND if you want.
What?! If I sell BND at loss in an IRA and immediately re-buy BND in my IRA, there is no wash sale.

And "substantially similar" is not the term the IRS uses. It is "substantially identical." I can sell at a loss in taxable and immediately buy a substantially similar security in my IRA or in my taxable account and not create a wash sale. Example: Sell VTI at a loss in taxable and buy the substantially similar (but not substantially identical) ITOT.
I misremembered the guidance, probably because "substantially identical" makes as much sense as "very unique." Gubbermint.

Obviously, wash sales don't matter in an IRA, but you the IRS does disallow losses between taxable and IRA.
Substantially identical is broader than identical in that it means that the investments do not have to share the same CUSIP or ticker to fall under the auspices of the wash sale rule.
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