Transfer ETF shares to mutual fund shares

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Runner01
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Transfer ETF shares to mutual fund shares

Post by Runner01 »

I recently accumulated over $10,000 in the total stock market ETF and would like to transfer the money to the admiral share class of the mutual fund for the ease of automatic investment. If I sell the ETF version will I have to wait for it to clear (3 days) before I can invest it in the mutual fund?

Thanks for your help.
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cheese_breath
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Re: Transfer ETF shares to mutual fund shares

Post by cheese_breath »

A related question. Assuming the ETF and mutual fund are both Vanguard TSM does he have to sell, or can Vanguard just reclassify his shares? If he sells he may be subject to capital gains taxes.
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grabiner
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Re: Transfer ETF shares to mutual fund shares

Post by grabiner »

cheese_breath wrote:A related question. Assuming the ETF and mutual fund are both Vanguard TSM does he have to sell, or can Vanguard just reclassify his shares? If he sells he may be subject to capital gains taxes.
You can't reclassify in that direction; you can only convert mutual fund shares to ETF shares. Thus, if you sell in a taxable account, you have a capital gain or loss (and you can't deduct the loss if you sell the ETF and buy the same mutual fund immediately, as that is a wash sale).
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Runner01
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Re: Transfer ETF shares to mutual fund shares

Post by Runner01 »

grabiner wrote:
cheese_breath wrote:A related question. Assuming the ETF and mutual fund are both Vanguard TSM does he have to sell, or can Vanguard just reclassify his shares? If he sells he may be subject to capital gains taxes.
You can't reclassify in that direction; you can only convert mutual fund shares to ETF shares. Thus, if you sell in a taxable account, you have a capital gain or loss (and you can't deduct the loss if you sell the ETF and buy the same mutual fund immediately, as that is a wash sale).
This is in a Roth account so capital gains are not an issue. I know I can't directly reclassify the shares but I don't know if I have to wait for the ETF sale to clear before buying the mutual fund shares. I would hate for the money to be uninvested for several days.
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Re: Transfer ETF shares to mutual fund shares

Post by livesoft »

OP is asking about the settlement time T+3. I will guess it depends on the brokerage, so let's assume the brokerage was Vanguard BS.

It doesn't matter about the wash sale because the cost basis would transfer in that case and the loss, while not allowed immediately, would not have an effect. But let's assume this was a tax-advantaged account.
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stlutz
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Re: Transfer ETF shares to mutual fund shares

Post by stlutz »

You might want to wait until Vanguard rolls out the brokerage enhancement to you that would allow you to hold VG fund shares in your brokerage account. When that happens, you should be able to sell the ETF and buy the Admiral shares on the same day. Until then, it would take about a week--i.e. you could sell the ETF on Monday and it would not be until the close on Friday that you'd have your admiral shares.
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Runner01
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Re: Transfer ETF shares to mutual fund shares

Post by Runner01 »

livesoft wrote:OP is asking about the settlement time T+3. I will guess it depends on the brokerage, so let's assume the brokerage was Vanguard BS.

It doesn't matter about the wash sale because the cost basis would transfer in that case and the loss, while not allowed immediately, would not have an effect. But let's assume this was a tax-advantaged account.
The brokerage is Vanguard and is a Roth account. Sorry for the lack of details in my initial post.
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Re: Transfer ETF shares to mutual fund shares

Post by StretchArmstrong »

Yes you have to wait. The day you execute the trade does not count, so in all practical terms the money shows up on day 4.

Do any brokerages offer settlement in 1 or 2 days? I thought because of the SEC that 3 was the industry default.

http://www.sec.gov/investor/pubs/tplus3.htm
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Re: Transfer ETF shares to mutual fund shares

Post by livesoft »

It is not just about settlement time, but whether they let you use the money before settlement occurs to buy something else. I'll try an experiment tomorrow and let you know.

If you have a margin account, then yes, they let you do this. But if you don't have a margin account? I'll try in a Roth tomorrow.
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Re: Transfer ETF shares to mutual fund shares

Post by runner9 »

http://www.bogleheads.org/forum/viewtop ... 1&t=108427

From runner9 to runner01: here's the thread I started with the same question.

I still haven't converted as I'm waiting until I have 10K in the ETF or until Vanguard rolls out a better integration with VBS that eliminates the 3 days.

If the former happens first I plan to do roughly 3k at a time, with a few days gap in between.
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Re: Transfer ETF shares to mutual fund shares

Post by livesoft »

I had a relative do the experiment: Sell ETFs in Roth IRA and immediately place order to buy mutual fund with the proceeds. It worked in a Fidelity Roth IRA just a moment ago. There was no waiting for T+3 settlement with Fidelity.
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Doc
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Re: Transfer ETF shares to mutual fund shares

Post by Doc »

livesoft wrote:It is not just about settlement time, but whether they let you use the money before settlement occurs to buy something else. I'll try an experiment tomorrow and let you know.

If you have a margin account, then yes, they let you do this. But if you don't have a margin account? I'll try in a Roth tomorrow.
That is not quite the way it works. When you sell a stock or ETF you have an immediate credit that is "available for trade". But the funds don't "settle" for T+3. You have to have "settled" funds to move money out of the account. In the case of Vanguard the brokerage side and the mutual fund side are different entities and thus you have to wait. At most other brokerages that also have mutual funds of their own you do not have to wait.

There are some other nuances like selling the new purchase before the original sale settles and I think options might require settled funds.

As far as the "loan" in concerned it is not a factor as the loan is from you to the broker when you go in the opposite direction so it all evens out. You don't need a margin account unless you go past the T+x time. (I think if you do have a margin account they might start charging interest from the get go.)

Also some times if you call you may get a waiver. :wink:
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Re: Transfer ETF shares to mutual fund shares

Post by indexfundfan »

livesoft wrote:I had a relative do the experiment: Sell ETFs in Roth IRA and immediately place order to buy mutual fund with the proceeds. It worked in a Fidelity Roth IRA just a moment ago. There was no waiting for T+3 settlement with Fidelity.
This should also work with Vanguard if the brokerage account has been "upgraded". This is touted as one of the benefits in the brokerage upgrade literature. But personally, I have not tried it.
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Re: Transfer ETF shares to mutual fund shares

Post by SpringMan »

By the way, margin accounts are not allowed for IRAs/Roths. At VBS you have to wait for settlement. That may change in the future when Vanguard rolls out the consolidation of Vanguard and VBS presentation. Vanguard Mutual fund to Vanguard ETFs conversions are free and not taxable events. They obviously require the VBS account option. Also some restrictions apply, you can not convert bond funds to their ETFs.
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runner9
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Re: Transfer ETF shares to mutual fund shares

Post by runner9 »

indexfundfan wrote:
livesoft wrote:I had a relative do the experiment: Sell ETFs in Roth IRA and immediately place order to buy mutual fund with the proceeds. It worked in a Fidelity Roth IRA just a moment ago. There was no waiting for T+3 settlement with Fidelity.
This should also work with Vanguard if the brokerage account has been "upgraded". This is touted as one of the benefits in the brokerage upgrade literature. But personally, I have not tried it.
is there a schedule for when this will happen? should I just wait or call and ask? (if the market is flat I should be at 10K in VEU by the end of Feb. through regular contributions as money becomes available)
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Re: Transfer ETF shares to mutual fund shares

Post by indexfundfan »

runner9 wrote:
indexfundfan wrote:
livesoft wrote:I had a relative do the experiment: Sell ETFs in Roth IRA and immediately place order to buy mutual fund with the proceeds. It worked in a Fidelity Roth IRA just a moment ago. There was no waiting for T+3 settlement with Fidelity.
This should also work with Vanguard if the brokerage account has been "upgraded". This is touted as one of the benefits in the brokerage upgrade literature. But personally, I have not tried it.
is there a schedule for when this will happen? should I just wait or call and ask? (if the market is flat I should be at 10K in VEU by the end of Feb. through regular contributions as money becomes available)
As far as I know, you need to be invited to upgrade at this time.

Here's the thread to the VBS rollout

http://www.bogleheads.org/forum/viewtop ... 2&t=125999
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Doc
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Re: Transfer ETF shares to mutual fund shares

Post by Doc »

indexfundfan wrote: As far as I know, you need to be invited to upgrade at this time.
I was invited but when I tried to switch I was told none of our accounts were "qualified". When I called I was told that I shouldn't have gotten the e-mail. :?
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Re: Transfer ETF shares to mutual fund shares

Post by Code Commit »

From my experience, VBS ETF to Admiral share (or any non-money-market Vanguard mutual fund) earliest schedule:

Monday (before 4pm ET) - Sell ETF
Thursday - settlement date. However, Vanguard does not update their records until Thursday night (i.e. after EOD Thursday).
Friday early morning - proceeds sweep from VBS to Vanguard prime money-market account.
Friday (before 4pm ET) - Now you can do an exchange from money market to your chosen Vanguard fund and you will get Friday's closing NAV.

Of course, this is without the "upgraded" version that indexfundfan is getting. Lucky him/her.

EDIT: Looks like stlutz already posted this before.
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