Are Qualified Dividends limited to a tax year

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saagar_is_cool
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Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

I went with VSCGX earlier and I am in process of cleaning up to go to VTI. I waited for 1 year to make it long term gains. My question is as below.

1. VSCGX dividends are paid in December some time.
2. If I sell VSCGX and buy VTI, when VTI pays dividends in December, then I would have held it only for 30 days or less. Since the tax year finishes in December 2021, will Vanguard classify it as non-qualified dividend since I did not hold it for 61 days in 121 day period
3. Or does Vanguard make it a qualified dividend as they wait till Feb to issue the tax statements ?
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
jebmke
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Re: Are Qualified Dividends limited to a tax year

Post by jebmke »

I may be wrong [my spouse often thinks so] but I don't think Vanguard classifies dividends based on your holding period. If adjustment is required on your taxes to reflect that a security has not been held long enough, the burden is on you to reclassify how they report it on the 1099-DIV.
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livesoft
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Re: Are Qualified Dividends limited to a tax year

Post by livesoft »

Vanguard will not tell you about your personal holding period. You have to do that yourself.

Vanguard will only tell you that the fund/ETF shares paid qualified dividends.

To answer your question directly: Your holding period crosses calendar year boundaries, so buying VTI say the day before it goes ex-dividend in December 2021 will mean any qualified dividends that Vanguard put on your 1099-DIV will remain qualified if you do not sell the shares that paid the dividend for those 61 days.

However, suppose you get the December dividend and sell in the first week of January. Your 1099-DIV from Vanguard will tell you the dividend is qualified, but it will NOT be to you. It is the taxpayer's responsibility to override what the 1099-DIV states and report the correct information on their tax return.
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Topic Author
saagar_is_cool
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Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

jebmke wrote: Fri Nov 26, 2021 10:29 am I may be wrong [my spouse often thinks so] but I don't think Vanguard classifies dividends based on your holding period. If adjustment is required on your taxes to reflect that a security has not been held long enough, the burden is on you to reclassify how they report it on the 1099-DIV.
Thank you. When you say, burden is on me to reclassify, do you mean that I need to inform Vanguard to correct it or should I just put them under non-qualified dividends while filing my taxes.
jebmke
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Re: Are Qualified Dividends limited to a tax year

Post by jebmke »

saagar_is_cool wrote: Fri Nov 26, 2021 10:57 am
jebmke wrote: Fri Nov 26, 2021 10:29 am I may be wrong [my spouse often thinks so] but I don't think Vanguard classifies dividends based on your holding period. If adjustment is required on your taxes to reflect that a security has not been held long enough, the burden is on you to reclassify how they report it on the 1099-DIV.
Thank you. When you say, burden is on me to reclassify, do you mean that I need to inform Vanguard to correct it or should I just put them under non-qualified dividends while filing my taxes.
You would need to put them in the right spot on taxes. Vanguard doesn't care.
Stay hydrated; don't sweat the small stuff
AnEngineer
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Re: Are Qualified Dividends limited to a tax year

Post by AnEngineer »

We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
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Svensk Anga
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Re: Are Qualified Dividends limited to a tax year

Post by Svensk Anga »

saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Topic Author
saagar_is_cool
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Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

AnEngineer wrote: Fri Nov 26, 2021 1:50 pm We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
So, based on what you are saying, will Vanguard the broker keep track of the 61 day rule and report the dividend as nonqualified correctly ?
Topic Author
saagar_is_cool
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Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
AnEngineer
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Re: Are Qualified Dividends limited to a tax year

Post by AnEngineer »

saagar_is_cool wrote: Fri Nov 26, 2021 8:00 pm
AnEngineer wrote: Fri Nov 26, 2021 1:50 pm We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
So, based on what you are saying, will Vanguard the broker keep track of the 61 day rule and report the dividend as nonqualified correctly ?
Yes.
AnEngineer
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Re: Are Qualified Dividends limited to a tax year

Post by AnEngineer »

saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
Topic Author
saagar_is_cool
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Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

AnEngineer wrote: Fri Nov 26, 2021 8:05 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
Yes, I was waiting for 1 year to complete to do the conversion so that it comes under long term gains taxes. I am in the process of moving towards 3 fund portfolio, so I want to make sure these are all only long term capital gains.
livesoft
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Re: Are Qualified Dividends limited to a tax year

Post by livesoft »

saagar_is_cool wrote: Fri Nov 26, 2021 8:00 pm
AnEngineer wrote: Fri Nov 26, 2021 1:50 pm We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
So, based on what you are saying, will Vanguard the broker keep track of the 61 day rule and report the dividend as nonqualified correctly ?
Vanguard does not keep track of the 61-day rule for its clients. Vanguard will not report the dividend as nonqualified correctly. See this post from 2016 where an example was tracked and shown in real-time: viewtopic.php?p=2813166#p2813166

The lateness of 1099-DIV may result from Vanguard and other fund/ETF sponsors tracking the 61-day rule of component shares for the fund managers and the funds/ETFs themselves and those holding periods. It really has little, if anything, to do with the personal holding period. Furthermore, in the explanatory 1099-DIV brochure that Vanguard has distributed in the past, it is explicitly stated that the 1099-DIV that a client receives does not take into account the client's personal holding period for the amount in Box 1b.
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Topic Author
saagar_is_cool
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Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

livesoft wrote: Fri Nov 26, 2021 9:53 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:00 pm
AnEngineer wrote: Fri Nov 26, 2021 1:50 pm We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
So, based on what you are saying, will Vanguard the broker keep track of the 61 day rule and report the dividend as nonqualified correctly ?
Vanguard does not keep track of the 61-day rule for its clients. Vanguard will not report the dividend as nonqualified correctly. See this post from 2016 where an example was tracked and shown in real-time: viewtopic.php?p=2813166#p2813166

The lateness of 1099-DIV may result from Vanguard and other fund/ETF sponsors tracking the 61-day rule of component shares for the fund managers and the funds/ETFs themselves and those holding periods. It really has little, if anything, to do with the personal holding period. Furthermore, in the explanatory 1099-DIV brochure that Vanguard has distributed in the past, it is explicitly stated that the 1099-DIV that a client receives does not take into account the client's personal holding period for the amount in Box 1b.
Thank you. In that case, I will track. How do I interpret the 61 day rule. For example, if the ex dividend
date is today and I bought VTI 2 days before and don’t sell it for next 4 months, will the 61 days in 121 days be met correctly. The language of the rule is a bit ambiguous for me.
livesoft
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Re: Are Qualified Dividends limited to a tax year

Post by livesoft »

The investor will not get the dividend in question if they do not own the shares on the morning of the ex-dividend date before the investment shares start trading, so the 61 days is tied to that day. They need to own the shares for an additional 60 days. The 60 days could come before or after the ex-dividend date or some days before and some days after. Thus it could be 60 days before and 0 days after, 60 days after and 0 days before, 39 days before and 21 days after, or some other combination. Please see IRS Publication 550 page 19.
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sycamore
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Re: Are Qualified Dividends limited to a tax year

Post by sycamore »

livesoft wrote: Fri Nov 26, 2021 9:53 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:00 pm
AnEngineer wrote: Fri Nov 26, 2021 1:50 pm We need to differentiate between Vanguard the fund operator and Vanguard the broker. Your broker should track if you hold the shares long enough, which is why your 1099-DIV comes so late into the next year.
So, based on what you are saying, will Vanguard the broker keep track of the 61 day rule and report the dividend as nonqualified correctly ?
Vanguard does not keep track of the 61-day rule for its clients. Vanguard will not report the dividend as nonqualified correctly.
+1. A brokerage "could" try to keep track of such things but there are side cases where they can't. Example: you own some shares at brokerage #1 and receive the dividend, and then transfer your shares to brokerage #2. Brokerage #1 doesn't know if or when you end up selling your shares at brokerage #2 inside or outside the 61 days.
ITS BJA
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Re: Are Qualified Dividends limited to a tax year

Post by ITS BJA »

Hello My name is Brian and I'm having the exact same situation that saagar_is_cool had
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am I went with VSCGX earlier and I am in process of cleaning up to go to VTI
I want to move shares of my VSCGX over to get more VTI I already have both at Vanguard and I wanted to ask a few follow up questions from your experience before I move forward with mine and thank you for the opportunity to do so

So saagar_is_cool you mentioned before
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
So you exchanged VSCGX to Settlement Fund and then from there bought more VTI because you cant exchange VSCGX to VTI, correct?

So if I wanted to do the same I would exchange VSCGX to Settlement Fund and then from there buy more VTI? It sounds simple enough that I'm sure it isn't, which is why I'm asking based on your experience

OK from there I'd like to ask both saagar_is_cool and AnEngineer a question on the taxes from said exchange VSCGX to Settlement Fund and then from there buy more VTI
AnEngineer wrote: Fri Nov 26, 2021 8:05 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
saagar_is_cool wrote: Fri Nov 26, 2021 8:20 pm
AnEngineer wrote: Fri Nov 26, 2021 8:05 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
Yes, I was waiting for 1 year to complete to do the conversion so that it comes under long term gains taxes. I am in the process of moving towards 3 fund portfolio, so I want to make sure these are all only long term capital gains.
I ended up with the VSCGX as part of an inheritance back in January, which is why I want to transfer it into my VTI holdings

So is the taxes that I will be paying from when my father had the fund or from profits made since its been in my possession? I mean either way I'm going to transfer the fund but I just wanted a head's up

Any information based on your experience of moving VSCGX to VTI would be awesome and I thank you greatly in advance
water2357
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Re: Are Qualified Dividends limited to a tax year

Post by water2357 »

All inherited assets are revalued as of the date of death. So, your cost basis is the value of the assets on the date of your father's death. Others on here may know if there are any exteuating circumstance that may cause your situation to differ from this standard rule. You could also check with the executor of your father's estate.
DWNY
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Re: Are Qualified Dividends limited to a tax year

Post by DWNY »

ITS BJA,
I'd suggest doing this in 2 steps.
1. Exchange VSCGX to VTSAX (Vanguard Total Stock Market Index Fund Admiral)
2. Call Vanguard and have them change the VTSAX mutual fund shares to VTI ETF shares.

That way you're not out of the market.
Topic Author
saagar_is_cool
Posts: 401
Joined: Thu Jan 30, 2014 1:21 pm

Re: Are Qualified Dividends limited to a tax year

Post by saagar_is_cool »

ITS BJA wrote: Thu Apr 28, 2022 9:15 pm Hello My name is Brian and I'm having the exact same situation that saagar_is_cool had
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am I went with VSCGX earlier and I am in process of cleaning up to go to VTI
I want to move shares of my VSCGX over to get more VTI I already have both at Vanguard and I wanted to ask a few follow up questions from your experience before I move forward with mine and thank you for the opportunity to do so

So saagar_is_cool you mentioned before
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
So you exchanged VSCGX to Settlement Fund and then from there bought more VTI because you cant exchange VSCGX to VTI, correct?

So if I wanted to do the same I would exchange VSCGX to Settlement Fund and then from there buy more VTI? It sounds simple enough that I'm sure it isn't, which is why I'm asking based on your experience

OK from there I'd like to ask both saagar_is_cool and AnEngineer a question on the taxes from said exchange VSCGX to Settlement Fund and then from there buy more VTI
AnEngineer wrote: Fri Nov 26, 2021 8:05 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm
saagar_is_cool wrote: Fri Nov 26, 2021 10:26 am
4. Also, how do I "exchange" VSCGX to VTI. As the fund sale happens at end of the day and VTI trades during the day.
You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
saagar_is_cool wrote: Fri Nov 26, 2021 8:20 pm
AnEngineer wrote: Fri Nov 26, 2021 8:05 pm
saagar_is_cool wrote: Fri Nov 26, 2021 8:03 pm
Svensk Anga wrote: Fri Nov 26, 2021 2:21 pm

You cannot exchange from a mutual fund to an ETF. You sell the mutual fund and then buy the ETF. The mutual fund transaction settles in one day. The ETF will settle in two. The broker may let you buy the ETF the next day when you know what the mutual fund sold for.
Thank you, this is what I was worried about. Thag I will have to buy VTI, only the next day. However I called Vanguard and the lady told me that when you sell Mutual Fund you can put sales proceeds going to Settlement Fund. Then you can immediately but VTI with the settlement fund. Vanguard site will show a warning that you have to come up with the funds but since Mutual fund settles in a day and ETF settles in 2 days, she said I should be covered without any issues. I tried this today. I will know on Wed if there were any isuses with this.
You know you have to pay taxes on any gains from the sale, right?
Yes, I was waiting for 1 year to complete to do the conversion so that it comes under long term gains taxes. I am in the process of moving towards 3 fund portfolio, so I want to make sure these are all only long term capital gains.
I ended up with the VSCGX as part of an inheritance back in January, which is why I want to transfer it into my VTI holdings

So is the taxes that I will be paying from when my father had the fund or from profits made since its been in my possession? I mean either way I'm going to transfer the fund but I just wanted a head's up

Any information based on your experience of moving VSCGX to VTI would be awesome and I thank you greatly in advance
An update from my experience. lets say I sold $10k worth of VSCGX and I chose settlement fund as option, I would buy VTI worth about $9,500 right away. This shows me a warning that funds need to be in account in 2 days but since mutual fund settles in 1 day and ETF in 2 days, this is fine. When VSCGX settles in a day, I look at the remaining amount if any, and then buy the remaining VTI. Since I don’t expect VSCGX to fluctuate by 5% in one day, this worked out well in clearing them off.

Regarding taxes, I read about stepped-up cost basis on death, but I have no idea about the details. So, others can help you here.
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