"Exchanging" ETFs

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capitalhill
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Joined: Thu Jul 12, 2018 9:36 am

"Exchanging" ETFs

Post by capitalhill » Thu Jul 12, 2018 10:00 am

I am curious about the practical steps (and tax implications, if any) involved with "exchanging" Vanguard ETFs within a Vanguard Roth IRA.

Example: Your Roth IRA currently holds only shares of BND, but you would like to move all your money into VTI.

My understanding is that you would simply sell all your BND shares, the proceeds would be moved into your settlement fund, and you then use those funds to buy shares of VTI. Is that correct? Are there any fees, penalties, or tax consequences of this process?

Nate79
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Location: Portland, OR

Re: "Exchanging" ETFs

Post by Nate79 » Thu Jul 12, 2018 10:41 am

Within an IRA at Vanguard there is no cost or impact to buy or sell Vanguard ETF's. The only impact is if you hold these same ETF's in a taxable account and then you need to worry about potential wash sales.

22twain
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Joined: Thu May 10, 2012 5:42 pm

Re: "Exchanging" ETFs

Post by 22twain » Thu Jul 12, 2018 10:50 am

No tax consequences, so long as the money stays inside the IRA.

I would be surprised if there are any fees or other costs in an account at Vanguard, but I don't have an account there so you should let someone who does, confirm this.

(I have Vanguard ETFs in a brokerage account at T. Rowe Price, where I do have to pay a commission on each sale or purchase. Fortunately I need to make only a few of them per year. The cost is less than the ERs of the ETFs themselves, so I haven't had any urge to move them to Vanguard or somewhere else where I would have free trades.)
My investing princiPLEs do not include absolutely preserving princiPAL.

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jhfenton
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Location: Ohio

Re: "Exchanging" ETFs

Post by jhfenton » Thu Jul 12, 2018 11:39 am

capitalhill wrote:
Thu Jul 12, 2018 10:00 am
My understanding is that you would simply sell all your BND shares, the proceeds would be moved into your settlement fund, and you then use those funds to buy shares of VTI. Is that correct? Are there any fees, penalties, or tax consequences of this process?
Basically. You sell BND. You see what the proceeds were. You do the math to figure out how many shares of VTI you can buy. You place an order for VTI. Done.

You don't need to wait two days for the original sale to settle. The proceeds of your sale will be "Available to Trade" immediately. Only the "pennies" left over (that weren't enough to buy another share of VTI) will be swept into your settlement fund two days later.

Beyond trading costs (i.e. bid/ask spreads), which would be small on such liquid ETFs, the only actual fee is the SEC-imposed securities transaction fee on sales, currently $13.00/million ($0.13/$10,000 or 0.0013%). You will pay that at any broker.

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