Fidelity problems and what is substantially similar

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Fidelity problems and what is substantially similar

Post by HAL 9000 » Fri Jan 11, 2019 9:08 pm

Hello fellow BH's,
I just discovered an issue with the wife's fidelity IRA. I had set up the profile to deposit all dividends and capital gains into the core account and not to reinvest back into a Four in One fund. There is a check box to apply this setting to all 'future funds' which I checked and then submitted. Everything looked good and foolishly I thought I could now TLH like a pro. A few days later I sold that fund and invested in the zero funds and again I assumed that the previously mentioned future funds check box to deposit dividends and capital gains into the core account applied to these actual 'future funds'.

Long story short, in the statement today there are all these wash sales from reinvested dividends and capital gains. The fidelity account rep said not to worry about it as it's in an IRA, but evidently they are very misinformed and don't understand tax law and how these IRA purchases affect a taxable account fund sale. They also mentioned that the default was to reinvest in the funds as if I'm some kind of idiot and then some more of the run around.

In hindsight, I had heard good things about fidelity so I assumed their platform worked. I was trying to change my habits as I am sick of checking everyone's work so I didn't and now it bit me.

I consider this a bug with the fidelity web site (and I imagined they'd escalate it and check the logs or db etc) and I think they should fix their error and their bug. Has anyone encountered this issue and how would you handle it?

Thanks,
HAL
Last edited by HAL 9000 on Sat Jan 12, 2019 6:29 pm, edited 2 times in total.

ofckrupke
Posts: 635
Joined: Mon Jan 10, 2011 2:26 pm

Re: Fidelity Problems

Post by ofckrupke » Fri Jan 11, 2019 10:11 pm

Well, I don't think there is any question about it; it can only be attributable to human error.
This sort of thing has cropped up before, and it has always been due to human error.
Last edited by ofckrupke on Fri Jan 11, 2019 10:15 pm, edited 1 time in total.

John Laurens
Posts: 435
Joined: Mon Nov 14, 2016 7:31 pm

Re: Fidelity Problems

Post by John Laurens » Fri Jan 11, 2019 10:15 pm

To clarify...you held the 4 in one fund in taxable as well?

Regards,
John

drzzzzz
Posts: 421
Joined: Sat Sep 22, 2012 9:56 pm

Re: Fidelity Problems

Post by drzzzzz » Fri Jan 11, 2019 10:15 pm

I am confused, is this in an IRA or a taxable account where you were doing the TLH since TLH only works in a taxable account. I am working with Vanguard where they reinvested dividends (contrary to the account instructions) to funds that I had sold to TLH in two different taxable accounts causing a wash sale and they are reversing the trades but again they are in taxable accounts.

User avatar
ResearchMed
Posts: 9176
Joined: Fri Dec 26, 2008 11:25 pm

Re: Fidelity Problems

Post by ResearchMed » Fri Jan 11, 2019 10:21 pm

drzzzzz wrote:
Fri Jan 11, 2019 10:15 pm
I am confused, is this in an IRA or a taxable account where you were doing the TLH since TLH only works in a taxable account. I am working with Vanguard where they reinvested dividends (contrary to the account instructions) to funds that I had sold to TLH in two different taxable accounts causing a wash sale and they are reversing the trades but again they are in taxable accounts.
TLH may only "work" in a taxable account.

But buying that same holding in an IRA can conflict with the taxable TLH just as though it had also occurred in the taxable account.

RM
This signature is a placebo. You are in the control group.

Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Fidelity Problems

Post by HAL 9000 » Fri Jan 11, 2019 10:22 pm

Not the four in one fund, but the newer fidelity zero fee total us index and total international index funds in the IRA (the reinvestments) created wash sale problems for the total us index and total international index vanguard funds in taxable account (the TLH sales).

I assume the vanguard funds and the zero fee fidelity funds are substantially identical correct?

drzzzzz
Posts: 421
Joined: Sat Sep 22, 2012 9:56 pm

Re: Fidelity Problems

Post by drzzzzz » Fri Jan 11, 2019 10:45 pm

They follow different indices so I think many might say not substantially identical.

paddlepoudre
Posts: 32
Joined: Fri Sep 27, 2013 10:52 pm

Re: Fidelity Problems

Post by paddlepoudre » Fri Jan 11, 2019 10:49 pm

I've had the same experience. The first time I was confused and called Fidelity. Now I don't consider it a Fidelity "mistake", but a result of my intentional instructions to reinvest dividends in the same fund, but in a different account than the one in which the sale occurred. For me, the dividends (i.e., "unintentional wash sale") were small relative to CGs gains, so not an issue. The tax statements were correct. Unless you have a very unusual situation, I don't see any reason to stress over this.

Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Fidelity Problems

Post by HAL 9000 » Sat Jan 12, 2019 11:44 am

drzzzzz wrote:
Fri Jan 11, 2019 10:45 pm
They follow different indices so I think many might say not substantially identical.
Does anyone know how different these are?

John Laurens
Posts: 435
Joined: Mon Nov 14, 2016 7:31 pm

Re: Fidelity Problems

Post by John Laurens » Sat Jan 12, 2019 1:39 pm

I would consider them significantly different by a measure of over 1000 additional holdings in the vanguard total market index

Regards John

Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Fidelity Problems and what is substantially similar

Post by HAL 9000 » Sat Jan 12, 2019 6:28 pm

So even though they hold, say 90% by dollar value the same stocks (I don't know the actual amount but I'm assuming all the large and mid caps are the same), the fact they track different indexes is enough to be substantially different?

benway
Posts: 64
Joined: Thu Jun 30, 2011 5:17 pm

Re: Fidelity problems and what is substantially similar

Post by benway » Sat Jan 12, 2019 8:04 pm

According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.

TropikThunder
Posts: 1692
Joined: Sun Apr 03, 2016 5:41 pm

Re: Fidelity problems and what is substantially similar

Post by TropikThunder » Sat Jan 12, 2019 8:30 pm

benway wrote:
Sat Jan 12, 2019 8:04 pm
According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.
That may be true from a performance perspective, but it has nothing to do with the IRS standard for "substantially identical."

Even though they haven't explicitly defined the term.

tibbitts
Posts: 9152
Joined: Tue Feb 27, 2007 6:50 pm

Re: Fidelity problems and what is substantially similar

Post by tibbitts » Sat Jan 12, 2019 8:38 pm

benway wrote:
Sat Jan 12, 2019 8:04 pm
According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.
Read the hundreds of discussions about "substantially identical" here on the forum - I think you'll find you're way off in your understanding.

You completely lost me by starting out talking about an IRA and then moving on to TLH, when in fact you don't seem to have an even close to similar account in both taxable and and IRA.

TropikThunder
Posts: 1692
Joined: Sun Apr 03, 2016 5:41 pm

Re: Fidelity Problems

Post by TropikThunder » Sat Jan 12, 2019 8:39 pm

HAL 9000 wrote:
Fri Jan 11, 2019 10:22 pm
Not the four in one fund, but the newer fidelity zero fee total us index and total international index funds in the IRA (the reinvestments) created wash sale problems for the total us index and total international index vanguard funds in taxable account (the TLH sales).

I assume the vanguard funds and the zero fee fidelity funds are substantially identical correct?
Is this sequence correct:
1. you switched from Four in One to new Zero funds in IRA, and the new Zero funds were set to reinvest dividends (which is not what you wanted).

2. You sold Vanguard TSM and TISM in taxable to TLH.

3. The reinvested Zero fund dividends in the IRA triggered wash sales for the TLH'd Vanguard funds in taxable.

I've read many comments about how a brokerage won't flag wash sales unless it's the exact same fund (same CUSIP) and often only then if it's in the same account (the IRS may find out, but the brokerage itself doesn't flag it). I'm surprised Fidelity did so in this case (different fund families held in different accounts).

User avatar
SlowMovingInvestor
Posts: 1287
Joined: Sun Sep 11, 2016 11:27 am

Re: Fidelity Problems

Post by SlowMovingInvestor » Sat Jan 12, 2019 8:52 pm

TropikThunder wrote:
Sat Jan 12, 2019 8:39 pm
HAL 9000 wrote:
Fri Jan 11, 2019 10:22 pm
Not the four in one fund, but the newer fidelity zero fee total us index and total international index funds in the IRA (the reinvestments) created wash sale problems for the total us index and total international index vanguard funds in taxable account (the TLH sales).

I assume the vanguard funds and the zero fee fidelity funds are substantially identical correct?
Is this sequence correct:
1. you switched from Four in One to new Zero funds in IRA, and the new Zero funds were set to reinvest dividends (which is not what you wanted).

2. You sold Vanguard TSM and TISM in taxable to TLH.

3. The reinvested Zero fund dividends in the IRA triggered wash sales for the TLH'd Vanguard funds in taxable.

I've read many comments about how a brokerage won't flag wash sales unless it's the exact same fund (same CUSIP) and often only then if it's in the same account (the IRS may find out, but the brokerage itself doesn't flag it). I'm surprised Fidelity did so in this case (different fund families held in different accounts).
I just don't believe that Fidelity's automated wash sale detection would find Vanguard TSM and TISM to be the same or substantially identical to Fidelity's zero funds. I am not sure about the exact algorithms that Fidelity (or more likely Gainskeeper) uses, but I very much doubt this software would attempt to resolve a question that even experienced accountants and statisticians would struggle with.

I'm sure there must be some other explanation for the wash sale flagging, even computer error.
Last edited by SlowMovingInvestor on Sat Jan 12, 2019 9:24 pm, edited 1 time in total.

benway
Posts: 64
Joined: Thu Jun 30, 2011 5:17 pm

Re: Fidelity problems and what is substantially similar

Post by benway » Sat Jan 12, 2019 9:00 pm

tibbitts wrote:
Sat Jan 12, 2019 8:38 pm
benway wrote:
Sat Jan 12, 2019 8:04 pm
According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.
Read the hundreds of discussions about "substantially identical" here on the forum - I think you'll find you're way off in your understanding.

You completely lost me by starting out talking about an IRA and then moving on to TLH, when in fact you don't seem to have an even close to similar account in both taxable and and IRA.
I've read many of the discussions over the years. My conclusion from those threads and elsewhere is that nobody can say with authority who is "way off". From what I've read about the matter, the IRS hasn't defined what substantially identical actually means.

TropikThunder
Posts: 1692
Joined: Sun Apr 03, 2016 5:41 pm

Re: Fidelity problems and what is substantially similar

Post by TropikThunder » Sat Jan 12, 2019 9:47 pm

benway wrote:
Sat Jan 12, 2019 9:00 pm
tibbitts wrote:
Sat Jan 12, 2019 8:38 pm
benway wrote:
Sat Jan 12, 2019 8:04 pm
According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.
Read the hundreds of discussions about "substantially identical" here on the forum - I think you'll find you're way off in your understanding.

You completely lost me by starting out talking about an IRA and then moving on to TLH, when in fact you don't seem to have an even close to similar account in both taxable and and IRA.
I've read many of the discussions over the years. My conclusion from those threads and elsewhere is that nobody can say with authority who is "way off". From what I've read about the matter, the IRS hasn't defined what substantially identical actually means.
According to Portfolio Visualizer, Vanguard's S&P500 and TSM funds have 0.99 correlation but I’ve never seen anyone say they were substantially identical. My point (and tibbitts's if I may be so bold) is that while it's true "the IRS hasn't defined what substantially identical actually means", it only makes sense based on composition, not on performance.

benway
Posts: 64
Joined: Thu Jun 30, 2011 5:17 pm

Re: Fidelity problems and what is substantially similar

Post by benway » Sat Jan 12, 2019 11:28 pm

Thank you for your reply. One can look at it from different angles, and the fact is we don’t know which is the correct way. VTI and VOO have an 83% composition overlap by weight. Is that low enough? Some are comfortable with that and others not.

See-
https://www.barrons.com/articles/tax-st ... 1480749262

If link doesn’t work, Google: Barron’s, Tax Strategies for ETF Investors

BigJohn
Posts: 1768
Joined: Wed Apr 02, 2014 11:27 pm

Re: Fidelity Problems

Post by BigJohn » Sun Jan 13, 2019 1:20 am

ofckrupke wrote:
Fri Jan 11, 2019 10:11 pm
Well, I don't think there is any question about it; it can only be attributable to human error.
This sort of thing has cropped up before, and it has always been due to human error.
A great post given the OPs name :beer

User avatar
Phineas J. Whoopee
Posts: 8575
Joined: Sun Dec 18, 2011 6:18 pm

Re: Fidelity problems and what is substantially similar

Post by Phineas J. Whoopee » Sun Jan 13, 2019 11:43 am

benway wrote:
Sat Jan 12, 2019 9:00 pm
tibbitts wrote:
Sat Jan 12, 2019 8:38 pm
benway wrote:
Sat Jan 12, 2019 8:04 pm
According to portfoliovisualizer.com, the total US funds have a 1.0 correlation and the total international funds have a .99 correlation. By that measure, they seem substantially identical.
Read the hundreds of discussions about "substantially identical" here on the forum - I think you'll find you're way off in your understanding.

You completely lost me by starting out talking about an IRA and then moving on to TLH, when in fact you don't seem to have an even close to similar account in both taxable and and IRA.
I've read many of the discussions over the years. My conclusion from those threads and elsewhere is that nobody can say with authority who is "way off". From what I've read about the matter, the IRS hasn't defined what substantially identical actually means.
That's true for mutual funds, ETFs, and the like, but there are many securities for which we do know.

PJW

Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Fidelity Problems

Post by HAL 9000 » Sun Jan 13, 2019 11:22 pm

TropikThunder wrote:
Sat Jan 12, 2019 8:39 pm
HAL 9000 wrote:
Fri Jan 11, 2019 10:22 pm
Not the four in one fund, but the newer fidelity zero fee total us index and total international index funds in the IRA (the reinvestments) created wash sale problems for the total us index and total international index vanguard funds in taxable account (the TLH sales).

I assume the vanguard funds and the zero fee fidelity funds are substantially identical correct?
Is this sequence correct:
1. you switched from Four in One to new Zero funds in IRA, and the new Zero funds were set to reinvest dividends (which is not what you wanted).

2. You sold Vanguard TSM and TISM in taxable to TLH.

3. The reinvested Zero fund dividends in the IRA triggered wash sales for the TLH'd Vanguard funds in taxable.

I've read many comments about how a brokerage won't flag wash sales unless it's the exact same fund (same CUSIP) and often only then if it's in the same account (the IRS may find out, but the brokerage itself doesn't flag it). I'm surprised Fidelity did so in this case (different fund families held in different accounts).
Yes that is what happened, but I flagged the wash sales myself as the taxable account is not at Fidelity.

NMBob
Posts: 244
Joined: Thu Apr 23, 2015 8:13 pm

Re: Fidelity problems and what is substantially similar

Post by NMBob » Mon Jan 14, 2019 12:47 am

the problem is, or actually it makes the answer easy and more obvious, is that there is no definitive definition or apparently a set of decisions to define the rule. I ask, if you buy anything that is not the exact same fund, you can usually find something different about them. Maybe two fund track the same index, but one does it with only half the funds total that the other one does etc. So, if it is not the exact same fund, who is going to raise this issue, why, and who is going to adjudicate it? Is there a single story by anyone who bought something that was not the exact same fund to the ticker symbol, that was somehow audited and forced to change their mind that it was substantially the same and redo the return? It seems some folks also may be making an assumption that being a different company, is somehow not substantially different, and that may not have been written in stone anywhere. Apparently the wash rule is basically written before mutual funds, and has not really been updated etc. And read the quote below i have seen similar to years ago, and understand basically no two funds are substantially the same.

from the internet
In former IRS Publication 564, the Service acknowledged that “ordinarily, shares issued by one mutual fund are not considered to be substantially identical to shares issued by another mutual fund”, but without any clarification as to what circumstances two mutual funds could be substantially identical.
But the issue is now apparently that you have already told the brokerage that it was a wash sale. Now, internet says brokerages are required to report wash sales, and if you marked it as a wash sale, then it seems that is how they will report it. So, now what do you do, say, hey, ignore that, its wrong? uh? Sorry no clear solution at your current position of reporting.

fyi
IRS regulations require only that Schwab track and report wash sales on the same CUSIP number (a unique nine-character identifier for a security) within the same account.

MnD
Posts: 4307
Joined: Mon Jan 14, 2008 12:41 pm

Re: Fidelity Problems

Post by MnD » Mon Jan 14, 2019 9:01 am

HAL 9000 wrote:
Sun Jan 13, 2019 11:22 pm
TropikThunder wrote:
Sat Jan 12, 2019 8:39 pm
HAL 9000 wrote:
Fri Jan 11, 2019 10:22 pm
Not the four in one fund, but the newer fidelity zero fee total us index and total international index funds in the IRA (the reinvestments) created wash sale problems for the total us index and total international index vanguard funds in taxable account (the TLH sales).

I assume the vanguard funds and the zero fee fidelity funds are substantially identical correct?
Is this sequence correct:
1. you switched from Four in One to new Zero funds in IRA, and the new Zero funds were set to reinvest dividends (which is not what you wanted).

2. You sold Vanguard TSM and TISM in taxable to TLH.

3. The reinvested Zero fund dividends in the IRA triggered wash sales for the TLH'd Vanguard funds in taxable.

I've read many comments about how a brokerage won't flag wash sales unless it's the exact same fund (same CUSIP) and often only then if it's in the same account (the IRS may find out, but the brokerage itself doesn't flag it). I'm surprised Fidelity did so in this case (different fund families held in different accounts).
Yes that is what happened, but I flagged the wash sales myself as the taxable account is not at Fidelity.
They are not substantially identical. Any erroneous flagging of wash sales in taxable was done by you, so you should attempt to undo whatever process you went through to do so and move on. TLH'ing without being out of the market and without adding portfolio complexity and/or tilts involves trading highly correlated "pairs" of different funds or ETF's - commonly funds that track different indices such as your situation with VG and Fidelity funds. Robo-advisory services with many billions under management advertise and execute this approach very openly and presumably they have legal and tax departments.

Topic Author
HAL 9000
Posts: 90
Joined: Thu Apr 13, 2017 10:23 pm
Location: USA

Re: Fidelity Problems

Post by HAL 9000 » Tue Jan 15, 2019 9:23 pm

ofckrupke wrote:
Fri Jan 11, 2019 10:11 pm
Well, I don't think there is any question about it; it can only be attributable to human error.
This sort of thing has cropped up before, and it has always been due to human error.
Not me, I have a perfect operational record. :beer

Post Reply