Does transferring taxable account have bad tax consequences.

[get_g0ing]

Hello Bogleheads,

I don't have experience transferring taxable brokerage accounts, so requesting your feedback please.

I'm transferring a taxable account from Vanguard to M1 Finance. It currently holds VTSAX (Vanguard total stock index fund). On the phone, M1 told me that since they don't have mutual funds, they liquidate my VTSAX and put the cash in the M1 account. And add a $250 transfer bonus.

I'd like to ask, will doing this be very bad or disadvantages from a tax perspective? I want to make sure that there won't be a big surprise in the future that will make me regret this.

I've never sold my taxable holdings before (nor transferred accounts), so I'm ignorant of any negative tax implications of that. I'll be grateful for any guidance from you all. Thank you

[Editing to add:]
I am also transferring my Roth IRA (which also holds VTSAX). Should I do anything here, like convert it first to ETF (VTI) and then transfer?

[Edit 2:]
In M1 I plan on buying UPRO, TMF, EDV. (It's a small % of my portfolio and I know it's risky. So hoping not to have this thread about that, but rather just the mechanics of transfer )
From the comments below, I'm getting the feeling that it's not a good idea to transfer the taxable account. So I am thinking about only transferring Roth IRA to keep it simple.

[lakpr]

If the existing investments in VTSAX are liquidated, you will owe Capital Gains taxes on the gains realized so far. Depending on how far ago you established the account and how much you realize in capital gains, you might be looking at a substantial tax bill (or not). You will also be perhaps liable for underpayment penalties, if you don't send an estimated tax payment to the IRS of at least 15% of the gains realized on the sale.

With your specific proposed transfer from Vanguard to M1, you might want to follow a 2-step strategy.

1. Ask Vanguard to convert everything in your VTSAX, to the corresponding ETF: VTI. This is a tax-free transaction and Vanguard can help you with it. This is a one-way street though, you cannot go back from VTI to VTSAX, unless you sell and buy back.
2. Ask M1 to "transfer in kind" the VTI shares from Vanguard. If transferred in kind, then the transaction is again tax free.

[Hockey10]

It depends on how large your gain is in the Vanguard account. For example, If you have a $1,000 long term gain, the tax impact is minimal. If you have a $100,000 short term gain, there will be a major impact on your taxes.

[Silk McCue]

Call Vanguard and ask them to convert the shares to ETFs. No need to tell them why. Then you’ll be able to transfer those to M1 without tax consequence.

Cheers

[dbr]

Good job on being smart enough to ask. M1 did not provide tax advice, nor should they.

[get_g0ing]

If the existing investments in VTSAX are liquidated, you will owe Capital Gains taxes on the gains realized so far. Depending on how far ago you established the account and how much you realize in capital gains, you might be looking at a substantial tax bill (or not). You will also be perhaps liable for underpayment penalties, if you don't send an estimated tax payment to the IRS of at least 15% of the gains realized on the sale.

With your specific proposed transfer from Vanguard to M1, you might want to follow a 2-step strategy.

1. Ask Vanguard to convert everything in your VTSAX, to the corresponding ETF: VTI. This is a tax-free transaction and Vanguard can help you with it. This is a one-way street though, you cannot go back from VTI to VTSAX, unless you sell and buy back.
2. Ask M1 to "transfer in kind" the VTI shares from Vanguard. If transferred in kind, then the transaction is again tax free.

Call Vanguard and ask them to convert the shares to ETFs. No need to tell them why. Then you’ll be able to transfer those to M1 without tax consequence.

Cheers

Hi guys,

Thanks for the advice. I appreciate that!

I am also transferring my Roth IRA, which too holds VTSAX. Should I first convert that to ETF also, or does it not matter for Roth?

Thanks

[TropikThunder]

Hi guys,

Thanks for the advice. I appreciate that!

I am also transferring my Roth IRA, which too holds VTSAX. Should I first convert that to ETF also, or does it not matter for Roth?

Thanks

+1 to the ETF conversion. It won’t matter tax-wise for the Roth (taxes only matter when you eventually take a distribution for an IRA) but you may find it simpler if both accounts have the same holding (VTI) in this case.

[Silk McCue]

Hi guys,

Thanks for the advice. I appreciate that!

I am also transferring my Roth IRA, which too holds VTSAX. Should I first convert that to ETF also, or does it not matter for Roth?

Thanks

I would do it at Vanguard as I believe that when they convert the shares for you they will be able to purchase fractional shares of the ETF in the process. Normally you can't buy fractional shares. This will make the transfer cleaner on the whole.

Cheers

[jhfenton]

Hi guys,

Thanks for the advice. I appreciate that!

I am also transferring my Roth IRA, which too holds VTSAX. Should I first convert that to ETF also, or does it not matter for Roth?

Thanks

I would do it at Vanguard as I believe that when they convert the shares for you they will be able to purchase fractional shares of the ETF in the process. Normally you can't buy fractional shares. This will make the transfer cleaner on the whole.

Cheers

You will receive fractional shares as part of the conversion, but typically you can't transfer those, only the whole shares. The fractional shares would be liquidated prior to transfer. (You'd presumably have a gain on those fractional shares, but it would be a trivial number.)

[aristotelian]

Call Vanguard and ask them to convert the shares to ETFs. No need to tell them why. Then you’ll be able to transfer those to M1 without tax consequence.

Cheers

M1 has kind of a weird platform. In order for this to work, I believe you would have to add VTI to your "pie" with a target %, otherwise they would liquidate it, even if it had been converted to ETF. https://support.m1finance.com/hc/en-us/ ... -Portfolio

[aristotelian]

Hi guys,

Thanks for the advice. I appreciate that!

I am also transferring my Roth IRA, which too holds VTSAX. Should I first convert that to ETF also, or does it not matter for Roth?

Thanks

For Roth there would be no tax consequence if M1 liquidated VTSAX. The biggest issue with doing the transfer this way is that when VTSAX is liquidated you will be out of market until you reinvest the funds in VTI. It is very simple to do while the funds are at Vanguard so that will be the cleanest way to handle it.

[RickBoglehead]

Of course if M1 liquidates the ETF, you will still have a gain or loss. Your other posts indicate you will be liquidating.

[Silk McCue]

Of course if M1 liquidates the ETF, you will still have a gain or loss. Your other posts indicate you will be liquidating.

That would have been useful information to have included in the original post.

Cheers

[get_g0ing]

Of course if M1 liquidates the ETF, you will still have a gain or loss. Your other posts indicate you will be liquidating.

That would have been useful information to have included in the original post.

Cheers

Sorry, I cleared up the OP to indicate what I want to buy in M1 Finance.

Overall, I am getting the feeling that it's not a good idea to transfer the taxable account. So I am thinking about only transferring Roth IRA to keep it simple.

[RickBoglehead]

Of course if M1 liquidates the ETF, you will still have a gain or loss. Your other posts indicate you will be liquidating.

That would have been useful information to have included in the original post.

Cheers

Sorry, I cleared up the OP to indicate what I want to buy in M1 Finance.

Overall, I am getting the feeling that it's not a good idea to transfer the taxable account. So I am thinking about only transferring Roth IRA to keep it simple.

It seems you should maybe stop and learn some more.

[get_g0ing]

Of course if M1 liquidates the ETF, you will still have a gain or loss. Your other posts indicate you will be liquidating.

That would have been useful information to have included in the original post.

Cheers

Sorry, I cleared up the OP to indicate what I want to buy in M1 Finance.

Overall, I am getting the feeling that it's not a good idea to transfer the taxable account. So I am thinking about only transferring Roth IRA to keep it simple.

It seems you should maybe stop and learn some more.

Go on, I'm willing to lean/understand more

[KingRiggs]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

[lakpr]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

You haven't seen his edit to the original post. He wants to follow HEDGEFUNDIE's excellent adventure. Only M1 Finance allows leveraged ETFs ... or at least, none of the major players (Vanguard, Fidelity ...) do.

[KingRiggs]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

You haven't seen his edit to the original post. He wants to follow HEDGEFUNDIE's excellent adventure. Only M1 Finance allows leveraged ETFs ... or at least, none of the major players (Vanguard, Fidelity ...) do.

My bad. Once I start following a thread, I only read the new posts...

[get_g0ing]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

You haven't seen his edit to the original post. He wants to follow HEDGEFUNDIE's excellent adventure. Only M1 Finance allows leveraged ETFs ... or at least, none of the major players (Vanguard, Fidelity ...) do.

My bad. Once I start following a thread, I only read the new posts...

Actually I should have replied to your post mentioning that I've added that info to the original post.
I didn't mention the fund initially thinking it might be considered sacrilege

[RickBoglehead]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

You haven't seen his edit to the original post. He wants to follow HEDGEFUNDIE's excellent adventure. Only M1 Finance allows leveraged ETFs ... or at least, none of the major players (Vanguard, Fidelity ...) do.

That is my point about stopping and learning. Not understanding taxes on selling in a taxable account, yet about to engage in leveraged transactions, seems incongruous to me.

[MotoTrojan]

May I ask, OP, what your motivation was to change from Vanguard to M1 in the first place? People on this forum might be able to shed light on whether this switch will actually accomplish what you desire.

You haven't seen his edit to the original post. He wants to follow HEDGEFUNDIE's excellent adventure. Only M1 Finance allows leveraged ETFs ... or at least, none of the major players (Vanguard, Fidelity ...) do.

That is my point about stopping and learning. Not understanding taxes on selling in a taxable account, yet about to engage in leveraged transactions, seems incongruous to me.

Strongly agreed.

I’d leave the taxable at VG and buy some VIOV there if you want, as we discussed. Frankly though I’d recommend staying put entirely and learning for a year minimum. VTSAX is a great place to be in the meantime.

[lostdog]

Call Vanguard and ask them to convert the shares to ETFs. No need to tell them why. Then you’ll be able to transfer those to M1 without tax consequence.

Cheers

+1