Vanguard incorrectly flagged wash sale - what to do?

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boglehat
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Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Mon Jan 18, 2016 12:31 am

Initial condition (Illustrative amounts) -
Lot 1: Buy $10,000 worth of VXUS (Vg Tl Int Stk IxETF) with a cost basis of $47 on October 31, 2015 (~213 shares)
Lot 2: Buy additional $20,000 worth of VXUS (Vg Tl Int Stk IxETF) with a cost basis of $45 on December 31, 2015 (~444 shares)

TLH Transaction -
On January 12, 2016, I sold all of my VXUS at $42 / share using specific ID accounting and realizing losses of:
Lot 1: $1,065
Lot 2: $1,332

Vanguard unfortunately flagged the sale of Lot 1 as a Wash sale.

The way I understanding it, per this link, given I sold *all* my VXUS holdings the Wash sale Rule does not apply, even though I bought VXUS within 30 days of selling it (see Section 1. in the link).

Therefore, fellow Bogleheads, I have two questions:
1) Did Vanguard incorrectly flag my transaction as a wash sale?
2) If so, what can I do about it? Ideally I'd like for Vanguard to change it in their system rather than have to change it myself in my tax forms, as I want to avoid inviting unnecessary IRS scrutiny. Has anyone dealt with these sort of situations with Vanguard before? Is phone customer support the best way?

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by in_reality » Mon Jan 18, 2016 10:29 pm

Since you bought lot 2 within 30 days of selling it at a loss, isn't lot 2 considered a wash sale?

The Schwab docs I looked at tells me it is-- 30 days before or after. The link you posted says differently though unless I misunderstood.

Anyway, I think you do have a wash sale for lot 2. Are your dates on the lots right?

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by DonCamillo » Mon Jan 18, 2016 10:41 pm

Specific share accounting does not apply to wash sales. You need not to have purchased the same or equivalent shares during the 30 day period both before and after the sale. You did not meet that criterion, so you have a wash sale.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by dbr » Mon Jan 18, 2016 10:49 pm

I believe the statement that "selling all the shares means there is no wash sale" is not exactly right. What actually happens is that there may be a wash sale, but disallowing the loss also changes the basis accounting. When the rest of the shares are then sold everything comes out in the wash (sorry), and the tax consequence is the same as if there had been no wash sale. I wonder if that is clear. The problem is that technically you have to report everything exactly according to the rules, at least now that there is basis reporting. In the past you could just kind of wash (sorry again) it out on the Schedule D and no one was the wiser and the tax was right.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by randomizer » Mon Jan 18, 2016 10:52 pm

boglehat wrote:Vanguard unfortunately flagged the sale of Lot 1 as a Wash sale.

The way I understanding it, per this link, given I sold *all* my VXUS holdings the Wash sale Rule does not apply, even though I bought VXUS within 30 days of selling it (see Section 1. in the link).
I had the same understanding as you that selling all would avoid triggering a wash sale, based on reading many TLH threads here on the forums, as well as numerous offsite links (like the fairmark.com one that you shared), and I too had an experience with Vanguard where they declared a wash unexpectedly. I tried to sort it out with them over the phone but wasn't able to, and gave up because the amount of the disallowed loss wasn't enough to really justify it. Also it might be that I simply don't understand it all well enough, and something might be going on like dbr says above.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by jjface » Mon Jan 18, 2016 11:21 pm

I wonder if you did it all in one transaction if the system did lot 1 first and hence allocated it as a wash sale. Or if you sold lot 1 first yourself then it would trigger a wash.
Specid is only going to help you if you did the two lots separately and then sold lot 2 first. I think.

To me it would be not logically be a wash sale as you bought and sold the 20k shares so that can not then be a replacement block of shares for the 10k sold. However the way the legislation works in practice may not be all that logical. You sold the 10k and there was a purchase *any* purchase within 30 days so it is a wash. Tricky situation.

In practice though lot 1 loss would be disallowed but it would be added presumably to the basis on lot 2 providing a larger loss on lot 2. So in the end you should get all the losses even if a wash is recorded. As dbr was saying.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by jjface » Mon Jan 18, 2016 11:35 pm

in_reality wrote:Since you bought lot 2 within 30 days of selling it at a loss, isn't lot 2 considered a wash sale?
My understanding is that No that is a true loss as you bought and sold the shares in question. There were no replacement share bought within 30 days.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Tue Jan 19, 2016 12:49 am

jjface wrote:I wonder if you did it all in one transaction if the system did lot 1 first and hence allocated it as a wash sale. Or if you sold lot 1 first yourself then it would trigger a wash.
Specid is only going to help you if you did the two lots separately and then sold lot 2 first. I think.

To me it would be not logically be a wash sale as you bought and sold the 20k shares so that can not then be a replacement block of shares for the 10k sold. However the way the legislation works in practice may not be all that logical. You sold the 10k and there was a purchase *any* purchase within 30 days so it is a wash. Tricky situation.

In practice though lot 1 loss would be disallowed but it would be added presumably to the basis on lot 2 providing a larger loss on lot 2. So in the end you should get all the losses even if a wash is recorded. As dbr was saying.
I sold both lots at the same time with one transaction. I actually own and traded the admiral fund, not the ETF; I referred to ETF in the original post as I know the prices better.

Not sure I follow about the cost basis adjustments. The following partial screenshot shows what Vanguard did to 'lot 1' (in reality, lot 1 is comprised by many lots I purchased many months before, but I summarize them all as lot 1 for simplicity).

Image

It seems to me I wouldn't be able to deduct the loss as it is, which is unfortunate, as I'll buy back into the fund in 30 days with a lower cost basis, which means I'll end up paying more in taxes later. Is this the sort of thing an accountant would help me figure out? Is it a good idea to email Vanguard about it?

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by inbox788 » Tue Jan 19, 2016 1:28 am

I'm not sure you can get around the wash sale rule with specific ID like in example 4: Old Shares. Do you have any remaining holdings in VXUS? How many shares?

I think that if you're completely out of VXUS, then the wash sale rule doesn't apply. If you don't have any and don't buy any more, you should be able to claim the losses.

Wash sales are a pain in the rear!?!

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by jjface » Tue Jan 19, 2016 4:45 am

What does lot 2 look like? The losses should be added back there to the cost so that the loss on lot 2 is higher.

In the end you should still be getting the same total loss as if there was no wash reported - it is just presented to you in a more complicated way.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by red5 » Tue Jan 19, 2016 5:07 am

Do you happen to have VXUS or its equivalent in another account, such as an IRA? If so that could cause a wash sale. I'm not sure if Vanguard would catch that or not as I've never tried.

If not then common sense would tell me that you do not have a wash sale as you sold all your shares. But perhaps as someone wrote earlier you temporarily had a wash sale for a split second as your shares were sold. But since all your shares were sold then the end result should be the same as if no wash sale happened.

Give Vanguard a call and try to sort this out.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Tue Jan 19, 2016 5:55 am

Have you read the Real-life, real-time wash sale & TLH documented ?

I think you can probably figure this out and report back. You didn't show it, but the loss is probably given back to you in Lot 2 as jjface noted.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by Longdog » Tue Jan 19, 2016 7:17 am

dbr wrote:I believe the statement that "selling all the shares means there is no wash sale" is not exactly right. What actually happens is that there may be a wash sale, but disallowing the loss also changes the basis accounting. When the rest of the shares are then sold everything comes out in the wash (sorry), and the tax consequence is the same as if there had been no wash sale. I wonder if that is clear. The problem is that technically you have to report everything exactly according to the rules, at least now that there is basis reporting. In the past you could just kind of wash (sorry again) it out on the Schedule D and no one was the wiser and the tax was right.
I agree with this. The disallowed loss from lot 1 is transferred as an increase in basis to lot 2. The sale of lot 2 then closes out the transaction, and mathematically (and tax-wise) you are exactly where you thought you'd be.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by jhfenton » Tue Jan 19, 2016 10:13 am

Longdog wrote: I agree with this. The disallowed loss from lot 1 is transferred as an increase in basis to lot 2. The sale of lot 2 then closes out the transaction, and mathematically (and tax-wise) you are exactly where you thought you'd be.
This should be the case. I had the same thing happen to me with a small sale in the 4th quarter when I sold a muni bond ETF that I had transferred over from TD Ameritrade. I ended up net with a $0.09 STCG (yes, nine cents), but Vanguard had the lot information from TD Ameritrade, and they showed it as a washed loss on one lot that then reduced the gain on the second lot. I'm curious to see how it shows up on the 1099, but the totals will be right in any event.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Tue Jan 19, 2016 3:50 pm

jhfenton wrote:
Longdog wrote: I agree with this. The disallowed loss from lot 1 is transferred as an increase in basis to lot 2. The sale of lot 2 then closes out the transaction, and mathematically (and tax-wise) you are exactly where you thought you'd be.
This should be the case. I had the same thing happen to me with a small sale in the 4th quarter when I sold a muni bond ETF that I had transferred over from TD Ameritrade. I ended up net with a $0.09 STCG (yes, nine cents), but Vanguard had the lot information from TD Ameritrade, and they showed it as a washed loss on one lot that then reduced the gain on the second lot. I'm curious to see how it shows up on the 1099, but the totals will be right in any event.
I see. So should I wait until FY16's 1099 form? To replay, I should expect to see the 'disallowed amount' added to the cost basis of the sold shares. Therefore, given this higher cost basis, the full-amount of the realized loss will still show up in my 1099 Tax form, and it will be up to me/my accountant to properly declare whether this is a wash sale or not in my 2016 tax return. Is this accurate?

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by jhfenton » Tue Jan 19, 2016 3:55 pm

boglehat wrote:
jhfenton wrote:
Longdog wrote: I agree with this. The disallowed loss from lot 1 is transferred as an increase in basis to lot 2. The sale of lot 2 then closes out the transaction, and mathematically (and tax-wise) you are exactly where you thought you'd be.
This should be the case. I had the same thing happen to me with a small sale in the 4th quarter when I sold a muni bond ETF that I had transferred over from TD Ameritrade. I ended up net with a $0.09 STCG (yes, nine cents), but Vanguard had the lot information from TD Ameritrade, and they showed it as a washed loss on one lot that then reduced the gain on the second lot. I'm curious to see how it shows up on the 1099, but the totals will be right in any event.
I see. So should I wait until FY16's 1099 form? To replay, I should expect to see the 'disallowed amount' added to the cost basis of the sold shares. Therefore, given this higher cost basis, the full-amount of the realized loss will still show up in my 1099 Tax form, and it will be up to me/my accountant to properly declare whether this is a wash sale or not in my 2016 tax return. Is this accurate?
You should be able to see it in your current tax-lot cost basis accounting on Vanguard.com. I don't have my 2015 1099 yet, but I could see the correct total immediately, with the first lot flagged as a wash sale, which I wasn't expecting to see, since I was selling the whole position at a (tiny) gain. The second lot was at a slightly smaller gain than it would have been without the wash sale on the first lot.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by dbr » Tue Jan 19, 2016 4:13 pm

boglehat wrote: I see. So should I wait until FY16's 1099 form? To replay, I should expect to see the 'disallowed amount' added to the cost basis of the sold shares. Therefore, given this higher cost basis, the full-amount of the realized loss will still show up in my 1099 Tax form, and it will be up to me/my accountant to properly declare whether this is a wash sale or not in my 2016 tax return. Is this accurate?
Vanguard will flag the wash sale and your accountant will agree with them. It is a non-issue except that he will make sure your tax return agrees with the 1099 data Vanguard sends to the IRS. The net result is that you will not lose the benefit of any losses.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Tue Jan 19, 2016 4:23 pm

What does the tab at your vanguard.com online account state for "realized gain/loss" as I showed in other thread that I linked in this thread to explain all this?
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Tue Jan 19, 2016 9:11 pm

livesoft wrote:What does the tab at your vanguard.com online account state for "realized gain/loss" as I showed in other thread that I linked in this thread to explain all this?
Fully screenshot below. Note that the 'lots' flagged with 'wash sales adjustments' all correspond to what I termed 'lot 1' at the start of the thread. Thanks so much for the help so far, guys!

Edit: to answer other questions, I sold absolutely *all* my Vanguard Total International (Admiral) shares in my taxable with this one transaction, and do not own Vanguard Total International in any form in any of my tax-advantaged accounts

Edit 2: removing picture as I foolishly was showing account #
Last edited by boglehat on Wed Jan 20, 2016 12:05 am, edited 1 time in total.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Tue Jan 19, 2016 9:28 pm

Thanks for the screen capture. Here is what you should do:

Do the math yourself. Add up ALL the times you bought shares. Subtract ALL the times that you sold shares. What was the Realized Gain/Loss? I'll bet it was exactly a loss of $2,787.91. That is the little "i" tag is just to inform you that a wash sale happened, but that $2,787.91 total is still your total loss.

I have a similar screen capture in this post: viewtopic.php?p=2737103#p2737103
It has the little "i" tag as well. And the same pop-up note about the disallowed loss. The 2nd second sentence of the pop-up note is important and is where Vanguard is telling you the disallowed loss was restored to you.

I did my math. I am satisfied that I got the entire loss gain due to me since my own records arrive at the same final number as Vanguard.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Tue Jan 19, 2016 9:36 pm

boglehat wrote: On January 12, 2016, I sold all of my VXUS at $42 / share using specific ID accounting and realizing losses of:
Lot 1: $1,065
Lot 2: $1,332
So you calculated a sum total loss of $2,397 and Vanguard reported a loss of $2,787.91 to you. That makes me laugh! :)

Did you automatically re-invest some dividends and forget about that? (Yes, you did as I see the lot on 9/24/2016.)

Oh, your account number is showing, too. I'd delete the screen capture and upgrade my account which gives you a new account number anyways.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Wed Jan 20, 2016 2:04 am

livesoft wrote:Thanks for the screen capture. Here is what you should do:

Do the math yourself. Add up ALL the times you bought shares. Subtract ALL the times that you sold shares. What was the Realized Gain/Loss? I'll bet it was exactly a loss of $2,787.91. That is the little "i" tag is just to inform you that a wash sale happened, but that $2,787.91 total is still your total loss.

I have a similar screen capture in this post: viewtopic.php?p=2737103#p2737103
It has the little "i" tag as well. And the same pop-up note about the disallowed loss. The 2nd second sentence of the pop-up note is important and is where Vanguard is telling you the disallowed loss was restored to you.

I did my math. I am satisfied that I got the entire loss gain due to me since my own records arrive at the same final number as Vanguard.
Apologies, had to take down the screen capture as I foolishly had my account number there; I'll try to re-upload tomorrow.

Just did the math.
Total cost for purchase of all lots = $44,159.25
Total proceeds from sale of all lots = $40,613.69
Realized loss according to my calculations = $3,545.56

When I add the 'disallowed' loss of $757.65 to the 'allowed' loss of $2,787.91, I get exactly $3,545.56, which means Vanguard did not give me the whole benefit that I should've realized from the 'loss', which should've been $3,545.56, not $2,787.91. This is not going to make or break my finances, but it's still a good chunk of change and I'm curious to solving it even if just to better understand how this works in case it ever happens with larger amounts. Pending other suggestions, I'll try reaching out to Vanguard and updating this thread with results.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Wed Jan 20, 2016 2:10 am

livesoft wrote:
boglehat wrote: On January 12, 2016, I sold all of my VXUS at $42 / share using specific ID accounting and realizing losses of:
Lot 1: $1,065
Lot 2: $1,332
So you calculated a sum total loss of $2,397 and Vanguard reported a loss of $2,787.91 to you. That makes me laugh! :)

Did you automatically re-invest some dividends and forget about that? (Yes, you did as I see the lot on 9/24/2016.)

Oh, your account number is showing, too. I'd delete the screen capture and upgrade my account which gives you a new account number anyways.
Thanks for flagging account number, mate. Just to be clear, the amounts I used in the original post are illustrative. The ones I shared on the picture and below are real.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Wed Jan 20, 2016 6:57 am

boglehat wrote:..., but it's still a good chunk of change and I'm curious to solving it even if just to better understand how this works in case it ever happens with larger amounts. Pending other suggestions, I'll try reaching out to Vanguard and updating this thread with results.
I am going to recheck my math, too. I keep my transactions in MS Money, so I have independent numbers from what is shown on the Vanguard web site. With all the adjustments that Vanguard did, do you have an independent place to check your numbers? In particular, be sure that the amounts for the distributions used by you are not one's adjusted for wash sales.

But in the end, I think you are right that you will end up calling up Vanguard. Actually, you should send a secure message as I doubt this could be solved by a phone call because the CSR would not know anything about wash sales and any help they got would not know how to explain wash sales and the IT guys would not be able to talk to you anyways. I'd communicate in writing.

PS: I will send you a private message in a moment.

PPS: I checked my math and my account is correct.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by livesoft » Wed Jan 20, 2016 8:49 am

Oh, another thing: In the Vanguard display of cost basis, the "Total cost" column is not necessarily one's total cost. Instead it is really the "Adjusted cost".

Vanguard might learn something by having its IT folks open accounts at other brokers to see how other brokers display information. For instance at TDAmeritrade, the column headings are
Image
and at WellsTrade they have:
Image

Fidelity's display is more like the Vanguard display.
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by boglehat » Wed Jan 20, 2016 10:33 am

Thanks everyone and Livesoft in particular. The correct numbers I should've been using were a bit hidden by Vanguard, but after using the correct number, it looks like in fact Vanguard increased the cost basis of my 'Lot 2' shares, thereby giving me the full benefit of the loss. I'll re-post in this thread the detail behind my transactions / calculations for those that are curious.

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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by Doc » Mon Jan 25, 2016 9:52 am

There is a lot of information in this thread that is misleading or just wrong. I suggest that interest parties carefully read Kaye Thomas' discussion on the Fairmark site.

In particular selling recently purchases securities at a loss does not create a wash sale if these are the only two transactions within the 61 day window.
On June 1 you buy 200 shares of XYZ for $10,000. On June 12 you sell all 200 shares for $8,000 (a loss of $2,000).

Most people wouldn't even think about applying the wash sale rule here. You know instinctively it shouldn't apply, even though there's a purchase of identical stock less than 31 days before the sale. Your instincts are correct: the wash sale rule doesn't apply because the stock you bought isn't replacement stock for the stock you sold. That's true because you sold the same stock you bought.

http://fairmark.com/capgain/wash/wsreplac.htm

Vanguard agrees. I sold some recently purchased shares and sold them within 30 days at a loss. In a separate muck up that several of us have incurred at Vanguard this year Vanguard changed the cost basis for the sale from Spec ID to FIFO. This then created a wash sale because older shares were relieved not the recently purchased lot. Once Vanguard corrected the sale to the lot just bought the wash sale went away.

Here's the link to the thread on the Spec ID to FIFO discussion. This may be related to the wash sale issue that some of us have been realizing.
viewtopic.php?f=10&t=181258
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Re: Vanguard incorrectly flagged wash sale - what to do?

Post by Doc » Mon Jan 25, 2016 10:17 am

livesoft wrote:Oh, another thing: In the Vanguard display of cost basis, the "Total cost" column is not necessarily one's total cost. Instead it is really the "Adjusted cost".

Vanguard might learn something by having its IT folks open accounts at other brokers to see how other brokers display information. For instance at TDAmeritrade, the column headings are
Image
and at WellsTrade they have:
Image

Fidelity's display is more like the Vanguard display.
Here's a similar display from Schwab. Note there are two dates and two sets of cost basis data for the wash sale lot.
Image

I belive that Vanguard has the correct data in their system they just don't show it to the client. (The basis for this is that in one of our positions Vanguard is showing a lot with an acquired date within the last year that has a long term loss.) However if there are multiple lots involved in the wash they have to be treated separately to accommodate future lot identification whether it's Spec ID or FIFO. I think it was Livesoft who alluded to the fact that Vanguard's totals are correct so he didn't "lose" his loss. I belive this to be correct. The loss is there it's just hard or impossible to find.

For those of you who want Vanguard to correct the mistake they have already made be careful. I had them do that in 2014 and wound up with a 1000 share lot that had a zero cost. I had to liquidate the entire position to reset everything before it got even worse. I think that the best we can hope for is that Vanguard fixes the problem going forward. Any pressure that can be exerted will be helpful. Vanguard has not been responsive to inquires on this subject.
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