Moving from Financials Advisor to Vanguard - Tax question

14 Replies

Question for all the savvy investors with a little tax knowledge as well.

I have been looking to make the switch from my current investment portfolio into index funds. 

I was fortunate enough to start investing at a young age because of my parents, but I was more or less grandfathered in with a financial advisor for the last 8-10 years. Awesome guy and we have a great relationship, but I can’t jusitify staying with him and paying both a management fee as well as a fee per trade.

I currently have my Roth's IRA and my wife's Roth IRA with him as well as a much larger taxable account.

I want to make the move to vanguard with each of these accounts and was hoping for guidance on the best way to do so?

From my understanding, it should not be problematic to move the IRAs over as they are not subject to capital gains, correct?

However, for the taxable account, what would be my options to limit my tax basis (as well, how would I be able to calculate what my capital gains would be - is there a simple way to do so?)?

Any information or guidance is much appreciated!

Hey Kyle -

You are correct in the idea that you shouldn’t run into any capital gains problems with the move of your Roth IRAs. However, you still would want to keep track of the total amount that you’ve contributed to the account in case you wanted to withdraw your principal before 59 1/2 without penalty. Making the switch will mean vanguard won’t know automatically, so make sure you verify the total amount you’ve contributed. If you ever need to pull money out to purchase a new home or some other reason, you’ll be glad you did.

As for moving the funds in your taxable account, you could work with vanguard to journal those assets directly over, or pull them as they are currently invested. That would mean you don’t have to sell them all at once to move them, thus paying capital gains on everything. Then you could pick and choose which investments you sell at your leisure, and can hopefully limit the capital gains you pay. But if your plan is to move all your assets into index funds, you’ll have to pay taxes at some point. Hope this helps!

@Kyle Collette

Let's define "moving" to Vanguard. If you're planning to exchange your current holdings, say Fidelity mutual funds, into Vanguard index funds, that involves selling Fidelity funds. When you sell them, there will be capital gain tax on the difference between what you paid for those shares originally and what they are worth now.

You cannot avoid this tax, you can only spread it by converting gradually, as opposed to all at once. Whether or not it's a wise move depends on factors far more important than capital gain taxes or your advisor's fees.

You go to a local store and buy a large TV. You have to pay sales tax and delivery fee. You order the same TV on Amazon Prime, with no sales tax and free delivery. Did you win? It depends on the price, right? You only win if it is the same exact TV and the store price and the Amazon price are the same.

Likewise, Vanguard index funds do not provide you the same results as your current managed portfolio. Maybe worse, maybe better. It depends on the skill and luck of your advisor. There's massive evidence that investment advisors as a group do not outperform index funds, but maybe yours is one of the better ones.

@Paul Allen, you want to chime in?

Makes complete sense @Michael Plaks

I was having trouble determining the actual amount paid to my advisor between his management fee as well as trade commissions. Figured if I moved into index funds I would 1) obviously drastically decrease the management fee (my advisor’s is only .75%, but still much larger than the .04%). 2) have fewer commissions as I would not be planning on selling the index funds and actively trading as I have been doing to date.

@Kyle Collette

Have vanguard transfer the IRAs directly. You should be keeping track of your Roth contributions every year with irs  form 8606 as well as irs 5498 forms provided by your custodian/administrator and your cpa should track that for you. 

Most people seem to save money vanguard but it all depends. 

I use self directed accounts so I know exactly what my fees will be each year and have more control over what I purchase as an asset. I am not good in the stock market so I buy real estate and real estate related assets with my investment monies both in and out side my IRAs. 

Good luck. 

Many years ago, I moved my investment accounts from one Wall Street firm to another.

For the Roth IRAs, I did a custodian-to-custodian transfer, which is a safer way to go under the IRS rules.

Based on the way my accounts at the old firm were set up, it was cheaper for me commission-wise to sell everything at the old firm and then transfer the cash. As pointed out in other posts, selling securities is a taxable event in taxable accounts. I then purchased different securities at the new firm.

If I had held individual stocks at the old firm that I had wanted to keep at the new firm, I would have been able to transfer these stocks over as stocks without selling them (which I've also done in the past). The new firm would have asked me for the tax basis because brokerages are now required by the IRS to keep track of these numbers.

Vanguard or the other discount brokers will take care of the transfers.  I...

  • Moved everything to a discount broker as-is
  • Sold and reinvested the assets in the retirement accounts into Vanguard funds
  • Sold the assets in the taxable accounts with low capital gains and reinvested into Vanguard funds
  • Kept some of the original assets in the taxable accounts

Vanguard or the discount brokers can help you with this...feel free to call them.  And, some of them offer no cost trades upon transfer and cash incentives for transferring accounts.

No more fees, no more crappy online experience, no more waiting weeks to access funds from transactions, no more having to request statements or documents, no more M-F 8-5 only hours, no more bad advice.

@Kyle Collette

One thing you should look at for a discount brokerage is that some will allow you to buy and sell select ETF's with no commission.

The ETF will have a fee itself over your ownership in the ETF.

Regarding transferring the investments to a different brokerage or selling the securities and then depositing the cash into the new brokerage. You should look to see the built in gain in the securities.

Your old brokerage account may charge you a fee for transferring the fees to your new brokerage. You may want to look at a new brokerage that will reimburse you for this fee.

Originally posted by @Kyle Collette :

Question for all the savvy investors with a little tax knowledge as well.

I have been looking to make the switch from my current investment portfolio into index funds. 

I was fortunate enough to start investing at a young age because of my parents, but I was more or less grandfathered in with a financial advisor for the last 8-10 years. Awesome guy and we have a great relationship, but I can’t jusitify staying with him and paying both a management fee as well as a fee per trade.

I currently have my Roth's IRA and my wife's Roth IRA with him as well as a much larger taxable account.

I want to make the move to vanguard with each of these accounts and was hoping for guidance on the best way to do so?

From my understanding, it should not be problematic to move the IRAs over as they are not subject to capital gains, correct?

However, for the taxable account, what would be my options to limit my tax basis (as well, how would I be able to calculate what my capital gains would be - is there a simple way to do so?)?

Any information or guidance is much appreciated!

It may have already been mentioned, but on your tax advantaged accounts, it is VERY important that you do a direct rollover , Roth to Roth, regular IRA to Regular IRA etc so that you don't end up owing taxes.

You might check to see what your cost basis is on your regular stocks, it might be worthwhile to sell some of them at a time.

We personally have our retirement accounts with a discount broker and have some stocks and some ETF's within it.