Author Topic: What should I do with my taxable Wealthfront account?  (Read 263 times)

degrom7

  • 5 O'Clock Shadow
  • *
  • Posts: 89
  • Location: NY
What should I do with my taxable Wealthfront account?
« on: December 08, 2018, 05:50:34 PM »
Hi everyone. Before I learned to invest in tax advantaged accounts, particularly Vanguard and VTSAX, I created a taxable account at Wealthfront. I deposited $5k in early September and it's down to $4,644. I understand the overall market is doing poorly and I don't have that worry when it comes to my 457 and Vanguard IRA since I have many years until I need to withdraw.

Their software said my tax losses harvested is $299. I know about short term and long term capital gains if I hold it for minimum of one year but I didn't gain anything. I prefer the simplicity of the total stock market index funds and I already have a taxable with Vanguard along with an IRA.

What should I do? There's no short term gains to worry about. Should I withdraw the entire amount, take advantage of tax loss harvesting, and just deposit the whole balance in my taxable account at Vanguard?


Sent from my iPhone using Tapatalk
« Last Edit: December 08, 2018, 06:36:36 PM by degrom7 »

lexde

  • Handlebar Stache
  • *****
  • Posts: 1480
  • Age: 28
Re: What should I do with my taxable Wealthfront account?
« Reply #1 on: December 08, 2018, 06:10:27 PM »
Do you need the money? Why not just leave it be and use it as an "experiment" to see how it performs vs. the other funds you have? I have about $1.8K in Wealthfront and haven't bothered doing anything with it since it's free to manage.

degrom7

  • 5 O'Clock Shadow
  • *
  • Posts: 89
  • Location: NY
Re: What should I do with my taxable Wealthfront account?
« Reply #2 on: December 08, 2018, 06:34:33 PM »
Do you need the money? Why not just leave it be and use it as an "experiment" to see how it performs vs. the other funds you have? I have about $1.8K in Wealthfront and haven't bothered doing anything with it since it's free to manage.

I was planning to hold onto the account for at least a year, but since I didn't gain anything and I won't have to worry about increasing my taxes, would it be better to just liquidate the account and deposit the money into VTSAX? Wouldn't that perform better than the choices Wealthfront chose for me?


Sent from my iPhone using Tapatalk

terran

  • Handlebar Stache
  • *****
  • Posts: 1674
Re: What should I do with my taxable Wealthfront account?
« Reply #3 on: December 08, 2018, 08:51:33 PM »
I have a hard time seeing the point of wealthfront given their extra fees when there are plenty of low fee, easy, and good investment options like VTSAX. The only semi compelling thing they offer IMO is the automated tax loss harvesting, but while that is helpful it's worth less in a low bracket, which you probably are as I think I remember you're a teacher. Also manual tax loss harvesting isn't that hard.

It sounds like the $299 is probably an already harvested loss. If you have any realized gains (sell a stock that has gone up in value, or a fund that distributes gains) the losses will offset that. What you need to find out is what your basis is in the wealthfront investments. If they've had gains since they were purchased you'll owe taxes on those. It sounds like any gains will be short term, so you'll pay taxes at your current marginal state and federal rate. Assuming the $299 in losses are also short term, those will offset any gains. Whatever gains you have, if any, probably aren't that much so I'd probably sell what you have with wealthfront and move it to Vanguard. You might also be able to move the investments "in kind" (without selling) to vanguard, but you'll want to check what kinds of fees there might be to sell at vanguard depending on what the investments are.

radram

  • Pencil Stache
  • ****
  • Posts: 815
Re: What should I do with my taxable Wealthfront account?
« Reply #4 on: December 08, 2018, 09:04:50 PM »
Do you need the money? Why not just leave it be and use it as an "experiment" to see how it performs vs. the other funds you have? I have about $1.8K in Wealthfront and haven't bothered doing anything with it since it's free to manage.
Don't they charge .25%?

degrom7

  • 5 O'Clock Shadow
  • *
  • Posts: 89
  • Location: NY
Re: What should I do with my taxable Wealthfront account?
« Reply #5 on: December 09, 2018, 06:36:50 PM »
I have a hard time seeing the point of wealthfront given their extra fees when there are plenty of low fee, easy, and good investment options like VTSAX. The only semi compelling thing they offer IMO is the automated tax loss harvesting, but while that is helpful it's worth less in a low bracket, which you probably are as I think I remember you're a teacher. Also manual tax loss harvesting isn't that hard.

It sounds like the $299 is probably an already harvested loss. If you have any realized gains (sell a stock that has gone up in value, or a fund that distributes gains) the losses will offset that. What you need to find out is what your basis is in the wealthfront investments. If they've had gains since they were purchased you'll owe taxes on those. It sounds like any gains will be short term, so you'll pay taxes at your current marginal state and federal rate. Assuming the $299 in losses are also short term, those will offset any gains. Whatever gains you have, if any, probably aren't that much so I'd probably sell what you have with wealthfront and move it to Vanguard. You might also be able to move the investments "in kind" (without selling) to vanguard, but you'll want to check what kinds of fees there might be to sell at vanguard depending on what the investments are.

That's why I want to liquidate my Wealthfront account. I much rather have my IRA and taxable accounts with Vanguard and invest in VTSAX. I'm currently in the 22% tax bracket. Not sure if that's helpful if I'm planning to take the standard deduction of $24k.

I still don't know how the tax loss harvested is $299 when my account went from $5,000 to $4,644. That's $356 less.

How does moving and not selling the investment "in kind" work from a taxable Wealthfront account to taxable Vanguard if I only want to put it in VTSAX? The funds that Wealthfront chose for me are VTI, VEA, VWO, SCHD, and VTEB. Do you think it's just easier to liquidate, transfer the money from Wealthfront to my bank, and deposit into Vanguard? Thanks!

terran

  • Handlebar Stache
  • *****
  • Posts: 1674
Re: What should I do with my taxable Wealthfront account?
« Reply #6 on: December 09, 2018, 09:00:38 PM »
From how you phrased it (which I'm guessing is how wealthfront phrased it) it seemed like the $299 was probably a realized loss (they automatically sold and then reinvested something that had lost money), but you may be sitting on some extra losses, so that's how you'd be down $356 with $299 already harvested.

If you want to be in VTSAX then yes, you'll need to sell somewhere. There may be some taxable gains, but it sounds like you're at an overall loss, so you'll probably actually get a slight tax benefit by selling it all and moving over to Vanguard.

Just FYI, VTI is the ETF version of VTSAX, so they're the exact same thing.