Also, I looked into using Betterment but it would make buying similar funds in other non-Betterment accounts impossible. If Betterment sells any S&P 500 index fund at a loss for you, and then you buy some S&P 500 fund (any fund that tracks the S&P 500) thirty days before or after, say in your 401k, you're breaking wash sale rules.
No. The IRS doesn't give a shit if you simply buy and sell the same fund. It's only an issue if you claim the capital loss as a tax deduction. Obviously it's easiest to use TLH if you just blindly claim all losses as tax deductions, and ensuring that you don't repurchase assets sold at a loss is one way to allow that blind operation, but operating blind is probably not the greatest idea to begin with. My point is that it's not "impossible" to buy similar funds in non-Betterment accounts; that action won't trigger the IRS to launch cruise missiles to blow up your house. It just means that you might miss out on the chance to make a few bucks from a tax deduction.
The TLH benefits won't be temporary if you're making monthly investments to your Betterment account. Then every time the fund price drops even a couple percent, there will be some of your purchase that has lost value.
Sure, if you keep investing regularly, you'll keep seeing pieces of money that benefit from TLH, but that doesn't improve the situation. Because then it means that you have more money subject to never-ending fees, which are based on your account size. For any single piece of money, the TLH benefits are temporary, while the expenses are forever. Sum together the effects of all of those pieces of money, and you still lose in the long run.
Imagine each of your monthly investments was actually made by a different person (Jane does January's investment, Frank does February's, etc.), as that person's only lifetime investment with Betterment. It seems you agree that for those individuals, the potential for TLH benefits will disappear after a few years at most, and thus be outweighed by the fees in the long run. So then if you merge all those individuals into a single person with a single account, how could combining all their losses turn it into a win?
Okay, since I still can't wrap my mind around the complexities of TLH/Capital Gains/Wash sale rules, I think it is best for me to just leave that whole deal alone for now if it's not going to benefit me a huge amount, anyway. However, this discussion has me thinking; is it wrong to have the same/similar funds in all of my accounts? Right now I have all tax-sheltered accounts, but what happens if I open a taxable Vanguard Lifestrategy Growth fund (same as my TIRA funds)? When Vanguard automatically rebalances for me in all three accounts (both TIRAs and the one taxable account), am I going to end up having wash sales? This is what I have for investment accounts (I am trying to keep a 80/20 allocation with as little work on my part as possible):
Fidelity 401a (Employer contributes 5%, not a match): $3,115.17
79.95% SPTN 500 INDEX ADV
$2,490.72 Stock Investments Large Cap
.05% ER
20.05% SPTN EXT MKT IDX ADV
$624.45 Stock Investments Mid-Cap
.07% ER
Fidelity 403b: $6,433.91 <--95% of this is in Roth 403b, 5% Traditional 403b
72.26% SPTN TOT MKT IDX ADV
$4,648.99 Stock Investments Large Cap
.05% ER
27.74% SPTN LT TR IDX ADV
$1,784.92 Bond Investments Income
.1% ER
Traditional IRA (My IRA): $4,104.91
VASGX Vanguard LifeStrategy Growth Fund Investor Shares
0.17% ER
Husband's Traditional IRA: $3,000
VASGX Vanguard LifeStrategy Growth Fund Investor Shares
0.17% ER
HSA (HealthEquity): $442
VIGIX VANGUARD GROWTH INDEX I : $356
VBMPX VANGUARD TOTAL BOND MARKET IDX INSTLPLS: $86