Author Topic: Can I Convert MF to ETF, and then back again (ETF to MF) without cap gains?  (Read 889 times)

Unionville

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I want to change brokerages from Vanguard to Fidelity.  In order to get my non-ira money in the new account without cashing out/capital gains, my understanding is I can: A) convert my Admiral Shares Mutual Index Funds into ETF and then B) transfer them to Fidelity.

My only problem is I don't want to own ETF.  I want to return to mutual funds (I know ETF are cheaper - I just don't like/want them).

I don't even understand why you don't get a tax hit when converting to an ETF in the first place, since it involves cashing out of one fund and opening another.

My ultimate goal:  I want to transfer several index Mutual Fund to Fidelity, without a capital gains hit.  I'm happy to keep the Vanguard funds (under the Fidelity umbrella), although I'm guessing Fidelity might add fees on top since it isn't their fund.

Your thoughts? Thx!
« Last Edit: July 14, 2022, 06:58:41 PM by meteor »

FLBiker

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I'm not an expert, but I've done the first part of this (MF to ETF) and you're right that this is not a taxable event.  And I did it for the same reason (to move brokerages from Vanguard to elsewhere).

However, if you want to keep holding Vanguard MFs, AND if Fidelity would allow you to hold those MFs (AND if you're OK with whatever fees that may or may not entail), why wouldn't you just transfer the MFs directly to Vanguard?  The reason I did my MF to ETF exchange was because my new brokerage (and living situation -- an expat) wouldn't allow me to hold Vanguard MFs (but ETFs are fine).  If your new brokerage can hold the MFs, and you're OK with whatever the pricing structure is, why would you bother switching them to ETFs and back again?

MustacheAndaHalf

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Vanguard uses a unique structure for it's mutual funds and ETFs, where both are pooled somehow.  Admiral shares and ETF shares are somehow classes of the same underlying thing, making them identical.

So only at Vanguard, you can convert Vanguard mutual funds into Vanguard ETFs.  You cannot reverse the process, and you can't convert at any other brokerage.  It's only Vanguard mutual funds.

Which do you hate more: paying taxes or holding ETFs?

In another thread you mention an IRA, which has no tax impact for sales.  Assuming you also have an individual brokerage account, you are going to have to stomache something you don't like from the following menu:

(1) convert Vanguard mutual funds into Vanguard ETFs.  No tax impact or fees, but you dislike ETFs.
(2) convert as above, but then sell ETFs at Schwab/Fidelity.  You pay taxes on the sale, but you can use the money to buy mutual funds.
(3) sell the Vanguard mutual funds.  You pay taxes on the sale.  You then transfer the cash, and buy Fidelity/Schwab mutual funds once the cash is available.

When you transfer ETFs, you remain fully invested throughout the transfer.  When the ETFs arrive, you can decide when and how much to sell.  You can manage the tax impact, selling ETFs to buy mutual funds over time.  Given you dislike ETFs, this is the approach I'd suggest since it lets you control the tax impact.

wageslave23

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Seems like it would be easier just to stay with Vanguard.  I don't see why you would need to deal with their customer service going forward.

Rob_bob

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You will have to check with Fidelity but I don't believe they have a fee to hold Vanguard mutual funds.  They would have heavy commission to buy more shares.  However you could just hang onto the Vanguard funds and buy the equivalent Fidelity fund going forward.

The only advantage I can see of a mutual fund is the automated purchase/sale of regular dollar amount.  That was never a issue for me only buying ETF's since it gives me a reason log in and make sure no one has hacked my account.

MustacheAndaHalf

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Seems like it would be easier just to stay with Vanguard.  I don't see why you would need to deal with their customer service going forward.
Vanguard's problems are much longer than their customer service.  They charge more for call options, demonstrating they do not want to be the cost leader.  When stocks and ETFs were $0/trade, Vanguard was a follower and not a leader.  Vanguard pushes their 0.35% AUM portfolio management service - as if there's something wrong with just holding passive index funds.  Their interface is much worse compared to the others, so you're more likely to have problems that push you to call customer service.

Transferring ETFs to another brokerage is easy, and then OP could sell them at their own pace.  It's not difficult.

lutorm

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You will have to check with Fidelity but I don't believe they have a fee to hold Vanguard mutual funds.  They would have heavy commission to buy more shares.  However you could just hang onto the Vanguard funds and buy the equivalent Fidelity fund going forward.
Yeah, we did this, we moved my wife's Vanguard mutual funds to fidelity. There was no problem holding them, but transactions are $75 or something. So we held them until we wanted to take the cap gains hit, then sold them and immediately bought Fidelity funds.

 

Wow, a phone plan for fifteen bucks!