Author Topic: Robo-advisor Tax Loss Harvesting + Wash Sale + External Accounts  (Read 663 times)

FIPharm

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Hey MMMs,

How does the wash sale rule affect robo-advisor automated tax loss harvesting if your other investment accounts (i.e Vanguard, Fidelity) aren't linked up to Wealthfront? Wealthfront wouldn't be able to monitor this, correct?

I like the automated tax-loss harvesting but if I can eventually do it myself than I'll transfer the money out into Vanguard or Fidelity brokerage accounts.

Would I potentially run into the wash sale rule with roboadvisers automatic tax-loss harvesting and automatic reinvesting dividend in Vanguard/Fidelity accounts?

What would you guys recommend?

Reference links:
https://www.physicianonfire.com/tax-loss-harvesting-vanguard/
https://www.physicianonfire.com/tax-loss-harvesting-fidelity/
https://support.wealthfront.com/hc/en-us/articles/211003443-How-do-you-harvest-losses-without-triggering-the-Wash-Sale-rule-

Thanks,
Eddie

jacoavluha

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Re: Robo-advisor Tax Loss Harvesting + Wash Sale + External Accounts
« Reply #1 on: January 13, 2019, 05:40:23 PM »
Yes if you use a robo account with tax loss harvesting, and you hold the same funds in another brokerage account or an IRA, you could very easily have wash sales and the robo will not know or report them. Itís up to you to recognize and calculate and report on your tax return. Itís not worth the hassle and you would be smart to avoid such a situation 

FIPharm

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Re: Robo-advisor Tax Loss Harvesting + Wash Sale + External Accounts
« Reply #2 on: January 13, 2019, 06:09:32 PM »
Thanks. . so pretty much I should get out of Wealthfront if I have the same/"substantially identical" funds in my brokerage accounts and try to do it manually.

Alternatively, I would need to invest in other funds that follow different indices in Vanguard/Fidelity accounts, correct? This seems like a bigger hassle/headache to do vs. taking my money out and transferring my balance to Vanguard/Fidelity.

Does the wash sale rule apply to the 401K as well?

E


Aunt Petunia

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Re: Robo-advisor Tax Loss Harvesting + Wash Sale + External Accounts
« Reply #3 on: January 13, 2019, 06:20:38 PM »
Thanks. . so pretty much I should get out of Wealthfront if I have the same/"substantially identical" funds in my brokerage accounts and try to do it manually.

Alternatively, I would need to invest in other funds that follow different indices in Vanguard/Fidelity accounts, correct? This seems like a bigger hassle/headache to do vs. taking my money out and transferring my balance to Vanguard/Fidelity.

Does the wash sale rule apply to the 401K as well?

E

Don't take your money out, just transfer the ETFs "in kind" to Vanguard, then you won't have a big tax hit. 

The wash sale rule does not apply to tax sheltered accounts such as 401ks.

jacoavluha

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Re: Robo-advisor Tax Loss Harvesting + Wash Sale + External Accounts
« Reply #4 on: January 13, 2019, 06:35:14 PM »
Wash sales absolutely do apply to IRAs. 401k accounts are not explicitly mentioned in the regulations. So many people but not all interpret this to mean wash sales do not apply