Question about Fund-to-fund Transfer at Vanguard

[senecando]

Hola! I've searched a bit on the web and on the forums and haven't found a good answer to the question. Apologies in advance if this is a silly question.

I've maxed out my Roth for the year and started a taxable account. Because the limit was low, I put 1,000 bucks into the Vanguard STAR fund. I should have realized this earlier, but I've realized this isn't a good fund to have in a taxable account. So my question is, should I:

* Contribute to it until it gets to 3k and then transfer it into a more tax-friendly fund at Vanguard. Or,
* Stop contributing to it and save that money in a savings account until I find a more tax-friendly place to invest it.

My question is about the nature of a fund-to-fund transfer. Does such a thing exist? (I couldn't find anything on Vanguard about this, though I read snippets elsewhere.) Am I right to think that that would make any gains into short-term realized gains?

Thanks in advance.

John

[matchewed]

In the event that you've invested in a fund within a traditional brokerage account you will have to pay short term capital gains on sales less than a year old which resulted in a profit.

A fund to fund transfer does not exist in a normal taxable account, there is an exception where you are moving from one class of a fund to a different class of the same fund (investor vs admiral class for example).

I would not contribute more to it if you do not like the lack of tax efficiency, I would save your money in a savings account in the meantime until you have the amount you need for an alternative investment.

[Undecided]

Well you can make a fund to fund transfer, but it doesn't change the fact that the exit from the original fund is a realization event for tax purposes, just like a sale for cash. So if either option is only a bridge to accumulating $3,000, compare the after-tax returns or expected returns. Don't avoid using a short-term investment in a fund just because you'll have to pay taxes if it would still be the most profitable (after-tax) option.