The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: tips^up on November 03, 2020, 12:35:47 PM
-
I have after-tax investments at Betterment and Vanguard.
My Betterment allocation is 95%/5% stock/bond; tax loss harvesting is turned on; it is a nice platform to use; about $120k.
I started my Vanguard account a few years later but am solely funding this account now. I am ~10%/30%/60% VBTLX/VTIAX/VTSAX, slowly moving toward 5% bond and a little more to VTSAX.
I'm still working full-time, 36 years old. I've never withdrawn from either account, only contributions to this point.
Should I transfer all my Betterment funds to Vanguard?
Is there anything to beware of with this move?
Will it trigger major taxes?
If I draw Betterment down to $0, should I close it entirely? Does it report to credit bureaus, and leaving open old accounts boosts credit score?
Thanks!
-
You'll likely have substantial capital gains to contend with if you liquidate your Betterment account, especially if you have been harvesting your losses. The point of tax harvesting is to put off as much of the gains as you can until you liquidate the funds. Which you may need to do to move them to Vanguard.
I had a Betterment account for a while. There is a lot I like about their platform but it also leaves a lot to be desired. I keep my assets at Schwab now - far better customer service and more robust options. Also way easier to deal with at tax time. Trying to report all those Betterment rebalancing allocations on a tax return is a bear.
When I moved my Betterment funds to Schwab, Schwab allowed me to transfer a lot of the funds in-kind. I think they allowed me to transfer everything in-kind but partial shares. By transferring in-kind, the stocks I owned at Betterment weren't liquidated and therefore taxes weren't owed because of the transfer. I doubt you'd be able to transfer the stocks in-kind to Vanguard. Maybe the Vanguard ones but I don't know that for sure.
My suggestion is to call and speak with someone at Vanguard about whether you can transfer the Vanguard funds in-kind. My recollection is Betterment uses a lot of Vanguard funds.
Betterment - any brokerage account - has zero impact on your credit score.
-
+1 on all Queen Frugal had to say, especially the positive words about the Schwab platform.
-
Been at betterment for over 3 years (maybe 4) and am a huge fan. I never understood why people here transfer out of it. You can do it, and if you do you should do it in kind to Vanguard. But IMO, the tax minimization, behavioural, and asset allocation features of Betterment make things more than worth it. The fees are also very minimal. I've done a lot of monte carlo modeling and they barely make a difference. I would disagree that taxation is harder with Betterment, but I use turbo tax and Betterment's importing using an app password is by far the easiest of any the apps I use.
My only gripe is Tax loss harvesting doesn't kick in unless you have a large taxable account, which I don't but it is more like a bonus than a primary driver of returns.
-
The fees are minimal? 0.25% on top of the etf fees is not minimal.
-
So I ran a monte carlo simulation (on portfolio viz) and the difference in monthly income, using the 3.5% rule, was 1860$ for the non case and 1808$ for the fee case. I used my current plan of 65k starter, 15 years, 100% stocks, 2k a month, and I modeled with Betterment's portfolio.
This is assuming Betterment itself has zero benefit which I think it does. I mean if you don't want to do Betterment fine, but you must have done it for a reason. I personally think the biggest reason is behavioral, as the platform is designed to get you investing more and to do so for the longer term in a way that actually works.
-
Another way to state those numbers is "My analysis showed I had almost $18,000 less after 15 years by using betterment".
$52 *12 / .035 = $17,828.57
That's quite substantial. Plus your timeframe isn't over at 15 years - you've then got another 30+ years of withdrawals. Learn to solve your behavioral issues another way and you'll have a lot more money.
-
That is correct. You would have ~18k less. I think it was the difference between ~642k or 620k. Is it meaningful? It depends. In my mind no. You are correct about future withdrawals but, at that level, your account will continue to increase over time allowing for even higher withdrawals in the future if you need them.
Also bear in mind there are other advantages to using Betterment. It is by far the best for tax importing. It is also really good with automation. In addition, it is good for medium term savings goals. It auto deposits in order to rebalancing without selling shares . It coordinates between your tax sheltered and taxable accounts. The portfolio design is highly diversified and they keep you from messing with it too much. Recently I am also getting into their giving stuff.
There is a lot of stuff that that 0.25% fee pays for over time. Its a huge convenience and can improve you actually reaching your goals. But hey, I've heavily looked into their stuff.
-
I also think @Queen Frugal covered it well.
Betterment is fine but I don't recommend it to friends and family because of the fees and how they can change their underlying fees anytime they want. You can get the same AA help through vanguard for 0.3% annual fee (provided you have a certain amount invested with them) and you get access to a financial advisor etc to help ease your behavioral crap. In addition, if vanguard decided to up their management fee or you felt like the cost wasn't justified, you can cancel the management and go back to managing your own investments without messing with transferring all your money. What a pain... I don't see what betterment offers but it's been awhile since I looked at their product. The tax optimization is only for higher earners. If you do the math, the taxes you save aren't that relevant, especially if you're in the 0% LT cap gains and dividend at which point the tax loss harvesting is useless...
-
Another recommendation to transfer from Betterment to Schwab. I used to keep my wife's investments in Betterment, because I figured that if the market tanked I would feel less bad if I wasn't directing her investments. That was a silly reason to pay Betterment's fees, as low as they might seem at first, so I transferred everything in-kind to Schwab.
As for Schwab vs. Vanguard - the only reason to go with Vanguard (and it's admittedly a big one) is if you're only comfortable with Vanguard's unique governance structure. Otherwise, Schwab is better in every way in my opinion (customer service, online/app interface, physical presence, investing options, and even some fees). I trust that competition will keep Schwab's ETF fees in check even though I'm a customer and not a shareholder when I invest with them.