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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Uturn on April 05, 2016, 03:11:49 PM

Title: Wash sale clearification
Post by: Uturn on April 05, 2016, 03:11:49 PM
I have all my old 401k's rolled over to Betterment.  My current 401k is in Spartan index funds because Vanguard is not available.  Can I turn on tax loss harvesting in Betterment since it is Vanguard and the 401k is not?  Or does this trigger a wash sale because they are both index funds?   
Title: Re: Wash sale clearification
Post by: iamlindoro on April 05, 2016, 03:31:20 PM
You mention that you rolled over your old 401(k)s to Betterment... so I presume they're in IRAs there.  What would be the point of turning on tax loss harvesting?  All your accounts are still tax-advantaged, so there'd be no benefit to TLH.  TLH only helps in taxable accounts.

Regarding the wash sale rule, my understanding is that merely being index funds doesn't make two holdings "substantially identical," they'd need to be funds that are effectively the same (ie, the same ticker, or funds that have the same holdings).  You haven't told us what your precise holdings are, so it's impossible to determine whether wash sale rules would apply.... but that may be neither here nor there if all your accounts are tax-advantaged anyway.
Title: Re: Wash sale clearification
Post by: jim555 on April 05, 2016, 03:35:01 PM
I didn't think wash sales could happen in a 401k/IRA since it has no tax consequences. 
It could happen if you bought/sold a security in a after tax account and offset it in the 401k/IRA.
Title: Re: Wash sale clearification
Post by: Uturn on April 05, 2016, 04:15:24 PM
I guess it would clear things up if I added that I use Betterment to hold old 401k's and also as my taxable account. 
Title: Re: Wash sale clearification
Post by: forummm on April 05, 2016, 04:30:02 PM
You can do TLH in a taxable. Just make sure that the funds you are taking a taxable loss on have not been purchased in the past 30 days in your 401k and will not be purchased again in the 401k. I would think that Betterment would take care of that for you since TLH is one of their bragging points, but who knows.
Title: Re: Wash sale clearification
Post by: johnny847 on April 05, 2016, 04:34:57 PM
Now that we have that clarification, the answer is it depends on which Fidelity index funds you use in your current 401k.

Many people, including myself, are of the opinion that two index funds that track the same index are substantially identical (ie, can cause wash sales). AFAIK neither the IRS nor any tax court has ever ruled on what substantially identical actually means.

If you agree with this definition of substantially identical, then the fact that you have Fidelity index funds in your 401k is not what's important---it's the indices they track that is. If I recall correctly, Fidelity's total market index fund tracks the Dow Jones US Total market index, which I'm pretty sure no Vanguard fund tracks, so you'd be safe with that fund.