No that’s what they still have and likely why they also look to me at the head of the pack.
The only thing missing for me with them is access to an advisor, for me especially someone who can help us optimize taxes (avoid RMD/IRMAA) while implementing our withdrawal strategy.
If that’s important to you or need more personal help planning, then it could be worth maybe keeping $25+k invested with Fidelity Go (0.35% AUM) or $50+k with Vanguard personal advisor services (0.30% AUM). Paying marginally more than the 0.25% AUM at Wealthfront on such small amounts could be cheaper than a fee-only advisor.
How do taxes work w/ a robo advisor?
For each year, do you have hundreds of buy/sells transactions (and thus hundreds of gains/losses) made by the robo advisor to work through and account for? Or do you only have to deal with the money you put in/out of the robo advisor account (as if buying an index fund)? The former sound like a nightmare!
They generate a 1099 (B?) with long and short losses and gains combined (by type), so you have at most 4 numbers for your schedule D = (cost and proceeds) x (long and short). You don’t have to worry about every transaction.
I imagine it depends first on which type of account the robo advisor is managing.
If it’s taxable, then it depends what they invest in. If invested in stocks/ETFs, I assume you’ll get a 1099-B (or 1099-DIV if invested in mutual funds). Standard brokerage reporting and entering in tax forms/software. Not sure if they’ll allow some flexibility on which cost basis method to use but probably not specific lots since they do all the buying/selling without your input.
All my “robo-advisor” does is invest in the index funds that I selected (from the choices they provide), using the proportions that I selected. The performance is exactly that of the underlying index funds, minus the 0.25% annual fee, minus taxes owed on dividends, plus tax savings from tax loss harvesting (only in the years when that is/was possible).
I’m saying “exactly” because that’s what it is supposed to be and I see my money invested in interchangeable (and equivalent in all respects except the wash sale rule) Vanguard and Schwab ETFs. It’s not like I literally check every transaction to see if they’re skimming anything more off the top.
Wealthfront lets you customize your allocation now? You aren’t limited to their pre-selected mix? That’s pretty neat. But as long as brokerages give me bonuses for housing my holdings, I’ll continue to self manage.
Interesting! Do you continuously contribute to it? Do you think you’ve TLH’d more than you would have without using them? You don’ do the Direct Indexing?
They generate a 1099 (B?) with long and short losses and gains combined (by type), so you have at most 4 numbers for your schedule D = (cost and proceeds) x (long and short). You don’t have to worry about every transaction.
Does this apply for both taxable and non-taxable (e.g., IRA) accounts?
edit: In another post you said you self manage your retirement accounts so I assume the “so you have at most 4 numbers for your schedule D = (cost and proceeds) x (long and short)” applies at least to the taxable accounts.
How does Wealthfront do the tax loss harvesting on the index funds you pick? For each selected index fund is there a “companion” index fund that is auto-selected/recommended for purchase when the selected index fund is sold at a loss (and vice versa)?
I do not continuously contribute, which is probably why TLH was only good for me in 2022. I didn’t know how to do TLH before I saw how they were doing it, and to be frank I’d rather have them do it. I don’t have all that much $ in there, not enough for Direct Indexing, which requires $100K (below $100K it goes into VTI instead).
I’ve never received a 1099 for any of my non-taxable accounts. And I don’t have one at WF. The 4 numbers for schedule D is for taxable accounts.
Correct. Most of mine are Vanguard and Schwab ETFs that are equivalent, and WF just sells one and buys the other on the same day to harvest losses. They show this equivalence when you edit your portfolio, also I think it shows at the link I provided earlier. You just select the investment category and they select the equivalent ETFs within that category automatically.
We get 1099-R forms annually due to Backdoor Roth IRA contributions. But not for any other activity in tax-deferred accounts. Maybe if you took distributions subject to penalty but I don’t have experience with that.
Same here, though for my backdoor 401k contributions instead of an IRA.
It’s issued with code G and $0 of taxable activity. FreeTaxUSA puts the entire amount on line 5a, $0 on line 5b with “ROLLOVER” written there as the reason.
This got me thinking. Given that the market generally goes up, generally only the “newer” money you put into the robo advisor will be useful for TLH. The “older” money will likely have cost bases so far below the current market that the chances for TLH diminishes towards zero. Yet you’re still paying the higher fees (vs self managing index funds) on all the “older” money w/o the TLH advantage.
Does it make sense to occasionally pull out “older” money from robo advisors into a lower-cost self-managed account and only keep “newer” money in the robo advisor? How much of a mess/hassle would it be to do this occasional re-allocation between accounts? Is it even possible to do this occasional re-allocation w/o violating wash sale rules given the robo advisor will continue to TLH on money left in the account while you’re trying to “unwind” all the assets you moved out?
That’s true, it does make sense to pull older holdings if you can do so without liquidating them. I think you can enable or disable the TLH feature at any time, so you can prevent wash sales while unwinding those older holdings in another account.
Sounds like a lot of work though considering the point of robo advisors is to reduce hands-on work for investors.
It may also depend on what specific robo advisor you’re using. If you’re using some like Betterment who basically invest in 10 ETFs, you could relatively easily replicate that with a 3-5 ETF portfolio in a separate account. But some like Empower invest in a fairly long list of stocks directly so unwinding these positions while maintaining asset allocation/diversification could be a hassle.
. I’m thinking if or when I start regularly contributing, there will be more opportunity for TLH.