Tax consequences of switching taxable accounts between mutual fund companies

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Originally Posted by Amethyst I think you are saying that in such a scenario, Fidelity would have tracked all our transactions (except the taxes paid on the dividends, which I can track back at least 3/4 of the time we've owned those funds). In fact, I can see on Fidelity's web site that they have calculated our current on-paper gains since purchase. What I am not quite following, is how we can transfer the cash to VG without tax consequences. I have done this with IRAs - are you saying VG can facilitate the same kind of transfer with taxable accounts, wherein Mr. A. and I never "touch" the cash during the transaction? thanks, amethyst

Two things: no, your idea of how to transfer the funds will not work. If you wind up with any cash or fund shares other than the exact same shares that you now own, you will owe taxes. And the second thing is that the taxes you have paid all along do not have to be calculated; they have nothing to do with anything after the year in which you pay them.

You haven't yet said what you hope to gain from this transaction. IT appears to me that the sensible thing to do, if you cannot just transfer the exact same Fidelity Fund to Vanguard, is to leave it at Fidelity. It doesn't cost you anything to leave it there.

You haven't really said what your goal is. If it is to save money on fund operating expenses, the only way you can accomplish that is to take your gain and pay your tax- which will only make sense if you have de minimus gains and/or a huge difference in the expenses of the current fund and the one you plan on holding at Vanguard.

Don't rush unless you understand every aspect of this.

Ha

[Original Wally]

To clarify HA... Ha is correct in that the taxes themself do not enter into the situation. BUT the important thing is that the dividends were used to reinvest into more shares. And the fact that they were taxable means that the additional shares have basis. In really werid cases we have scoured back tax returns for the amount of taxable dividends, looked up the dividend rate for those years and the share price on dividend dates and backed into # of shares acquired over time with a really close approximation of actual cost.... close enough that we believed it would stand the test of an audit. Thankfully we never had to prove THAT.

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I wonder if we should advise folks with new taxable accounts to sell everything after 2 years? And to be sure to automatically reinvest distributions, too.

At least that way, they would learn how to deal with the tax reporting while all their transactions were fresh in their statements.

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Originally Posted by AWeinel To clarify HA... Ha is correct in that the taxes themself do not enter into the situation. BUT the important thing is that the dividends were used to reinvest into more shares. And the fact that they were taxable means that the additional shares have basis. In really werid cases we have scoured back tax returns for the amount of taxable dividends, looked up the dividend rate for those years and the share price on dividend dates and backed into # of shares acquired over time with a really close approximation of actual cost.... close enough that we believed it would stand the test of an audit. Thankfully we never had to prove THAT.

Yes; thank you, you are certainly correct. I think Fidelity tracks cost including dividend re-investment, and has for quite some time. So she should be able to get this just by looking at her positions page.

I never do re-investment of dividends except in tax deferred or tax free accounts, just to avoid the hair pulling exercises that you mention. In fact, I rarely hold mutual funds anywhere except in tax deferred accounts.

Ha