20 Nov Tax Impacts of Making Changes to Your Portfolio at MyRoboAdviser™
Selling shares in your MyRoboAdviser™ non-IRA accounts is a taxable event. These sales can be triggered by a withdrawal or an allocation change. Betterment, our custodian and technological partner, has a tool called Tax Impact Preview that shows the estimated gains and losses the sale is expected to realize, as well as an estimate of the taxes that may result, in real-time, before the transaction is executed.
To determine which ETF’s to sell, Betterment’s algorithm determines which asset class is over or underweight by comparing your current allocation to your target allocation. The amount of each asset class to sell is determined in a way that brings each asset class back to the portfolio’s target allocation. Once the specific ETF’s and amounts to sell have been determined, Betterment’s algorithms use the TaxMin accounting method to select the specific lots that will be sold. For each ETF, TaxMin selects losses first and short-term capital gains last in order to minimize the tax impacts.
The estimated tax is an upper bound, meaning it assumes the highest applicable tax rates of combined federal, state, and Medicare surtax. Actual taxes will likely be different depending on specific circumstances.
The Tax-Impact Preview tool will appear toward the end of your withdrawal or re-allocation process. After you have entered in the withdrawal amounts or selected a new portfolio allocation, the Tax Impact Preview will show you the estimated gains and losses the sale is expected to realize, as well as an estimate of the taxes that may result, right before you confirm the transaction.
Please note that Tax-Impact Preview is just an estimate, since it depends on the current prices of each ETF, which won’t necessarily be the price at the time you trade. However, it will provide you with a good idea of the impact of the transaction.
If you have any questions about holdings in your account or one of our models, or perhaps have another question about our services, you can contact us directly at 920.785.6012 or email us at firstname.lastname@example.org. MyRoboAdviser™ has partnered with Betterment for Advisors as our technology solution to provide our services to our clients. Betterment maintains a support line you can also call for help with navigation, linking your accounts or other site functionality. You can call the Betterment for Advisors support line at 800.400.1571.
Last updated, November 20, 2018
Disclosures: Content contained herein is presented is for informational and educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies, nor shall it be construed to be the provision of individualized investment, tax or legal advice.
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