How can I roll over my investments in Betterment to Vanguard without selling everything and buying again?
Call Betterment and ask, because their FAQ doesnu2019t say. Then instruct Vanguard to initiate a transfer request from Betterment. But wait, thereu2019s more!Betterment | Deposits, Withdrawals, Transfers via the Betterment FAQThe Depository Trust & Clearing Corporation (DTCC) supports the Automated Customer Account Transfer Service (ACATS) between financial institutions that are qualified National Securities Clearing Corporation (NSCC) members and/or Depository Trust Company (DTC) bank participants.In theory, Betterment supports ACATS transfers, at least for transfers in (the FAQ says so), but the company doesnu2019t specify support for transfers out.But first, what you can transfer out depends on what kind of account you open at Vanguard.If you open a Vanguard u201cmutual fundu201d account, you can only buy and sell Vanguard mutual funds in that account. Thatu2019s it. You cannot use the mutual fund account to buy, sell, or hold Exchange Traded Funds (ETFs).Types of mutual fund investment accounts via VanguardSo if you open a Vanguard mutual fund account, you cannot transfer the ETFs held in your Betterment account via ACATS to Vanguard. Period.You will have to first instruct Betterment to sell all of your ETF holdings, wait for the proceeds to settle to cash, and then transfer the cash (maybe by a paper check, maybe an ACH transfer to your bank account, you have a few options I suppose) to Vanguard where you can use the cash to buy Vanguard mutual funds. If your Betterment account is taxable (and not a tax-advantaged account like an IRA), any capital gains and losses will be reported on a Form 1099-B by Betterment, which you ultimately will report on your tax return.Ok, since the mutual fund account wonu2019t work for the ETFs you want to transfer, whatu2019s left?To buy, sell, and hold ETFs with Vanguard, you need to open a Vanguard u201cBrokerageu201d Account.Since this is a brokerage account, itu2019s like most brokerage accounts with all of the online trading brokers like eTrade, TD Ameritrade, Charles Schwab, etc. where you can pretty much buy any stock, mutual fund, ETF, and other investments traded on the primary U.S. stock exchanges (e.g. NYSE and NASDAQ). Note that you will pay brokerage commissions for each of your trades in a brokerage account, because thatu2019s just how brokerage accounts work and how brokerage firms make revenue.Know your ETF brokerage account options via VanguardBut wait, thereu2019s more!Betterment employs a proprietary accounting system, allowing customers to benefit from the use of fractional share interests.See What am I getting for Betterment's ... via BettermentSome of the ETFs Betterment uses cost more than $100/share, so unless you had $100 cash in your account, you normally wouldnu2019t be able to buy one share of that ETF until you used all $100 to buy it. But for accounts with small balances, buying that one single share could potentially throw off your asset allocation.So Betterment uses its own internal proprietary accounting system to u201csplit upu201d that one ETF share into fractional share interests, and then allocates those fractions across multiple customer accounts using its internal accounting system.(Think of it like a virtual machine on a computer server. The actual server is just one server, i.e. one box of hard drives, memory, and processors. But the server can be split up into many u201cvirtual machines,u201d each virtual machine effectively running just like a normal computer. Only the virtual machine doesnu2019t use 100% of the serveru2019s resources, because the server is so powerful, it can support multiple virtual machines all from the same box of hardware. But you canu2019t just unplug your virtual machine hardware and move it somewhere else, because itu2019s virtual; it doesnu2019t operate with its own self-contained hardware. It uses shared hard drive, memory, and processor resources owned by the server. Now back to Betterment)The ETF share never actually gets u201csplit upu201d in real life. Think of it more like a spreadsheet that Betterment manages. See How do fractional shares at Betterment work? on Quora for more details.So what does this have to do with rolling over your account to Vanguard?Those fractional share interests canu2019t be rolled over to a brokerage account. I donu2019t know how things actually work here, but in theory, you should be able to tell Betterment to u201csellu201d (better yet, u201credeemu201d) all of your fractional share interests, and in exchange, you should get a bit of cash in return. One downside here, though, is that your fractional shares are still subject to capital gain/loss reporting (again, assuming you have a taxable account), so youu2019re going to get a Form 1099-B at the beginning of next year that you need to report on your tax return. You simply canu2019t avoid it. (You can avoid it by using a tax-advantaged account, i.e. an IRA, which doesnu2019t trigger the Form 1099-B reporting)Now getting a 1099-B isnu2019t the end of the world since only your fractional share interests are being redeemed and not 100% of your account. The dollar amounts weu2019re talking about here are not terribly high (I would guess a range of $50 in losses to $100 in gains seems realistic for most customers), so I donu2019t see a huge need to try and avoid this. Itu2019s just part of using Betterment for your after-tax investing.u00af_(?)_/u00afSo back to your original question.If youu2019re attempting to roll over your taxable Betterment account to another brokerage account to avoid triggering capital gains/losses whatsoever, in my opinion, it canu2019t be done. Youu2019re going to get a 1099-B no matter what. Thatu2019s the way Betterment works. By allowing customers to invest their money down to the penny, Betterment uses fractional share interest accounting, so when you want to move your investments out of Betterment, youu2019re going to be forced to give up those fractional share interests because they only exist within the confines of Bettermentu2019s computers.Finally, for the whole shares of ETFs remaining in your Betterment account, those, in theory, should be able to transfer via ACATS to your destination brokerage account where you can do whatever you want with them.One final note: Your new brokerage account charges you commission each time you buy and sell ETFs, so if you plan on selling some of the ETFs that transfer over from Betterment, you will end up paying commission on each one. Think of that before leaving Betterment, because if you instruct Betterment to sell your ETFs while still at Betterment, Betterment wonu2019t charge you a commission. Youu2019re already paying for ETF trading in your annual .15% to .35% fee to Betterment. So in some cases, you will save money by moving your Betterment account to cash first instead of paying a bunch of commissions to another broker to sell the ETFs transferred over from Betterment.Thank you for reading this far, and I hope this was helpful for you in walking through all the nuances of something that, at a distance, seems pretty straightforward. If this was useful, please let the Quora community know by giving my answer an Upvote!Note: Quora is great and all for tax, investing, and financial information, but donu2019t rely on it for your specific needs. Consult with a tax professional and/or registered investment adviser first before you make any financial decisions.
