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How do I withdraw from an account that uses Tax Coordination?

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Withdrawing Funds from Tax-Coordinated Portfolios

Betterment's Tax-Coordinated Portfolio (TCP) strategy is designed for long-term investors to enhance after-tax returns by optimizing asset location across different account types. However, withdrawals from TCPs can have tax implications and may affect the portfolio's balance. Here's what you need to know:

Impact of Withdrawals on Tax Coordination

  • Potential Tax Consequences: Making withdrawals or transfers from accounts within a TCP can lead to rebalancing, which might trigger taxable events, especially in taxable accounts.
  • Strategic Timing: If you anticipate large withdrawals, consider delaying the activation of tax coordination until after these transactions to minimize potential tax liabilities.

Steps to Withdraw from a Tax-Coordinated Account

  1. Initiate Withdrawal: Log in to your Betterment account on a web browser, navigate to the "Transfer or Rollover" section, and select "Withdraw."
  2. Review Tax Implications: Understand that selling shares may result in taxable gains or losses. Betterment aims to minimize taxes through tax-efficient strategies, but some tax impacts may be unavoidable.
  3. Monitor Rebalancing: Be aware that withdrawals can cause rebalancing within your TCP, potentially leading to additional taxable events.

Recommendations

  • Consult a Tax Advisor: Before making significant withdrawals, especially from a TCP, consult with a tax professional to understand the potential tax consequences.
  • Plan Withdrawals Carefully: To maintain the tax efficiency of your portfolio, plan withdrawals thoughtfully and be mindful of their timing and size.

By understanding the implications of withdrawals from Tax-Coordinated Portfolios, you can make informed decisions that align with your financial goals and tax considerations.