John Wittig

How donating shares instead of dollars can lead to tax-free investing Oct 25, 2024 6:00:00 AM And how we make it easy. Donating to charity isn't the big tax write-off it used to be. Not since the 2017 Tax Cuts and Jobs Act watered down the charitable tax deduction. But altruistic investors such as yourself have another tax-saving option at your disposal: donating shares. In this article, we’ll walk you through: How donating and replacing shares resets their tax bill How pairing the strategy with tax loss harvesting can plus-up the savings How we make it all easier to pull off than your favorite video game cheat code How donating and replacing shares resets their tax bill Let's start with a couple prerequisites up front: You can only donate appreciated shares, meaning ones that have gained in value. We require that you've held them for at least a year to maximize the tax savings. You can only donate shares from a taxable investing account. That means tax-advantaged accounts such as 401(k)s and IRAs—with one exception that’s neither here nor there—are off the table. So if you'd like to start leveraging this tax strategy, you'll need to first open and fund a taxable investing account. You can even give it a name like “Giving fund” and contribute to it solely for this purpose. Similar to the mechanics of tax loss harvesting, donating shares lowers your taxes thanks to a little something called cost basis. Cost basis is the price you pay for a share. It's how the IRS calculates the profits (i.e. capital gains) on your investing, and by extension your capital gains tax owed. By donating and—most importantly—replacing shares, you're resetting the cost basis of that slice of your investing. So a share that had increased in value by say, 20%, suddenly becomes, in the eyes of the IRS, a share that hasn't appreciated at all. It's as if all the gains to that point never happened. Don't worry; the gains are still very much there. And you're wealthier for it. But the taxes owed if or when you ultimately liquidate those investments will be lower than if you had never donated. How adding tax loss harvesting can plus-up the savings Tax loss harvesting (TLH) helps you defer taxes down the road, freeing up more cash to invest now. In exchange for the tax break today, a share that's sold or “harvested” for a loss and replaced carries a lower cost basis and higher future tax bill. It’s like handing Uncle Sam an IOU come tax time. But guess what happens when you donate a share that was originally part of a harvest? You erase its entire tax bill up to that point—TLH IOU and all. It's one of the few ways you can avoid paying taxes altogether on some of your investing. So it’s no wonder why this combo move has long been a favorite of wealthy investors. Now, thanks to technology like ours, it's never been easier for everyday investors to do right while reaping the rewards. How we make it easy to donate shares Before tech like ours lowered the bar, donating shares required several steps, things like tracking down the charity’s brokerage information, figuring out which shares to give, and filling out the necessary forms. But with Betterment, it’s as easy as logging in on a desktop browser and making a few clicks. We show you exactly how much of your taxable investing is eligible to donate, and we don’t charge any processing fees, meaning your entire donation goes directly to the charity you support. Choose from more than a dozen charities we partner directly with, or use our friends at Daffy to open a donor-advised fund, a special kind of investment account for making charitable donations, and contribute to it straight from Betterment. For a monthly fee starting at $3, Daffy lets you choose from up to 1.5 million nonprofits, schools, and faith-based organizations. Whether you’re doing it for the tax break, or doing it for the sake of doing good, we’re dedicated to making the process a simple one.

How we help move your old accounts to Betterment Aug 29, 2024 7:00:00 AM Moving investment accounts from one provider to another can be tedious and complicated. We help smooth out the process. Moving investment accounts from one provider to another can be complicated. You may be in the early days of mulling over a move. Or maybe you’re ready to make a switch and simply need a little help making it happen. Wherever you are in the process, we’re here to help. And once you’re ready to act, you can easily start the ball rolling in the Betterment app. The steps vary slightly different depending on your situation and how willing your old provider is to play ball: ACATS — Most taxable accounts, and even some retirement accounts, can be transferred automatically by simply connecting your old provider’s account to Betterment. You stay invested, and the entire process often takes less than a week. Direct rollover/transfer — Some retirement account providers, meanwhile, require a check be mailed to either you or your new provider. In these cases, we provide step-by-step instructions for reaching out to your old provider to initiate the process, which often takes 3-4 weeks. And for those considering moves of $20k or more, our Licensed Concierge team can help you size up the decision before helping shepherd your old assets to Betterment, all at no cost. Here’s how. The Betterment Licensed Concierge experience Whether you’re already sold on a switch or need help weighing the pros and cons, our Concierge team uses a three-step process to help guide your thinking. Step 1: Assess where you are, and where you want to be We start every Concierge conversation by gathering as much information as possible. What are your financial goals? How well do your old accounts align with those goals? How much risk are you exposed to? How much are you currently paying in fees? We sift through statements on your behalf to decode your old provider’s fees. We analyze your old portfolios’ asset allocations. And we help assess whether Betterment’s goal-based platform could help meet your needs. All of this information gives us and you the context and confidence needed to take the next step. Step 2: You make a call, then we chart a course forward While retirement accounts can be rolled over without creating a taxable event, that’s not always the case with taxable accounts. So in those scenarios, we provide a personalized tax-impact and break-even analysis. This shows you how much in capital gains taxes, if any, a move may trigger, and how long it might take to recoup those costs. We always recommend you work with a tax advisor, but our estimate can serve as a great first step in sizing up any tax implications. Should you choose to bring your old investments to Betterment, we help you with every step of that journey. The mechanics of moving accounts This includes sussing out which of your old assets can be moved “in-kind” to Betterment. We’re able to easily accept these assets, and either slot them into your shiney new Betterment portfolio as-is, or sell them on your behalf and reinvest the proceeds. If any old assets need to be liquidated before they’re transferred, we’ll help you work with your old provider to make it happen. This includes providing you with a full list of relevant assets to give your old provider. Whether transferring assets or cash, we use the ACATS method whenever possible to help your funds move and settle quicker. Step 3: Moving day! Making a move is exciting. Unpacking? Not so much. So we help set up and optimize your Betterment account to make the most of features like Tax Coordination. Need help setting up your goals? We have you covered there, too. Once everything is in order, we’ll begin implementing your transfer plan. We’ll communicate all the steps involved, the expected timeline, and handle as much of the heavy lifting as possible. We regularly check-in and, once your assets or funds arrive on our end, we’ll send you a confirmation making sure all your transfer-related questions are answered to the best of our abilities. Ready, set, switch Moving accounts to a new provider can be a hassle, so we strive to shoulder as much of the burden as possible. It starts with a simple step-by-step process in the Betterment app, and for those exploring moves of $20k or more, extends to our dedicated team of Concierge members. They’re standing ready to help give your old assets a new life at Betterment. Because whether moving to a new house or a new advisor, it never hurts to have a little help.

How to navigate the sunk cost fallacy Mar 18, 2024 4:09:13 PM And bring your old, underperforming investments to Betterment Let’s say you love Betterment. (The feeling’s mutual, by the way.) You have some old investments lying around, investments you’re leaning toward moving over here, but you can’t bring yourself to do it. Why? They’ve lost value as of late, and they’re now worth less than what you paid for them. In this scenario, you’re dealing with a dangerous animal: The sunk cost fallacy. Also known as the “breakeven” fallacy, it’s a phenomenon we’ve all likely experienced at some point. It's hard to sell anything at a loss, be they stocks, bonds, or Beanie Babies. Advisors often rely on hard facts to combat this thinking. For example: Did you know that an asset experiencing a 50% loss must see a 100% gain just to be made whole? That’s a long way to go. But most fallacies aren’t successfully fought with facts. Because we’re all human, and we often make decisions based on emotions. So here are two simple tips that can help you lean into these feelings, hurdle this mental roadblock, and give your old investments new life. Reframe the narrative Thinking of the move as “selling your losers” or “cutting your losses” is a surefire way to trigger feelings of loss aversion. It’s also a little overstated in this circumstance. Unlike selling your Beanie Baby collection, moving your old investments to your preferred broker isn’t swearing off the concept of investing altogether. You’re selling these stocks and bonds, yes. But that’s in order to buy other stocks and bonds with a different strategy for growth moving forward. Better yet, when you invest with Betterment, those new assets you just bought come with some shiny new bells and whistles. Features like automated rebalancing and tax-smart trading. Benefits designed to help maximize your returns. The longer you wait, the less time you have to use them. So think of the move in positive terms. You're not selling your losers and calling it quits. You're swapping them for a new strategy. Use reverse psychology If your brain’s going to insist on avoiding losses, let’s use that aversion against it. You can do that by shining a spotlight on the less obvious losses that could be slowly eating away at your old investments: fees and taxes. It’s 2024 AD, and it’s still pretty standard for advisors to charge 4 times the amount we do. That’s an extra 750 bucks vanishing for every $100,000 of investments. Then there’s the cost of the investments themselves. The average mutual fund expense ratio can be up to 5 times(!) that of the typical exchange-traded fund (ETF). Worse yet, you may have to pay taxes on a mutual fund even when the fund loses money. A loss by any other name is still a loss. And all of the examples above could be causing your old investments to bleed value. The sooner you make a switch, the sooner you can stop the bleeding.