Tax Coordination

How to use our automated asset location feature for your Retirement Goal

Getting started

How do I set up Tax Coordination?

Log in to Betterment. From the menu, select the account you wish to include in your Retirement goal with Tax Coordination. Select "Goal Settings" and choose "Setup Tax-Coordination."

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Can I roll over into a Retirement goal after I start one?

Yes. You can initiate a rollover by clicking “Rollover” on the Transfer tab of your Betterment account and following the instructions. If you haven’t yet set up your retirement goal using Tax Coordination, you may want to consider rolling over first. Adding an IRA after setting up your portfolio won't cause any harm, but it may take longer for your portfolio to reach its optimal location. This is because we protect your portfolio from unnecessary taxes by making smaller rebalances in your ...

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Should I roll over before setting up a Retirement goal that uses Tax Coordination?

Since we can rebalance tax-advantaged accounts (as compared to your taxable accounts) without causing you taxes, you may want to consider rolling over tax-advantaged accounts (like IRAs) first and then funding your taxable account. Funding your taxable account first won’t cause any harm, but because we’re protecting your account from any unnecessary taxes, it may take longer for your portfolio to reach its optimal location. Learn more about important considerations before rolling over assets to ...

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What is Tax Coordination? How Asset Location Works at Betterment

If you are investing in multiple accounts, a sophisticated tax optimization strategy known as asset location can increase your after-tax returns. While asset location requires detailed, continual work if you're trading on your own, our Tax Coordination approach is automated, and is built into retirement goals at Betterment. Our Tax Coordination feature optimizes and automates a strategy called asset location for your retirement goals. Asset location can deliver additional after-tax returns ...

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Managing my account

How do I add a new account within my goal that's been Tax-Coordinated?

To use Tax Coordination on another account, choose your Retirement Goal from the menu on the left after logging in on a web browser, and then scroll down and choose “+ Add new account.”

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How do I disable Tax Coordination?

You can do so by clicking on your Retirement goal > Settings > Feature (Tax-Coordination) > Edit > Modify Tax Coordination > I no longer want Tax Coordination > Send request to Customer Support, and completing the flow. You will be given the opportunity to leave a note regarding your intentions/questions for the Customer Support team that handles those requests. Note: Requesting tax-coordination to be disabled does not automatically disable TCP right away. The request is sent ...

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

Tax Coordination is a strategy meant for long-term investors that is designed to save taxes year after year. However, you will always have access to your funds, with or without this strategy. So while unplanned withdrawals are always an option, activity in a taxable account that results in sales (such as allocation changes or withdrawals) can cause additional taxes, as with any investment account.

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Can I include a Betterment joint account or trust in a goal using Tax Coordination?

Tax Coordination, Betterment's automatic approach to asset location, is available in Retirement Goals. Currently, Tax Coordination is not available for joint accounts or trusts.

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How do large withdrawals affect Tax Coordination?

If you know you will be making large withdrawals or transfers out of your tax-coordinated accounts, you may want to delay enabling our tax coordination tool until after those transfers have occurred. This is because large changes in the balances of the underlying accounts can necessitate rebalancing, and thus may cause taxes. When large withdrawals or transfers out complete, some taxes can be unavoidable when rebalancing to your overall target allocation. The goal of tax coordination is to ...

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How do I add an existing account to my goal that's been Tax-Coordinated?

To add an existing account to Tax Coordinated goal, choose your Retirement goal from the menu on the left after logging in on a web browser, then select the “Settings” tab, “Edit tax-coordination”, then “Include another account.”

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Can I change the allocation of a goal using Tax Coordination?

You can change the overall allocation of your Retirement Goal with Tax Coordination at any point, by selecting your retirement goal from the menu and then clicking "Portfolio Analysis". You'll be able to review your current allocation and Betterment's suggestion for you. When ready to make an adjustment, click " Adjust." It’s important to remember that changing your allocation could trigger taxable events. Don’t worry, our Tax Impact Preview will show you a real-time tax estimate before you ...

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Can tax-coordinated rebalancing realize taxable gains for me if I include a taxable account?

Tax Coordination is designed to avoid rebalancing that would realize taxable gains as a function of its regular tax-efficient rebalancing formula. Regular rebalancing as a result of tax-coordination will occur in your taxable account without realizing taxable gains when possible (for example, when securities are trading at a loss). However, in certain circumstances, rebalancing may occur in the taxable account portion of a TCP that realizes taxable gains. For example, withdrawals or transfers ...

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Can I transfer out an account that's been Tax-Coordinated?

Yes, you can. Transferring an account out of a Tax-Coordinated goal can cause rebalancing within the TCP in order to ensure that your TCP has a fully diversified portfolio of holdings at the target stock/bond allocation that you set. If there is a funded taxable account in the TCP, the rebalancing may be a taxable event. If an individual’s retirement goal using Tax Coordination holds both an IRA and a taxable account, transferring out the IRA can cause the taxable account to rebalance to the ...

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Can I use Tax Coordination with my Betterment 401(k)?

Yes, if your employer uses Betterment for Business to manage their 401(k) plan, you can use Tax Coordination for your Betterment 401(k), just like you would with your IRAs. Both will exist within your Tax-Coordinated Retirement goal. If your employer does not use Betterment for their 401(k), you can refer them.

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Tax information

How does Tax Coordination affect my tax forms?

Tax Coordination will not change the forms you receive. You'll get the exact same forms we send today (1099-B, 1099-DIV, 1099-R). These forms will correspond to each account as they would have before.

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How does Tax Coordination affect my external accounts?

Having Tax Coordination at Betterment does not affect your external accounts. We can only coordinate accounts that are held with Betterment, so the more you roll over or transfer to your Tax-Coordinated accounts, the bigger potential benefit you should expect.

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Is there a downside to using Tax Coordination?

Asset location is a long-term strategy. While it may lower taxes in the short-term, the greater benefits come from a longer investment period. If you’re not planning to invest over a longer horizon, you may still benefit from paying fewer annual taxes, but are likely to see less benefit when it comes time to withdraw your money. If all of the accounts you are including for Tax Coordination have the same allocation and time horizon, there is little risk to using Tax Coordination. Note that Tax ...

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Tax optimization

How does a Tax Coordination save me money on taxes?

Once you set up Tax Coordination, Betterment will look across all of your long-term investing accounts held at Betterment and automatically reorganize which assets are held in which accounts. We’ll generally place your least tax-efficient assets in your tax-advantaged accounts (IRAs and 401(k)s), which already have big tax breaks, while diverting the most tax-efficient assets to your taxable account. In practice, each asset’s after tax return is considered in the context of every available ...

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How do I get the most out of my Tax Coordination?

Asset location works when you have more than one funded account that is taxed differently (such as a taxable, Traditional IRA, and Roth IRA). You should expect more benefit if the accounts are funded with relatively similar balances, and the most benefit if you have meaningful funds in all three types of accounts. Tax Coordination can only manage investments held at Betterment. To maximize your tax-saving opportunities, consider moving additional accounts to Betterment.

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