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 reduce the drag taxes have on your investments, not cause additional taxes. So if you know an upcoming withdrawal or outbound transfer could cause rebalancing, and thus taxes, it would be prudent to delay enabling tax coordination until you have completed those transfers. To learn more about tax coordination, please see our TCP methodology paper.