Chrissy Celaya, CFP®

Your Guide to Betterment Rollovers Moving your money to a new financial institution can be tedious and complicated. At Betterment, our goal is to make it easy and automatic. Here, we break down each rollover method and explain which might be right for you. We’ve talked before about why we believe Betterment is a better place to put your money if you’re investing for the long term: our globally diversified portfolio, low fees, personalized advice, and tax-efficient services. Read about all the benefits. Once you’ve made the decision to move your money to Betterment, there are a few different ways you can do so. Based on your account type and provider, we will automatically select an appropriate transfer method for you. If you’re ready to get started now, click the “Transfer” button from the Summary tab of your account. From the Transfer tab, click “Roll over an IRA or 401(k)” to begin moving your money to Betterment. Or, if you'd first like to learn more about each method, read our guide below. A Guide to Moving Your Money to Betterment: 2 Transfer Methods Direct IRA Transfer or Direct 401(k) Rollover via Check Moving money through ACATS is usually ideal because it’s a more efficient process, but in some cases, it’s not an option. To start, both firms must support ACATS transfers. Second, you must move funds between matching account types (i.e., IRA to IRA). Therefore, moving retirement money from an employer-sponsored account, such as a 401(k) or 403(b), into an IRA is generally not an option via ACATS. It’s also worth noting that if you own a mutual fund IRA account and not a brokerage IRA account, you cannot use the ACATS system. There may be other reasons why ACATS is not available for your specific account. In that case, we will automatically provide you everything you need to do a direct transfer or rollover via check. While there are a few more steps required, this method maintains many of the advantages that are tied to direct transfers. Not only can you complete as many direct transfers or rollovers via check as you would like in any given year, it’s considered to be a direct exchange between providers, meaning there are no tax penalties involved and generally no withholding. Read about how to roll over a 401(k) to Betterment. Indirect Rollover As a last resort, completing an indirect rollover is another way to move retirement funds between institutions. However, the many IRS rules and restrictions attached typically make it a last-resort choice. Not only are you limited to one indirect rollover per 365 days, but you must also distribute all or part of your account, take possession of the funds, and then redeposit the cash proceeds into a new IRA within 60 days. What’s more, it’s potentially reportable on your federal tax return. In addition, generally, the original firm withholds on the distribution, meaning you must make up the difference from your own funds, or else it may count as a taxable distribution. This can leave a lot of room for error, not to mention it requires a lot of manual work for you. If you have any questions about moving your retirement money to Betterment, we have experts on hand to assist. Ready to make the move to Betterment? Get started today. Betterment is not a tax advisor, nor should any information contained in this article be considered tax advice. Please consult a tax professional. When deciding whether to roll over a 401(k) account or another retirement account, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities. You should research the details of your 401(k) and speak to a tax and other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.

How Betterment Anticipates Market Volatility—So You Don’t Have To It’s difficult to endure volatile markets when it affects your investment portfolio. Betterment has automated features in place to address volatile markets when they occur. If you’ve ever been told to “sit tight and stay the course” when the market is dropping and your investment account is worth less than it was just moments ago, you’re not alone. Financial advisors, including Betterment, love this mantra and repeat it anytime there’s a market downturn—which every investor should be prepared to navigate at some point. But being told to do nothing when your account balance is dropping can feel like an inadequate response. And, unless your investment strategy has been designed from the ground up to anticipate and react to market volatility, you may be right. The reason Betterment can confidently advise our customers not to react or adjust their investment strategy during a market downturn is because our entire platform was designed with inevitable downturns of the market in mind. In this article, I’ll cover how our investment portfolio creation process, ongoing automated account management system, and dynamic advice, are designed with market fluctuations in mind, so that you can “sit tight and stay the course” and feel confident it’s actually the right thing to do. Our portfolios are constructed with market volatility in mind. Betterment’s portfolio construction process strives to design a portfolio strategy that is diversified, increases value by managing costs, and enables good tax management. Ultimately, our goal is to help you build wealth. This means: Our intent is to create portfolios designed to have a better chance of making money and also not losing it. At a baseline, our allocation recommendations are based on various assumptions, including a range of possible outcomes, in which we give slightly more weight to potential negative ones, by building in a margin of safety—otherwise known as ‘downside risk’ or uncertainty optimization. So, even before you’ve invested your first dollar, your portfolio has already been designed to account for the market fluctuations you will inevitably experience throughout the course of your investment journey, even the big downturns like 2008 and the more recent market crash in 2020. Furthermore, our risk recommendations consider the amount of time you’ll be invested for. For goals with a longer time horizon, we advise that you hold a larger portion of your portfolio in stocks. A portfolio with greater holdings in stocks is more likely to experience losses in the short-term, but is also more likely to generate greater long-term gains. For shorter-term goals, we recommended a lower stock allocation. This helps to avoid large drops in your balance right before you plan to withdraw and use what you’ve saved. All you have to do is: Tell us what you are saving for (your investing goal). Let us know how long you plan to be invested (your time horizon). We take care of the rest. By using your personal assumptions, in conjunction with our general downside risk framework, we’re able to recommend a globally diversified portfolio of stock and bond ETFs that has an initial risk level recommended just for you. And because we weigh investment time horizon and below-average market performance more heavily, our algorithm allows for some breathing room. If you wish to deviate from our advice— like increasing or decreasing your exposure to stocks or bonds, slightly beyond our default recommendation but still within a reasonable bound—we’ll still maintain the integrity of a properly diversified portfolio and investment strategy designed to meet your specific objective. After all, the chance of reaching any investing goal increases when the investor is comfortable committing to their strategy and staying the course in both good and bad markets. Our automated portfolio management features keep you on track during downturns. How we construct our globally diversified portfolios and the risk framework we apply to each investor’s specific allocation recommendation is just the starting point. It’s our ongoing and automated portfolio management that provides the additional value-add that's hard to replicate elsewhere, especially in times of heightened volatility. Our automated features like allocation adjustments over time, portfolio rebalancing, tax loss harvesting for those who select it, and updated advice when you need it, are what help most. Automated Allocation Adjustments When we ask you to tell us about your investment objective, including how long you plan to be invested for, it helps us choose the appropriate asset allocation for you throughout the course of your investment timeline, not just in the beginning. For most Betterment goals, we recommend that you scale down your risk as your goal’s end date gets closer, which helps to reduce the chance that your balance will drastically fall if the market drops. This is an especially important consideration for an investor who plans to use their funds in the near term. We call this recommendation of a gradual reduction of stocks in favor of bonds, a goal’s glidepath. And instead of leaving this responsibility up to you, you can opt into our “auto-adjust” feature, which means our system monitors your account and adjusts your portfolio’s allocation automatically over time. Automated Portfolio Rebalancing The allocation that we choose for you, at any given time, is our best estimate of the combination of assets that will help you reach your goal by the date you’re aiming for. But, unless each asset you are invested in has the same exact returns, normal stock market fluctuations will likely cause your actual allocation to drift away from your portfolio target, which is calculated to be the optimal level of risk you should be taking on. We call this process portfolio drift, and though a small amount of drift is perfectly normal—and a mathematical certainty—a large amount of drift could expose your portfolio to unwanted risks. When the market fluctuates, not all of your investments are dropping to the same exact degree. For example, stocks are generally more volatile than bonds. As you can imagine, a period of sustained volatility could mean a significant shift in how your portfolio is actually allocated, relative to where it should be. Left unchecked, this drift could be especially harmful to your portfolio’s performance, which is why at Betterment, our portfolio management system provides ongoing monitoring of your portfolio in order to determine whether rebalancing is needed. While we generally use any cash inflows, like deposits or dividends, and outflows, like withdrawals, to help rebalance your portfolio organically over time, when a significant market drop occurs, there can be a need to sell investments in order to adjust your portfolio back to its optimal allocation. Consider an instance where the value of your stock investments has dropped significantly and now your bond investments are overweighted relative to your stocks. Our rebalancing system might be triggered to correct the drift. Not only would our automated rebalancing seek to ensure your portfolio’s allocation is realigned relative to its target, it would also mean buying stocks at their currently cheaper price point, setting you up nicely for any market recovery. Furthermore, if effective rebalancing does require selling investments in a taxable account, the specific shares to be sold are selected tax-efficiently using our TaxMin method. This is designed to ensure that no short-term gains are realized. We never want the tax impact of maintaining proper diversification to counter the benefits of applying our risk framework. Automated Tax Loss Harvesting Tax Loss Harvesting is a feature that may benefit you most when the market is volatile. After all, if there aren’t any losses in your account, we can’t harvest them. Our automated TLH software monitors your account for opportunities to effectively harvest tax losses that can be used to reduce capital gains that you have realized through other investments in the same tax year. This can potentially reduce your tax bill, thereby increasing your total returns, especially if you have a lot of short-term capital gains, which are taxed at a higher rate than long-term capital gains. And, if you’ve harvested more losses than you have in realized capital gains, you can use up to an additional $3,000 in losses to reduce your taxable income. Any unused losses from the current tax year can be carried over indefinitely and used in subsequent years. Our dynamic financial advice works for you during market fluctuations. Much like the automated features described in the section above, the advice we give our customers is dynamic and updates automatically based on many factors, including market performance. Just as your car’s GPS recommends the best route to take to reach your destination, Betterment recommends a tailored path toward reaching your financial goals. And just as the GPS updates its recommended route based on road conditions and accidents, we update our advice based on various circumstances, such as a market downturn. In addition to recommending a starting risk level tied to your specific objective, we also estimate how much you need to save. In the case of a really big market drop, we might advise you to do something about it, such as make a single lump-sum deposit, which will help keep your portfolio on track. Recognizing that coming up with sizable excess cash can be tough to do, we’ll also suggest a recurring monthly deposit number that may be more realistic. And, if it’s early on in a long-term goal, it’s unlikely you’ll need to change anything significantly, because you still have a lot of time on your side. Conclusion The path to investment growth can be bumpy, and negative or lower than expected returns are bound to make an investor feel uncertain. But, staying disciplined and sticking to your plan can pay off. Betterment has been purpose-built with all the worst and the best the market may throw at us in mind, by focusing on three key elements: intentional portfolio construction, automated portfolio features, and advice that reacts to market conditions. Feel confident that Betterment’s hard at work, for you, so that you can truly “sit tight and stay the course.”  

Understanding Crypto Fundamentals Cryptocurrency is a complicated technology, but it’s also accessible. It can be understood by anyone, regardless of your background. At this point, it’s highly likely you’ve at least heard the many buzzwords associated with cryptocurrency. Blockchain, Bitcoin, or Ethereum ring a bell? But how many times has someone also said, “You should definitely invest in crypto” and then done a poor job of describing what any of it actually means? I’m all for movements and trends that create engagement within the investing space, but most of us require more before we feel comfortable taking action. My hunch is that some of the qualities that help make an investor successful—being thoughtful and disciplined, for example—can also be our Achilles heel when it comes to crypto and other speculative investments. And while I’m not suggesting that we set our principles aside and immediately add crypto to our portfolio, (heck, only 15% of women are actually investing in it and we’re the better investors, aren’t we?), understanding the fundamentals should help unlock the door to the possibility. At the very least, I hope it prepares you for the next time crypto is inevitably brought up in conversation. So let’s master the three main areas, eh? What it actually is. Considerations for investing. And how to do so, if you so wish. Section 1: So, what’s crypto, anyway? First things first, it’s important to understand a few key definitions. Only then can we piece them together to try and make sense of it all. Three key terms: Cryptocurrency “Crypto”: a form of payment for goods and services that can only be exchanged virtually (digital currency). It’s also decentralized, meaning the transaction doesn’t have to be made through an official financial institution, such as a bank. Blockchain: the technology behind crypto that enables virtual records of all digital transactions to be created and stored securely across computers. This helps verify ownership and prevents fraud. Bitcoin: one of the MANY types of cryptocurrencies that exist. Tied together, crypto is basically a decentralized form of currency that relies on blockchain technology to facilitate secure and strictly digital transactions. Bitcoin, while by far the most popular cryptocurrency, is really just one of many that exist. Bitcoin can be acquired and used to exchange goods and services and/or as an investment opportunity. Still confused? Analogy time. It’s kind of like when you go to a carnival and you use tickets instead of cash. The ticket is your Bitcoin (or another crypto, like Ether) and it carries a perceived value that can be exchanged for something else: Say, a ferris wheel ride. Your primary motivation for having the tickets could be purely transactional, like paying for the fun night at the carnival. But what happens if you wind up with leftover tickets at the end of the night, either intentionally or unintentionally? By not timely exchanging those tickets for other goods and services, it’s expected that their value could change. Over time, the same leftover tickets could potentially buy you 2x the ferris wheel rides, for example, or the same ride could require more tickets than before. To tie it back to cryptocurrency, what continues to attract investors is the idea that the value of cryptocurrency could increase over time. Section 2: To invest or not to invest? The considerations associated with investing in the digital currency space are unique and complex. Does one invest in a single cryptocurrency? A mixture of the 1,000+ possible currencies? Or, is it actually the technology behind cryptocurrency that has the most potential? And exactly how much exposure should one have? If you were hoping for a straightforward answer, I'm sorry to disappoint. Take Bitcoin, for example. Satoshi Nakamoto created Bitcoin in 2009, in response to the financial crisis of 2008. His primary intention was for Bitcoin to act as an alternative to your traditional, bank-controlled currency. Fast forward to today and Bitcoin is still far from being a convenient, 1:1 replacement for cash. Instead, retail investors are flocking to it for its growth potential, betting its value will continue going up. And even though Bitcoin is far and away the single largest cryptocurrency—and the fastest ever asset class to reach a $1T market cap thanks to a $500B surge in 2021 alone—its historical price fluctuations and inherent volatility often make it too risky to be trusted as a standalone investment. Bitcoin’s extreme price fluctuations in April should be a caution sign to all investors. After cracking $60,000, a 15% flash crash had Bitcoin’s price as low as $50,900, and as of end of month April, it was still down about 8%. And if you’re looking for a sound reason as to why the crash happened...good luck. There is no true consensus. So, even if you believe in the technology and conclude crypto’s here to stay, one thing is certain: Right now, this is not a stable asset class and buying Bitcoin is absolutely not the same as holding a regulated currency, like U.S. dollars. That said, even if stability and a disciplined investment approach is important to you, there could still be room for crypto in your strategy. Like anything else, having some exposure is reasonable. You just want to be sure it’s in balance with your broader strategy, explicitly categorized as “play money”, and not being counted towards any specific goal or future need. Until there’s an easier way to actually exchange your crypto for goods and services (at a steady price), you should be buying it primarily for its growth potential. Read more on Betterment's advice for investing in crypto responsibly. Section 3: I think I’m ready to buy. So, you’re ready to join the club. You’ve decided that based on your financial goals and strategy, you’re willing to invest some of your excess cash in crypto. Great. Like the many currencies and tangent technologies, there are several platforms to choose from, possibly even through one of your existing accounts. Unless you have the ability to easily track and monitor your crypto, keeping it separate from your established portfolio may help you better maintain your core strategy moving forward. As you evaluate your options, here are some additional considerations to keep in mind. Safety and security: Use a centralized exchange, or one that’s required to register and follow standard “know your customer” rules (at least when you’re first starting out). Cost: Depending on the platform, there can be trade specific fees, ongoing management fees, and additional costs to send your currency to someone else. General platform functionality: Do you want to be able to simply buy and sell currency? Or do you also want to be able to exchange your currency for additional goods and services and send it to other people? Since this asset class is so volatile, what is your chosen platform’s track record of uptime? Nobody wants their platform to be down while they are trying to make a trade. Companies like Coinbase are often touted as good enough options for beginners and have seemingly avoided the fraud and funny business that other exchanges have fallen victim to. They also have a lot of resources and tools you can access as you get your feet wet. Consider using them as a jumping off point for further exploration. Be an informed crypto investor. So, while this asset class is relatively new and is constantly evolving, it’s important to get familiar with the basics. It’s clear that cryptocurrencies aren’t going anywhere, and the sooner you have the tools to understand what cryptocurrency is—and the consideration related to investing in it—the more empowered you’ll feel participating in the ongoing conversation, and ultimately investing (responsibly), if you so choose.

5 Common Roth Conversion Mistakes Converting your Traditional IRA to a Roth IRA can be a useful strategy for many investors. However, mistakes along the way can cost you—we’ll help you avoid them. Taxes are treated differently between Traditional and Roth IRAs. Traditional funds are taxed at retirement, whereas Roth funds are taxed when you put them into your IRA. Transferring funds from a Traditional IRA to a Roth IRA is called a Roth conversion. With a conversion, you are essentially changing money that hasn’t been taxed yet into money that has been taxed—and paying the resulting taxes due from the conversion. There can be many reasons for why you may want to go ahead and pay taxes in the present rather than in the future. In this article, we’ll focus on several mistakes that can occur when performing a Roth conversion. These mistakes are common enough that anybody contemplating a Roth conversion should be aware of them. Since Betterment is not a tax advisor, please consult a tax advisor if you have questions on how a Roth Conversion would affect your specific tax situation. See step-by-step instructions for converting your Traditional IRA to a Roth IRA. 1. Convert Too Late Most of us don’t think about taxes until April, when we have to actually file. However, by waiting this long to convert from a Traditional IRA to a Roth IRA, you may be paying more taxes than you need to. Remember that you only pay taxes on the amount you convert. Let’s say you convert $10,000 in January and it grows to $11,000 by the time you file your taxes in April. You still only pay taxes on the $10,000. Had you waited until tax time, you would have had to pay taxes on $11,000 instead. As with many things, it pays to plan ahead. If you plan on doing a conversion, do it as early in the year as possible—preferably in January, in order to give your money the longest amount of time in the market as possible so that it can grow tax-free. 2. Convert Too Much Roth conversions can be a powerful strategy, but blindly converting can end up causing more harm than good. A common strategy used to avoid paying more in taxes than you may have to is called “bracket filling.” You determine how much room you have until you hit the next tax bracket, and then convert just enough to “fill up” your current bracket. For example, if you are married filing jointly and have taxable income of $100,000, then you have about $71,050 of room before jumping from the 22% Federal tax bracket to the 24% bracket. It’s worth noting that certain state tax rates can be impacted as well and the rules vary state to state. Converting any more than what you have left to fill up your current tax bracket would likely cause you unnecessary taxes. You can work with your tax preparer to find exactly how much room you have and how much to convert. 3. Convert Too Little On the other end of the spectrum, many people are too conservative when calculating how much to convert and end up missing out on valuable room in their tax brackets. To be clear, going into the next bracket is probably not what you want to do. However, nobody knows exactly what bonus they’ll get, or how many dividends they will receive, so guessing the exact dollar amount is impossible. Since we no longer have the luxury of undoing a Roth conversion, it’s more important than ever to take extra care when running the numbers. If most or all of the Traditional IRA is comprised of after-tax contributions, delaying or avoiding a conversion may only increase the taxable earnings later. See Smart ways to minimize taxes on a conversion. 4. Keep the Same Investments Conversions can be a great tool, but don’t stop there. Once you convert, you should also adjust your portfolio to take advantage of the different tax treatment of Traditional and Roth accounts. Each account type is taxed differently and many investments grow differently, too. You can take advantage of this by strategically coordinating which investments you hold in which accounts. This strategy is called asset location and can be quite complex. Luckily, we automated this strategy through our Tax Coordination feature. Pairing asset location with Roth conversions can help supercharge your retirement plan even further. 5. Pay Taxes From Your IRA Paying any taxes due from the conversion out of the IRA itself will make any Roth conversions you do less effective. If you convert $10,000 and are in the 22% tax bracket, you will owe $2,200 in taxes. One option is to pay the taxes out of the IRA itself. However, this will mean you paid taxes on $10,000 but only have $7,800 left to grow and compound over time. If you are under the age of 59 ½, the withheld amount will also be subject to a 10% early withdrawal penalty. Instead, consider paying taxes owed using excess cash or a non-retirement account you have. This will help keep the most money possible inside the Roth IRA to grow tax-free over time. Step-By-Step Instructions We recognize that many investors are interested in this technique, so we’ve created a quick process that allows an investor to authorize a Roth conversion online in less than a minute. Log in to your account on a web browser. Click on Settings in the menu on the left-hand side of the page. Click the Accounts tab at the top of the page. Find your Traditional IRA and click the 3 dots that appear off to the right. Choose the option that says “Convert IRA to Roth.” You’ll have the option to convert either a partial amount or the full amount. For questions regarding whether or not converting is the best option for you, please consult a tax advisor, as Betterment is not a tax advisor and cannot provide tax advice for your specific situation.