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Tax Planning

Your Tax Return: Plan Ahead with Betterment

Thinking about how to file your tax return? As with your investments, Betterment helps keep tax prep efficient and simple.

Articles by Alex Benke, CFP®

By Alex Benke, CFP®
VP of Advice and Investing, Betterment  |  Published: December 19, 2016

We provide all relevant Betterment tax documents in mid-February in a simple-to-read format.

You can automatically import your Betterment documents into TurboTax, H&R Block Tax Software, or TaxACT.

Even if you did nothing in your Betterment account last year, your account may have generated activity that must be reported to the IRS.

Help improve tax savings this year by turning on Tax Loss Harvesting+ and setting up Tax-Coordinated Portfolio.

At Betterment, we receive a lot of questions from customers about filing taxes. While we can’t provide tax advice (you should consult a tax professional), taxes are an inevitable part of the investment process. Here’s how we help make your tax return preparation as painless as possible.


Everything In One Place

Tax considerations for investments require a lot of information—you need to keep track of dividends, cost basis, and realized capital gains and losses, to name a few.

Betterment does this for you and provides all relevant tax documents in a simple-to-read format. IRA tax forms (1099-R and FMV/RMD) will be available at the end of January, while tax forms relating to your taxable investments (1099-B and 1099-DIV) will be available in mid-February.

If you have multiple accounts with Betterment, such as joint and/or trust accounts, in addition to your personal account, all of your forms will be available in the Tax Forms section of your Activity tab.

The forms for taxable accounts are not available prior to February as Betterment is awaiting final confirmations from fund providers regarding dividend distributions and their appropriate classifications. Your tax forms are released by mid-February to avoid costly corrections for you and for us.

Betterment provides the following forms depending on your account type:

  • Form 1099-B: For taxable accounts, this form reports to the IRS all the gains and losses in your account as a result of sales made during the year. Securities are sold whenever you make a withdrawal, you change your allocation, our algorithms execute a tax loss harvest or rebalance, or we assess our management fee. This form must be included with your tax return if you have any gains or losses from sales. Note: Your 1099-B may be quite long if you have enabled Tax Loss Harvesting+ in your account, or if you have frequent allocation changes or withdrawals. This is to be expected, as the form reflects every sale you have made inside your portfolio for the year.
  • Form FMV and RMD: This form is only provided in your tax statement if you had an IRA that carried a balance during the year. You do not need to file this, but you should check to see if you have any required distributions for next year.
  • Form 1099-DIV: For taxable accounts, this form reports to the IRS all dividends you’ve received, and it is only required if the dividends amount to more than $10 over the course of the year.
  • Form 1099-R: This form is only provided in your tax statement if you have an IRA or a 401(k) and took a distribution in the last year. A distribution occurs in the case of IRA recharacterization, or when you make a withdrawal, convert a traditional IRA to a Roth IRA, or roll funds over to another provider.
  • Form 5498: This form details any IRA contributions you’ve made for the current tax year. We report this information to the IRS, but you don’t need to file this form (it’s for your records). Because yearly contributions to your IRA are permitted up to April of the following year, this form will be made available separately in May. However, you still need to report your annual IRA contributions on your taxes by the deadline.

IRA tax forms (1099-R and FMV/RMD) will be available at the end of January, while tax forms relating to your taxable investments (1099-B and 1099-DIV) will be available in mid-February. Once you receive an email notification that your forms are ready, click on the Activity tab in your Betterment account, where you’ll find PDF versions of your tax statements, including all the forms that are applicable to your account. We’ll also notify you of their availability when you log in.

To provide the best possible experience, Betterment works hard to provide your forms as soon as possible, which is often earlier than many others in the financial industry.

Integrated with Tax Software

You can also automatically import your documents into TurboTax, H&R Block Tax Software, or TaxACT. Import your information directly into any of these programs by entering your Betterment email and password, and your tax software will automatically download and calculate your tax information. Read more about importing your taxes.

If you are unable to automatically import your tax forms into your tax software because of the number of transactions documented (this could be the case if you have enabled Tax Loss Harvesting+ in your account), the IRS allows you to report the summary information on your electronic tax return and send a paper copy of your statement with Form 8453 to the IRS after your tax return has been accepted. You can get more information from the IRS here.

Tax Tips for Filing

  1. If you work with a CPA or tax preparation professional to file your taxes, you’ll want to provide him or her with a copy of your Betterment account statement. Your statement may be multiple pages in length because it reflects the total number of transactions in your Betterment account. The IRS requires Betterment to disclose these transactions, which may be associated with beneficial tax-efficient account features, such as Tax Loss Harvesting+ and smart rebalancing.
  2. Don’t forget to report any carryover capital losses from prior tax years on Schedule D of your tax return for the current year.
  3. Take state and local exemptions for municipal bonds. If you held municipal bond ETFs, note that a portion of dividends paid by municipal bond ETFs including MUB, CMF, NYF, and TFI may be exempt from state and local tax. The applicable rules for exemption vary by state—consult a tax advisor. Please refer to any current tax information published separately by iShares and SPDR. We will provide informational resources published by the fund providers here.
  4. Consider maxing out your IRA contributions and make sure you report them. Traditional IRA contributions come from your pre-tax income and contributing to your IRA may lower taxable income. Traditional IRA contributions can potentially lower your tax bill (or increase your refund) if you make those contributions before filing your taxes. You can use the How to Save feature of RetireGuide to see how much you should be saving.
  5. Time your filing. Once you have your paperwork, you can estimate your taxes before they are ready to submit. File immediately if you will be receiving a refund. You may want to consider delaying your filing until early April if you owe the IRS money. The rationale? That “loan” you have from the government is interest free, so no need to pay it off early.
  6. Note that any IRA rollovers and conversions count for the calendar year in which they are performed—your tax return deadline does not apply to these activities. If you haven’t already, consider rolling over an IRA or old 401(k) to Betterment—we help make the traditionally complicated process simple and efficient.

Tax-Efficient Investing, Year-Round

At Betterment, we strive to keep your tax bill low with advanced features, such as:

  • Tax Loss Harvesting+: By turning on this account feature, Betterment carefully assesses your portfolio to realize losses, which can offset capital gains. By realizing and selling securities that experience losses, or “harvesting” losses, you’re able to offset taxes on both gains and income. The sold security is replaced by a similar one, helping to maintain the optimal asset allocation and expected returns.
  • Tax-Coordinated Portfolio™: By setting up a Tax-Coordinated Portfolio with your long-term investment accounts, you can help boost after-tax returns by an average of 0.48% each year, which approximately amounts to an extra 15% over 30 years. TCP works by tax-efficiently reorganizing your investments across your taxable account and IRA accounts. It puts your assets that are taxed more in your IRAs, which already have big tax breaks. And it puts your assets that are taxed less in your taxable accounts.
  • Tax Impact Preview: Betterment is the only investing platform to offer real-time predictive tax information. This feature shows an estimate of the taxes you may owe before you change your allocation or make a withdrawal. This encourages smart investor behavior, and can ultimately help increase your after-tax returns.
  • TaxMin Cost Basis Accounting: Betterment goes beyond the industry standard (FIFO) to choose which lots of shares to sell by intelligently liquidating each of your lots when you withdraw, to minimize your capital gains. In addition to investing in tax-efficient ETFs and smart rebalancing, one of our key priorities is saving you money on taxes.

As always, our support team is available seven days a week to answer any questions you have about Betterment tax documents or your Betterment account.

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 retirement account, you should carefully consider your personal situation and preferences. The information in this article is being provided for general informational purposes and is not intended to be an individualized recommendation that you take any particular action.

Factors that you should consider in evaluating a potential rollover include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account and consult tax and other advisors with any questions about your personal situation.

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