How will my Betterment account affect my taxes?

Last Updated: January 23, 2014 8:35PM EST
Here are some important points about taxes:
  • Bookkeeping: Betterment makes your bookkeeping easy. We provide 1099-B, 1099-DIV and 1099-R tax forms on February 1st, which organize all your earnings from the previous tax year.
  • Account changes: When you change your Allocation or withdraw money you are selling securities and any gains are subject to tax. Also, when Betterment collects its management fee at the end of each quarter we sell enough securities to cover the fee.
  • Dividends: All the assets in Betterment accounts pay dividends, not interest.
  • Betterment accounts may include qualified dividends. Qualified dividends are generally dividends from securities that are held for longer periods of time and are therefore taxed at a lower rate.

A note about rebalancing: Betterment automatically rebalances your account for you so your asset allocation stays where you want it. Occasionally, rebalancing means selling investments which have gained in value, which can be subject to capital gains tax. However, our system is designed so that we use your deposits, withdrawals and dividends to rebalance you whenever possible, rather than making a sale, which is a more tax-efficient way of rebalancing your account. 

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