How will my Betterment account affect my taxes?

Last Updated: June 02, 2014 12:27PM EDT
With general investment accounts, you pay capital gains on any net profits you make when you sell a share. You sell shares whenever you change your allocation, make a withdrawal, or we assess our fee.

Betterment will always sell your shares in a way that minimizes and defers taxes for you. We'll sell shares that have lost value first (short term losses, then long term losses), and then we'll sell shares that have gained value (long-term gains, then short term gains).

Short term capital gains tax applies if you sell shares before you’ve held them for a year is the same rate as your income tax rate (0-40%). Long term capital gains tax applies if you sell shares after you’ve held them for a year, and ranges from 0-20%.

Here are some important points about taxes:

  • Rebalancing: ​We rebalance using incoming deposits and dividend reinvestments whenever possible to avoid making a sale. Our system is intelligent, and will never trigger short term capital gains while rebalancing.
  • 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.
  • 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.

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Phone1-888-428-9482Monday–Friday 9am-8pm ETSaturday–Sunday 11am-6pm ET support@betterment.com Live ChatLive Chat
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