To satisfy a withdrawal request, Wealthfront will sell the assets which move your account closer to your target allocation. Within each asset class, we will generally sell from those lots that minimize your tax liability. In other words, we will sell investment lots from overweight asset classes. When we do this, we’ll work to minimize your tax liability, too. To minimize your tax liability, we’ll try to sell lots with losses first (since they generate no tax liability) followed by lots with a smaller tax liability (typically those taxed at the lower long-term capital gains rate, but we do look at the overall tax bill). For accounts with US Direct Indexing and Smart Beta, a withdrawal may result in short-term gains being realized as our software attempts to maintain the characteristics of our service.
For accounts that have transferred from another financial institution and have securities that aren’t part of your target portfolio, a withdrawal request will result in the sale of those assets first, regardless of the tax consequences.
Learn more about how we handle transferred assets here.
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