To satisfy a withdrawal request, Wealthfront will attempt to sell investment lots to both minimize your tax liability from the withdrawal and to also rebalance your portfolio toward your target allocation. 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 our Smart Beta service, a withdrawal may result in short term gains being realized as our algorithm attempts to maintain the characteristics of our service.
Subject to the tax-efficiency constraints above, we’ll also use withdrawals to sell lots from asset classes that are overweighted relative to your investment plan, thus moving your portfolio closer to your target allocation.
Accounts that have transferred from another financial institution and have securities pending transition into a diversified Wealthfront allocation, a withdrawal request will result in the sale of the transferred assets first, regardless of the tax consequences.
Wealthfront prepared this article for informational purposes and not as an offer, recommendation, or solicitation to buy or sell any security. Wealthfront and its affiliates may rely on information from various sources we believe to be reliable (including clients and other third parties), but cannot guarantee its accuracy or completeness. See our Full Disclosure for more important information.
Wealthfront and its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisor. Financial advisory and planning services are only provided to investors who become clients by way of a written agreement. All investing involves risk, including the possible loss of money you invest. Past performance does not guarantee future performance.