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 Advanced Indexing 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.
Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.