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how can I fix the cost basis after a share exchange for my 529?

eric.liprandi

A few months back, my 529 provider decided to proceed with a share "exchange". So, I ended up with the same value of shares B that I had with shares A.
It appeared on my statement as 2 transactions. One "sell" of shares A which added to the cash balance. And an immediate "buy" of shares B for the same cash value.
Everything looks OK, except for 1 thing: my cost basis is off.
My contributions are monthly round numbers, so my cost basis should be a round number. Let's say $3000. However, following the sell + buy my cost basis is now higher and not a round number. Is there a better way to record a share swap/exchange in Quicken?

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Comments

q_lurker

Why do you believe your "cost basis is off"? Off according to what measure? Just because your purchases were round numbers is not directly an answer. There may have been intervening reinvested dividends that would have increased your cost basis.

What were the funds exchanged? If they were "like" funds, the sell/buy sequence might not be appropriate (and your 529 took the easy way out). If they were not similar funds, then the sell/buy would be appropriate and that pairing would have justifiably changed your cost basis.

Why are you concerned that the cost basis should be limited to the round dollar figures you have contributed? That is not the definition of cost basis (See your Quicken Help glossary.)

eric.liprandi

I guess I always assumed that my cost basis was "my cost" or what I paid to acquire the assets. From what you are saying, it may not be, in particular if the "exchange" included gains. I guess I won't worry about it since I really just use Quicken for record keeping and not for analysis or anything else.
Thanks for your help.

q_lurker

I guess I always assumed that my cost basis was "my cost" or what I paid to acquire the assets. From what you are saying, it may not be, in particular if the "exchange" included gains. I guess I won't worry about it since I really just use Quicken for record keeping and not for analysis or anything else.
Thanks for your help.

assumed that my cost basis was "my cost" or what I paid to acquire the assets.

That is an improper or at least incomplete definition (expectation). In the case of reinvested dividends, the security has chosen to distribute some of their income (profits) to you which in principle may be taxable to you (though not in a tax-deferred account). You then chose to buy additional shares. That is you paying more to acquire more shares. That principle is still in play even though the process consolidates everything into a single transaction and the cash never flows though your hands.

The same principle carries over to selling shares and buying something else. With the sale, you have turned a profit (hopefully) which may be taxable (tax-deferred exception applies). You then took that original investment and the profit and used it to acquire new shares. Thus the cost basis of the new holding is reflecting wheat you paid to acquire those new shares.

Cost basis is maintained on each security, not on the account holding a bucket of securities. And while largely as tax consideration, the same definition and application of cost basis applies in both taxable accounts and tax-deferred accounts. It is consistent.

I really just use Quicken for record keeping ...

For me, it is the record keeping that drives my efforts to properly maintain the cost basis. I want my Quicken records to be as complete and fully accurate as possible, but I understand where you are coming from.

Hope this helps.

Rocket J Squirrel

I guess I always assumed that my cost basis was "my cost" or what I paid to acquire the assets. From what you are saying, it may not be, in particular if the "exchange" included gains. I guess I won't worry about it since I really just use Quicken for record keeping and not for analysis or anything else.
Thanks for your help.

Cost basis is a tax fiction. In a taxable account, you *want* a higher basis, which results in a smaller capital gain when shares are sold. In a tax-advantaged acccount, basis matters not at all.

An exchange really is a Sell & a Buy. The Buy is at the price of the new security, so your new higher basis is technically correct, if unimportant.

Quicken also maintains a quantity called Amount Invested, which represents what you actually paid for your shares (but which is only reliable if you buy and hold, not selling any shares).

All of that said, if you want to maintain your round numbered contributions, use a Shares Removed/Shares Added pair instead of Sold/Bought. The Add Shares transaction allows you to specify the basis.