401(k) fund change

Bill318

My company's 401 (k) changed from one small cap fund to another. What is the best way to handle this in Quicken?

Jim_Harman

Because there are no tax implications for trades made in a 401(k), you can enter a Sell for the old fund and a Buy for the new one, using the proceeds of the sale.

Tom Young

My assumption here in what follows is that this was and exchange between mutual funds within one fund family.

The correct way of doing this from a pure accounting standpoint would be to use Quicken's "Mutual Fund Conversion" action.  That would keep your cost basis for the new security properly stated on a lot by lot basis, where Buy/Sell actions would obliterate your original cost basis in the old fund and set your cost basis in the new fund to the total proceeds from the "sale."

However, the Mutual Fund Conversion action won't work properly if you've been accounting for the old fund's cost basis using "average" cost.  I've read in here that changing the cost basis from average cost to FIFO will make the Mutual Fund Conversion action work correctly, but I haven't tried it, so no guarantees.  If you do go that route, make a backup first.

But if you really don't care about maintaining cost basis figures, and many people don't in a deferred tax Account, then Buy/Sell actions is the easiest way to go.

mshiggins

Tom, every time one of my 401(k) providers has changed a fund (replacing one fund with another fund), the 401(k) provider has sold the old fund and bought the new fund. 

Edit to add: 
Maybe it depends on the funds? My last fund change was in late 2020 when the Vanguard target date funds were replaced by State Street target date funds. That does not seem to lend itself to a Mutual Fund Conversion.

Tom Young

@mshiggins

Exchanging a mutual fund in one family of funds for a mutual fund in a different family would always be handled by the administrator as a sale and purchase of the new fund, I'd expect.  My assumption here - and I need to go back and make that clear - is that the typical "exchange" within a fund family has no gain/loss associated with the exchange.

Now that I think about it I suppose within a deferred tax account where the ordinary income tax rules don't apply, there's nothing wrong with using the Mutual Fund Conversion action even with different fund families involved.  It does preserve your cost basis, which is useful if you want to use gain/loss metrics in your evaluation of performance.