Switching from Lot ID to Average Cost in an IRA

EmKay

I am guilty of not fully reading the pop-up message I received when accepting a downloaded SELL transaction in my Traditional IRA.

When I first started using Quicken, I knew NOTHING about investing. Apparently, somewhere along the line (for at least this one security) I indicated that I wanted to use Lot ID for cost basis tracking (or rather, now that I look at the Edit screen for securities - I did NOT indicate that I wanted to use Average Cost).

Vanguard doesn't do anything BUT average cost, on IRA accounts. So I got the prompt on accepting the SELL to indicate which method to use, and I selected Average Cost, and I got a warning about clicking HELP to see how to preserve previous Lot ID information (this is the message that I didn't read in full). I clicked HELP, to see what was involved. I was taken to the main help screen, not a topic-specific screen. So I exited out and clicked CANCEL, thinking that would stop the acceptance of the transaction - but it did not.

Three questions:
1) Since it didn't prompt me for specific lots, can I assume it used Average Cost?
2) How do I change ALL securities in my Vanguard IRAs to be set for the Average Cost method (hopefully without having to manually edit all of them individually) ?
3) What WOULD the method of preserving the previous lot information be, if I ever did want to do this? Is there a link to the Quicken Help screen that I should've been directed to?

Jim_Harman

For a tax deferred account like an IRA, it does not really matter which option you choose in Quicken.

Average cost or Lot ID is used to calculate your cost basis and thus your capital gain or loss on a sale, but capital gains are not taxed in an IRA so your cost basis does not matter.

One situation where it does matter, however, is when there is a share class conversion, for example when Vanguard converts your shares from Investor class to the lower cost Admiral shares. In that case, especially in a taxable account, Use average cost should NOT be selected because Quicken will compute the cost basis for the new shares incorrectly.

I think if you change the Use average cost setting from No to Yes and then back, previous sales will probably be changed to FIFO but I have not verified this.

To answer your questions,

1. To tell which option was selected for a sale, edit the Sell transaction. If it was a partial sale and Specify Lots is grayed out, then either there was only one tax lot or Use average cost was selected.
2. You must set the option for each security individually.
3. Select No for Use average cost in the security details, then click on the Specify lots button when you make a sale.

q_lurker

Another key point is that the average cost selection applies to the security regardless of what account it is in. If you have the security in the IRA and wanted average cost but also had the same security in a brokerage account and wanted lot specification, you’d have a problem.

In my opinion, lot specification is the preferred, more reliable in Quicken methodology.