share class conversions: Removed+Added vs Sold+Bought
If a fund I'm holding in a 401k is automatically converted to a different share class of the same fund (i.e. different ticker symbol), should I enter that as Removed+Added or Sold+Bought? Does it matter?
This happened in my 401k and I originally entered it as Removed+Added but the number of shares added by Quicken's automatically generated series of "Added" transactions doesn't quite match what is listed on Fidelity's website, plus Fidelity's statement just has a single "Exchange Out" transaction of the old fund, followed by a single "Exchange In" transaction into the new fund.
If this same event occurred in a taxable brokerage account, would the answer be different?
Answers
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"If a fund I'm holding in a 401k is automatically converted to a different share class of the same fund (i.e. different ticker symbol), should I enter that as Removed+Added or Sold+Bought? Does it matter?"
Yes, it does matter, but whether it matters enough to make you switch is up to you.
Using Bought and Sold leaves behind all the the "lot-level" information of the old security and you end up with one lot, with one "date acquired", for the new security in their place. Quicken also calculates any gain or loss with that transaction. This gain or loss won't be included in a Capital Gains report because of the tax deferred nature of the Account, but any overall Spending Report that includes that Account will include that gain or loss as the Spending Reports use Generally Accepted Accounting Principals (GAAP) not Statutory (Federal Income Tax) accounting. Since capital gains and losses inside tax deferred Accounts aren't really important - money distributed out of such an account is all "ordinary" - and if you don't routinely use the performance metrics where lot level information is required, then this way of accounting for the conversion is just fine.
On the other hand if you use the Mutual Fund Conversion action for this scenario you preserve the lot-level information - each lot of the old security is replicated in the new security with the old date acquired and basis, (the resulting number of shares can be different if the conversion is not a 1-for-1 conversion, which sometimes happens with share class conversions), and there's no capital gain calculated, because there isn't any.
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Shades of this discussion:
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I logged into my 401k account and went through the steps required to exchange one investment for another, and at no point during the process (right up until the final "Submit" button) did the website ask me which lots of the original investment I want to sell in order to fund the purchase of the new investment. That leads me to believe Fidelity doesn't even track individual lot information within 401k accounts (or at least doesn't make it accessible to the end user), and therefore the best way for me to recreate what is happening in the Quicken account is to use the Sold+Bought transactions rather than Removed+Added. Does that seem correct?
Also I noticed that because Quicken uses 6 digits of precision when calculating the share amounts for each of the "Added" transactions whereas Fidelity only uses 3 digits and a single "Buy" transaction, the share amounts of the new fund differ slightly between Quicken and Fidelity. Does that mean I made an error when I entered the "Mutual Fund Conversion" transaction, or are these rounding errors just inevitable when entering Removed+Added transactions?
Also can you elaborate on this point (I'm not sure how to format a string as a quote so I just italicized it):
if you don't routinely use the performance metrics where lot level information is required
What are the "performance metrics where lot level information is required"?
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Thanks, your last comment seems to suggest I should use Removed+Added (even if Fidelity reports it as a Sell+Buy).
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My last comment in that other discussion was what I would do and concluded each user needs to make their own choice.
Also I noticed that because Quicken uses 6 digits of precision when calculating the share amounts for each of the "Added" transactions whereas Fidelity only uses 3 digits …
I would edit each of those Add Shares transaction to change the shares to 3-decimal precision thereby making Quicken agree with Fidelity.
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Why does Quicken use 6 digits for Remove+Added transactions? What is the actual smallest unit of a mutual fund that can be transacted?
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What actual smallest unit of a mutual fund that can be transacted?
Varies with the financial institution or fund family. I choose 3-decimals unless there is a reason to go further.
Why does Quicken use 6 digits for Remove+Added transactions?
Quicken does not choose; it follows the math. If a conversion, a split, a purchase, or other transaction leads to more decimals, that what Quicken uses, but usually capped at 6.
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