Vanguard VTSAX to VTI ETF Conversion

Johnweller

I recently converted VTSAX to VTI. I used the Mutual Fund Conversion transaction in Quicken Windows Premier R61.21. The resulting entries for purchase price and cost made no sense at all, though the final share count matched Vanguard's. Each transaction was so crazy that I won't go into the details. Thankfully I have learned to have a backup before trying such global conversions. The transactions in my Vanguard brokerage account go back to 2005 and were converted from a Vanguard mutual fund account to a brokerage account somewhere along the way, so the old original cost data is long gone. I DO have a spreadsheet download of Vanguard's calculated cost data and transactions for the VTI conversion back to 2005 when the brokerage account started. I am thinking I can go back and simply enter the transactions from the start (20025) as VTI and delete the VTSAX transactions? It is a lot of work, but I can't see another way to complete the task. Note: I don't use Quicken for tax purposes but mainly for investment tracking and performance. Is there an easier way?

Jim_Harman

What you are seeing is the bug with "Use average cost" discussed above. Quicken assigns your full cost basis to each converted lot, so if there are n lots, you will have a cost basis n times as large as it should be. This produces a ridiculously large cost basis if you have been reinvesting dividends for many years.

To avoid this, go to your backup from before the conversion and make another backup just in case. Then go to the account where the shares were converted and click on Holdings. Click on the VTSAX security to open the Security Detail view. Click on Edit Details and just below the Asset Class box, un-check the Use average cost box.

Your cost basis in Quicken will probably not match Vanguard's, because prior to 2011 brokers only tracked the average basis of mutual fund holdings, not the basis of each tax lot. The IRS calls these "non covered" shares. If you want everything to line up the same, you will have to edit your holdings in Quicken to match what Vanguard reports. Depending on what your spreadsheet says, you might end up removing all the pre-2011 shares that Vanguard lumps in to the Non-covered group and Adding back one lot for that group.

After making any changes, you can enter the Mutual fund Conversion to VTI and after churning for a while, you should see one Removed transaction for all your VTSAX shares and one Added of VTI for each tax lot of VTSAX that you held. The cost basis for VTI should end up the same as your VTSAX cost basis.

Be sure to delete or not accept any transactions that were downloaded from Vanguard related to the conversion.

Q97

Is your VTSAX security in Quicken set as "Use average cost"? That is known to cause issues when performing a mutual fund conversion, see, for example,

Mutual Fund Conversion - cost basis error — Quicken

q_lurker

If your not willing to explain what "made no sense" and won't provide details, I don't see how I can advise you. The MF conversion should just be 1) removing all shares for VTSAX in that account, then 2) for each lot of VTSAX you held in that account creating a lot of VTI with the same basis as the VTSAX lot and a proportional share count. You 'told' Quicken how many VTI shares you received. Quicken 'knew' how many VTSAX shares you had. Those two values define the share ratio applied to each new lot as it is created. Quarterly reinvested dividends plus some year end cap gain transactions over 20+ years, you could be looking at 100+ Shares Added transactions. Making frequent (monthly?) additions to the account could blow that number even higher.

The "old original cost data" should not be gone, if you properly converted the MF account to the brokerage account.

Since I know so little about your data, I can't guess if your way would be best or if there might be a better way. If your 'before' data is good, I don't know of a specific reason for the MF conversion to fail.

Jim_Harman

More details would help, but @Q97 is correct that if your fund was set to "Use average cost" the cost basis in Quicken will be wrong after doing a Mutual Fund Conversion.

If you don't care about Quicken's cost basis and capital gains tracking, you could simply Remove all of the VTSAX shares and Add the correct number of VTI shares, using the share price that Vanguard used for the conversion. If you do this, the Avg. Annual Return in the Portfolio views and the Investment Performance Report should be correct if you include both the old and new securities. Other performance measures may not be correct.

Johnweller

Sorry, I was in a hurry when I first posted. Here is a partial screen shot of what makes no sense. 174 entries all with the same total inv amount and cash amount. Looking at the Account Overview showing value of VTI after the conversion, the cost basis is $45,804,981.60 and the gain/loss is -45,051,824.41. There has nowhere been anything close to those numbers…

I haven't sold any shares of VTSAX or VTI so Vanguard, on the web site, is showing cost basis for VTI as FIFO when they converted.

Jim_Harman

What you are seeing is the bug with "Use average cost" discussed above. Quicken assigns your full cost basis to each converted lot, so if there are n lots, you will have a cost basis n times as large as it should be. This produces a ridiculously large cost basis if you have been reinvesting dividends for many years.

To avoid this, go to your backup from before the conversion and make another backup just in case. Then go to the account where the shares were converted and click on Holdings. Click on the VTSAX security to open the Security Detail view. Click on Edit Details and just below the Asset Class box, un-check the Use average cost box.

Your cost basis in Quicken will probably not match Vanguard's, because prior to 2011 brokers only tracked the average basis of mutual fund holdings, not the basis of each tax lot. The IRS calls these "non covered" shares. If you want everything to line up the same, you will have to edit your holdings in Quicken to match what Vanguard reports. Depending on what your spreadsheet says, you might end up removing all the pre-2011 shares that Vanguard lumps in to the Non-covered group and Adding back one lot for that group.

After making any changes, you can enter the Mutual fund Conversion to VTI and after churning for a while, you should see one Removed transaction for all your VTSAX shares and one Added of VTI for each tax lot of VTSAX that you held. The cost basis for VTI should end up the same as your VTSAX cost basis.

Be sure to delete or not accept any transactions that were downloaded from Vanguard related to the conversion.

Johnweller

Thanks Jim that worked. Appreciate your help!!😀