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Subject Author Date
TIAA-CREF Mutual Fund Merger Don in San Antonio 05-05-2007
Posted by Don in San Antonio on May 7, 2007, 7:27 pm
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 John Pollard said the following on 5/6/2007 10:47 PM:
> Don in San Antonio wrote:
>> John Pollard said the following on 5/6/2007 9:00 AM:
>>> Don in San Antonio wrote:
>>>> What's the best way to handle a mutual fund merger?
>>>> Should I use a stock transfer transaction to a new
>>>> account or is there a better or more correct way to
>>>> handle the merger? I'm using Quicken 2005 Premier.
>
>>> Why not a Corporate Acquisition?
>
>> John - Thanks for the suggestion. I gave it a whirl and
>> it created about 50 add transactions, maybe more. I
>> backed out the change reverting to an earlier backup copy
>> of my Quicken account. I think I'll wait a while and see
>> what TIAA-CREF comes up with.
>> Moving shares from one account to another appears to be
>> more common than I first though. There's another recent
>> post about converting from Vanguard 500 to Vanguard 500
>> Admiral shares. Thanks again for the reply to my
>> original post.
>
> I'm not sure why you think that the number of transactions
> generated is somehow a negative.
>
> The reason you got all those Add Shares transactions is because
> that is how Quicken "transfers" the individual lots of the old
> company (one Add Shares of the new security for every lot of the
> old security) to the new company. Quicken usually gets it right
> ... you didn't indicate what, if anything, was wrong with the
> results.
>
> I strongly suspect that TIAA-CREF will not do a better job ...
> I'll be surprised if they come close. [I have an account with
> TIAA-CREF.]
>

What you say makes sense. The problem with my conversion was that I
neglected to add one recent $88 interest transaction before doing the
conversion. There was no way to recover because if I remember right,
the conversion asked for the number of shares of the old stock and the
number of shares of the new stock. So, although Quicken did it right,
there was no way I could correct for the $88 omission. I do need to be
careful with this account because eventually I will need to report
capitol gains correctly.

I reverted back to a backup copy in order to gather my wits and cogitate
on it a little longer. I agree with your skepticism about TIAA-CREF
doing a better job than Quicken. So far Quicken is way ahead.

One thing I haven't mentioned to this point is that one of my mutual
fund holdings is a money market account. In this case where the value
is held at $1 wouldn't a straight renaming of the account and shares
held be a better choice?

Posted by John Pollard on May 7, 2007, 7:49 pm
Please log in for more thread options
 Don in San Antonio wrote:
> John Pollard said the following on 5/6/2007 10:47 PM:
>> Don in San Antonio wrote:
>>> John Pollard said the following on 5/6/2007 9:00 AM:
>>>> Don in San Antonio wrote:
>>>>> What's the best way to handle a mutual fund merger?
>>>>> Should I use a stock transfer transaction to a new
>>>>> account or is there a better or more correct way to
>>>>> handle the merger? I'm using Quicken 2005 Premier.
>>
>>>> Why not a Corporate Acquisition?
>>
>>> John - Thanks for the suggestion. I gave it a whirl and
>>> it created about 50 add transactions, maybe more. I
>>> backed out the change reverting to an earlier backup
>>> copy of my Quicken account. I think I'll wait a while
>>> and see what TIAA-CREF comes up with.
>>> Moving shares from one account to another appears to be
>>> more common than I first though. There's another recent
>>> post about converting from Vanguard 500 to Vanguard 500
>>> Admiral shares. Thanks again for the reply to my
>>> original post.
>>
>> I'm not sure why you think that the number of
>> transactions generated is somehow a negative.
>>
>> The reason you got all those Add Shares transactions is
>> because that is how Quicken "transfers" the individual
>> lots of the old company (one Add Shares of the new
>> security for every lot of the old security) to the new
>> company. Quicken usually gets it right ... you didn't
>> indicate what, if anything, was wrong with the results.
>>
>> I strongly suspect that TIAA-CREF will not do a better
>> job ... I'll be surprised if they come close. [I have
>> an account with TIAA-CREF.]


> What you say makes sense. The problem with my conversion
> was that I neglected to add one recent $88 interest
> transaction before doing the conversion. There was no
> way to recover because if I remember right, the
> conversion asked for the number of shares of the old
> stock and the number of shares of the new stock. So,
> although Quicken did it right, there was no way I could
> correct for the $88 omission. I do need to be careful
> with this account because eventually I will need to
> report capitol gains correctly.

Timing can be important.

> I reverted back to a backup copy in order to gather my
> wits and cogitate on it a little longer. I agree with
> your skepticism about TIAA-CREF doing a better job than
> Quicken. So far Quicken is way ahead.

> One thing I haven't mentioned to this point is that one
> of my mutual fund holdings is a money market account. In
> this case where the value is held at $1 wouldn't a
> straight renaming of the account and shares held be a
> better choice?

I thought you're original post was about one mutual fund
acquiring another. Now you seem to be suggesting that what
happened involved more than one security, and ....

You certainly don't have to worry about the sale of one money
market fund to buy shares in another money market fund: it's a
non-event in any real-world account.

Maybe you can clear up my confusion.

--
John Pollard
First initial underscore Last name at mchsi dot com
Please reply to newsgroup




Posted by Don in San Antonio on May 7, 2007, 9:17 pm
Please log in for more thread options
John Pollard said the following on 5/7/2007 6:49 PM:
> Don in San Antonio wrote:
>> John Pollard said the following on 5/6/2007 10:47 PM:
>>> Don in San Antonio wrote:
>>>> John Pollard said the following on 5/6/2007 9:00 AM:
>>>>> Don in San Antonio wrote:
>>>>>> What's the best way to handle a mutual fund merger?
>>>>>> Should I use a stock transfer transaction to a new
>>>>>> account or is there a better or more correct way to
>>>>>> handle the merger? I'm using Quicken 2005 Premier.
>>>>> Why not a Corporate Acquisition?
>>>> John - Thanks for the suggestion. I gave it a whirl and
>>>> it created about 50 add transactions, maybe more. I
>>>> backed out the change reverting to an earlier backup
>>>> copy of my Quicken account. I think I'll wait a while
>>>> and see what TIAA-CREF comes up with.
>>>> Moving shares from one account to another appears to be
>>>> more common than I first though. There's another recent
>>>> post about converting from Vanguard 500 to Vanguard 500
>>>> Admiral shares. Thanks again for the reply to my
>>>> original post.
>>> I'm not sure why you think that the number of
>>> transactions generated is somehow a negative.
>>>
>>> The reason you got all those Add Shares transactions is
>>> because that is how Quicken "transfers" the individual
>>> lots of the old company (one Add Shares of the new
>>> security for every lot of the old security) to the new
>>> company. Quicken usually gets it right ... you didn't
>>> indicate what, if anything, was wrong with the results.
>>>
>>> I strongly suspect that TIAA-CREF will not do a better
>>> job ... I'll be surprised if they come close. [I have
>>> an account with TIAA-CREF.]
>
>
>> What you say makes sense. The problem with my conversion
>> was that I neglected to add one recent $88 interest
>> transaction before doing the conversion. There was no
>> way to recover because if I remember right, the
>> conversion asked for the number of shares of the old
>> stock and the number of shares of the new stock. So,
>> although Quicken did it right, there was no way I could
>> correct for the $88 omission. I do need to be careful
>> with this account because eventually I will need to
>> report capitol gains correctly.
>
> Timing can be important.
>
>> I reverted back to a backup copy in order to gather my
>> wits and cogitate on it a little longer. I agree with
>> your skepticism about TIAA-CREF doing a better job than
>> Quicken. So far Quicken is way ahead.
>
>> One thing I haven't mentioned to this point is that one
>> of my mutual fund holdings is a money market account. In
>> this case where the value is held at $1 wouldn't a
>> straight renaming of the account and shares held be a
>> better choice?
>
> I thought you're original post was about one mutual fund
> acquiring another. Now you seem to be suggesting that what
> happened involved more than one security, and ....
>
> You certainly don't have to worry about the sale of one money
> market fund to buy shares in another money market fund: it's a
> non-event in any real-world account.
>
> Maybe you can clear up my confusion.
>

My original post was indeed about one mutual fund acquiring another and
I appreciate the advice provided on that issue. The money market
account question was a new issue that I probably shouldn't have even
mentioned. As you say, this is a non-event in any real-world account.

Thanks again for the advice a please accept my apologies for introducing
the mutual fund issue. As always I respect your advice and appreciate
the time you take to answer my posts, no matter how obscure.
Don


Posted by R. C. White on May 7, 2007, 12:19 pm
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Hi, Don.

> What's the best way to handle a mutual fund merger?

That depends on facts that you haven't told us. :-{

(A) Where did you start? (B) Where did you end up? (C) What steps got you
from (A) to (B)?

Since I haven't dealt with mutual funds in a decade or so, and I never held
any TIAA-CREF funds at all, my comments will be entirely "generic", but
maybe they will help.

If you had bought 100 shares of OldFund at $10 per share on 1/1/05, your
"basis for computing gain or loss on disposition" for that lot would be
$1,000 and your "holding period" for determining long-term or short-term
treatment of any gain or loss on disposition would begin on 1/1/05.

If you also bought 200 shares of OldFund at $15 on 1/1/06, your basis in
that 200 shares would be $3,000 and your holding period would start 1/1/06.

If you also bought 300 shares of OldFund at $25 on 1/1/07, your basis in
that 300 shares would be $7,500 and your holding period would start 1/1/07.

If you then sold 100 shares of OldFund at $50 per share on 5/1/07, for total
proceeds of $5,000, how much would your gain be, and is it long-term or
short-term?

The answer to the question depends on WHICH 100 shares you sold. If, by
specifically identifying which shares you sold or by assuming that you sold
your shares in the same order in which you acquired them (FIFO, or First-In,
First-Out), you determine that your first shares were the ones sold, then
you have a long-term capital gain of $4,000. But, if you elect LIFO
(Last-In, First-Out) or can specifically identify the sold shares as coming
from your newest purchase of 300 shares, then you have a short-term capital
gain of $2,500. (I'm not up to date on HOW to elect a method other than
FIFO, the default, or to identify specific shares.)

But, suppose that on 4/20/07, BEFORE you sold the 100 shares, OldFund was
merged into NewFund, and that each share of OldFund was exchanged for a
half-share of NewFund. For your 600 shares of OldFund, you would have
received 300 shares of NewFund. Your total basis in those 300 shares would
be your total basis in the merged OldFund shares: $1,000 + $3,000 + $7,500
= $11,500, an average of about $38.33 per share. And, suppose that your
5/1/07 sale was 50 shares of NewFund for $100 per share, for a total of
$5,000. How much is your gain, and is it short-term or long-term?

Your 300 shares of NewFund might be held in a single account (and may even
be represented by a single certificate), but it actually consists of 3 lots,
each with a separate basis and holding period. If you sold them all in a
single transaction, you would need to report them on 3 separate lines on
Schedule D of your Form 1040. (You would get the right result if you
combined all the long-term lots into a single line and all the short-term
lots into another single line, but you could not combine long-term and
short-term transactions into a single line.) If you sell less than all in
one or more transactions, then each sale should be reported on one or more
separate lines, depending on WHICH shares are deemed included in each sale.

So you would need to keep separate the lots of NewFund you received in the
merger. Assuming FIFO, your sale on 5/1/07 of 50 shares of NewFund for
$5,000 would be deemed to have been your first-in lot; your basis in those
50 shares of NewFund would be $1,000 and your gain would be $4,000,
long-term.


But, mutual funds are not like "regular" corporations. And this is
especially true if you - like many shareholders - have elected to have your
dividends reinvested in additional shares. EACH dividend then triggers an
additional purchase, and each purchase (maybe 12 each year) creates a
separate lot of shares, with its own basis (total and per-share) and holding
period, starting on the dividend date. In just a few years, the shareholder
has dozens of individual lots, each of which must be accounted for
separately. If there are sales or redemptions of less than all the shares,
then the shareholder must determine FOR EACH SALE which shares were sold,
and then he must calculate the gain/loss/holding period for each lot sold.

TIAA-CREF did not think up these rules, and neither did Quicken! (And
neither did I!). They are built into the Internal Revenue Code. We all
have to deal with them, like it or not. Quicken has tried to provide
"wizards" to guide us through transactions, and have achieved moderate
success.

For your current mutual fund merger transaction, as John Pollard said, your
best solution is the Corporate Acquisition (stock for stock) transaction.
Yes, it often creates dozens of transactions, a pair for each lot of OldFund
that you held on the transaction date, one to remove OldFund and another to
add NewFund. But it does produce the correct results in most cases. It
allocates your basis in each lot of OldFund to a lot of NewFund, adjusting
the number of shares in NewFund and preserving the OldFund lot's Acquisition
Date (which starts the "holding period" for that lot of NewFund). It looks
messy, but it usually is correct. (The wizard asks for the new shares'
Price after the acquisition; this is not a part of the merger calculation,
but - just like a daily quote - allows Quicken to update the value of your
holdings and becomes a part of your price history.)

One fly in the ointment is that any Report for a date prior to the Merger
will probably show that you held shares of NewFund on that date - and that
is obviously not true, because NewFund did not exist before the Merger.


As I said, Don, these are only "generic" comments because I've been retired
too long to be up to date on current tax rules and regulations. And my
editing and tweaking of the message is probably doing more harm than good,
so I'll quit now. :^} Please check with your own CPA to be sure that you
treat this properly on your income tax return.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Vista Ultimate x64)

> What's the best way to handle a mutual fund merger? Should I use a stock
> transfer transaction to a new account or is there a better or more correct
> way to handle the merger? I'm using Quicken 2005 Premier.
>
> Don


Posted by Don in San Antonio on May 7, 2007, 7:52 pm
Please log in for more thread options
R. C. White said the following on 5/7/2007 11:19 AM:
> Hi, Don.
>
>> What's the best way to handle a mutual fund merger?
>
> That depends on facts that you haven't told us. :-{

lots deleted.

> One fly in the ointment is that any Report for a date prior to the
> Merger will probably show that you held shares of NewFund on that date -
> and that is obviously not true, because NewFund did not exist before the
> Merger.
>
>
> As I said, Don, these are only "generic" comments because I've been
> retired too long to be up to date on current tax rules and regulations.
> And my editing and tweaking of the message is probably doing more harm
> than good, so I'll quit now. :^} Please check with your own CPA to be
> sure that you treat this properly on your income tax return.
>
> RC

I understand, or at least I think I understand, capital gains reporting.
I just needed to think about what happens when a merger takes place.
As you pointed out the changes in Quicken show me owning the new
shares before they actually existed. After hearing from you and John I
now understand the need to use a Corporate Acquisition transaction. It
makes a lot more sense now, considering the tax implications. I feel
pretty confident now that whatever TIAA-CREF does, Quicken will keep me
out of trouble with the IRS if I use a Corporate Acquisition. Thanks
for taking the time to explain the tax implications of this evolution.

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