How to leave Betterment

Leaving Betterment requires planning to avoid unnecessary costs and tax issues. Here's a quick summary of what you need to know:

1. Understand Costs and Taxes:
   • Transfer Fee: $75 per account for outbound transfers.
   • Small Account Fee: $4/month if your balance is below $20,000 without a $250 recurring deposit.
   • Taxable Accounts: Selling investments may trigger capital gains taxes (short-term taxed as income, long-term at 0%, 15%, or 20%).
   • Retirement Accounts: Use direct transfers to avoid penalties and taxes.
2. Choose a Transfer Method:
   • Cash Withdrawal: Sell assets, withdraw cash, and pay taxes on gains.
   • In-Kind Transfer: Move investments directly to another brokerage, keeping positions intact and delaying taxable events.
3. Close Accounts:
   • Withdraw all funds or complete transfers.
   • Close accounts via Settings > Accounts on Betterment's dashboard.
4. Rebuild Your Portfolio:
   • Reassess your goals and risk tolerance.
   • Minimize fees by choosing low-cost funds and low turnover strategies.
   • Optimize tax efficiency with proper asset location.

Pro Tip: Tools like Mezzi can simplify tax calculations, portfolio analysis, and transition management, helping you make informed decisions during and after the move.

Plan carefully, and you can leave Betterment without unexpected financial setbacks.

How Do I Close My Betterment Account? - Be App Savvy

Step 1: Review Your Betterment Accounts and Tax Consequences

Before making any changes, take the time to review your Betterment accounts and understand the potential tax implications. Start by linking tax planning with investment tools to organize your accounts and gather the necessary details.

List Your Accounts

Log in to your Betterment dashboard and make a complete list of all your accounts. Be sure to include the type of account, current balance, cost basis (for taxable accounts), and any automatic features, such as recurring deposits or rebalancing, that you might need to disable before making a transition.

Your accounts may include a variety of options, such as taxable investing accounts (individual or joint brokerage accounts), traditional or Roth IRAs, 401(k) rollovers, SEP IRAs for self-employed individuals, or cash management accounts that work like high-yield savings. Pay close attention to any account with automatic features - disabling these settings beforehand can help you avoid unnecessary complications during the transition.

Understand Tax Consequences

Once you've outlined your accounts, focus on understanding the tax consequences of your planned actions. Different account types come with different tax rules, so knowing these details can help you avoid penalties.

• Taxable Accounts: Selling investments in taxable accounts may trigger capital gains taxes. Long-term gains (on assets held for over a year) are taxed at preferential rates of 0%, 15%, or 20%, depending on your income. Short-term gains, on the other hand, are taxed as ordinary income, with rates as high as 37%.
• Retirement Accounts: For traditional IRAs and 401(k)s, a direct (trustee-to-trustee) transfer to another retirement account ensures that funds remain tax-deferred, avoiding immediate tax consequences. However, withdrawing funds directly - especially if you're under 59½ - could result in a 10% early withdrawal penalty and ordinary income taxes on the full amount.
• Roth IRAs: Contributions to Roth IRAs, made with after-tax dollars, can be withdrawn at any time without taxes or penalties. However, withdrawing earnings before age 59½ or before the account has been open for at least five years could lead to taxes and penalties.

To make informed decisions, consider using Mezzi's tax modeling tools to analyze various scenarios before committing to any changes.

Avoid Common Tax Mistakes

Even seasoned investors can make costly errors when moving accounts. Here are some common mistakes to watch out for:

• Wash Sales: Be cautious of wash sales, which occur if you repurchase a "substantially identical" security within 30 days of selling it, even across different accounts. A wash sale disqualifies the loss for tax purposes, meaning you can't use it to offset other gains. Mezzi's wash sale prevention tool can help by monitoring all your connected accounts and flagging potential violations before trades are executed.
• Early Withdrawal Penalties: For retirement accounts, always opt for direct transfers to avoid the 10% early withdrawal penalty and unnecessary taxes if you're under 59½. While there are exceptions - such as the Rule of 55 for 401(k)s or a $10,000 withdrawal for a first-time home purchase from an IRA - the safest route for most people is a direct transfer that bypasses your personal bank account.
• State Taxes: Don’t overlook state taxes. Many states tax investment income as ordinary income. For example, California does not offer a lower capital gains rate, meaning long-term gains could be taxed at state rates as high as 13.3%, in addition to federal taxes. Understanding both federal and state tax obligations is crucial, especially when planning a large liquidation or transfer.

Mezzi's tax optimization tools can factor in both federal and state tax rules based on your location, providing a clearer picture of your overall tax liability and helping you avoid surprises.

Step 2: Choose Between Cash Withdrawal or Asset Transfer

Once you've reviewed your accounts and considered the tax implications, it's time to decide how to move your money out of the platform. You have two main options: withdrawing your funds as cash into your bank account or transferring your investments directly to another brokerage. Each method comes with its own set of benefits and considerations, depending on your financial goals and tax situation. Here's how to navigate each option effectively.

Withdraw Funds to Your Bank Account

If you need quick access to your money or plan to step back from investing, withdrawing funds as cash is a straightforward solution. This process involves selling all your investments, converting them to cash, and transferring that cash to your linked bank account.

To get started, log in to your account dashboard and head to the withdrawal section. Specify how much you'd like to withdraw and confirm your bank account details. Keep in mind that once you sell your investments, it typically takes two business days (T+2) for trades to settle, followed by an additional one to three business days for the bank transfer to complete.

This option works well for short-term cash needs, such as covering a large purchase or bolstering your emergency fund. However, be mindful of the tax consequences. For taxable accounts, selling investments may result in capital gains taxes. For retirement accounts like traditional IRAs or 401(k)s, withdrawals could trigger penalties, as discussed earlier. Roth IRA contributions, on the other hand, can be withdrawn without penalty, but withdrawing earnings before age 59½ or before the account has been open for five years may result in taxes and penalties.

Transfer Investments As Is

Transferring your investments "in kind" allows you to move your holdings - such as stocks, ETFs, or bonds - directly to another brokerage without selling them. This approach can be particularly beneficial for taxable accounts because it lets you keep your cost basis intact and avoid triggering capital gains taxes during the transfer.

To transfer investments, most brokerages use the Automated Customer Account Transfer Service (ACATS). Start by opening an account at your new brokerage, then request an incoming transfer through their platform. You'll need to provide details about your existing account, including the account number and the specific assets you'd like to transfer. ACATS transfers generally take five to seven business days to complete. Be aware that not all assets can be transferred in kind - proprietary funds, fractional shares, or certain alternative investments may need to be sold before the move.

For retirement accounts, ensure the transfer matches the account type to maintain tax advantages. The IRS treats such transfers as non-distributions, meaning you won't get a 1099-R form, and it won't affect your annual contribution limits.

For taxable accounts, in-kind transfers preserve your original purchase date and cost basis, which is essential for tax planning. This allows you to maintain long-term capital gains status and decide when to realize gains or losses. If you have investments with significant unrealized gains, transferring in kind lets you defer taxes until you choose to sell, potentially years later.

One thing to consider: transferring in kind means your portfolio remains unchanged during the move. If your holdings no longer align with your financial strategy, you'll need to rebalance after the transfer. This gives you the chance to plan sales strategically, spreading them across tax years or offsetting gains with losses from other investments.

Use Mezzi for Portfolio Transition Planning

Once you've decided on your withdrawal method, Mezzi's tools can help you streamline the process and optimize your portfolio. Transitioning investments isn't just about logistics - it’s a chance to assess your portfolio, uncover risks, and improve tax efficiency.

Mezzi's X-Ray feature lets you analyze your portfolio for hidden exposures, such as overconcentration in certain sectors or stocks. This is particularly useful when consolidating accounts or building a new investment strategy. By connecting all your accounts, you can identify overlaps, unintended concentrations, and areas for better allocation. For instance, you might discover you're holding the same large-cap tech stocks across multiple ETFs, creating more exposure to a single company than intended.

The platform's tax optimization tools can model different scenarios for rebalancing. If you're selling positions, you can estimate the tax impact based on your income, state tax rates, and holding periods. This helps you decide which assets to sell, which to transfer, and the best timing to minimize taxes.

Mezzi also offers a Financial Calculator to project how different strategies could affect your long-term wealth. By factoring in your portfolio's current value, future contributions, expected returns, and fees, you can compare outcomes and choose the approach that aligns with your financial goals.

Finally, Mezzi monitors for wash sale risks during rebalancing and transitions. If you're selling an asset in one account and buying a similar one in another, you could unintentionally trigger a wash sale, which disallows your tax loss. Mezzi's wash sale prevention tool flags these risks before trades are executed, helping you avoid costly mistakes that could derail your tax strategy.

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Step 3: Close Your Betterment Accounts

With your asset transfers complete, the next step is to officially close your Betterment accounts. Once all funds have been transferred, you can proceed with this straightforward process. There are no trading fees or penalties involved in closing your accounts, but it’s essential to pay attention to the details to ensure everything is finalized correctly.

General Account Closure Steps

Before you begin, make sure your account balance is $0. Betterment doesn’t allow you to close accounts that still hold funds, so complete any withdrawals or transfers first.

To close your account, log in through a web browser and navigate to Settings > Accounts. You’ll see a list of your accounts - select the one you want to close and click on the "Close account" option.

If there are still funds in the account, you’ll be prompted to withdraw them. Once the withdrawal is processed and the balance reaches $0, you can return to the Settings > Accounts section to complete the closure.

Important: Even after closing your account, your account details will remain accessible for regulatory purposes. This is in compliance with FINRA, SEC, and US Patriot Act requirements, ensuring you can retrieve tax forms like 1099s during tax season.

Account-Specific Closure Requirements

While the overall process is similar, certain account types have unique considerations:

Joint Accounts
Joint accounts follow the same closure process as individual accounts. Either account holder can initiate the closure directly from the Accounts section. However, if you’re transferring funds from a joint account to an individual investment account, it’s best to contact customer service beforehand to ensure everything is handled smoothly.

Joint Cash Reserve Accounts
For joint cash reserve accounts, either account holder can close the account. Simply log in, go to Settings > Accounts, click the options menu next to the account, and select "Close Account."

Checking Accounts
Before closing a checking account, you’ll need to withdraw all funds. There are several ways to access your money:

• Transfer to a linked bank account (processing takes 1–2 business days, or up to 6 days for recently deposited funds)
• Withdraw cash at an ATM using your Betterment Visa® Debit Card (up to $510 daily, with ATM fees reimbursed)
• Use peer-to-peer payment apps like Venmo or Cash App by linking your Betterment Checking account or card number

IRA and 401(k) Accounts
To avoid penalties and taxes, use direct transfers when closing IRA or 401(k) accounts. Betterment sets a default 10% federal tax withholding for IRA withdrawals, but you can adjust this to 0% before submitting your request.

Confirm Your Transition Is Complete

Once you’ve completed the closure steps, take a moment to confirm that your transition is fully wrapped up. For withdrawals, check the Transaction Timeline Table in your account to track processing times and see when your funds will arrive.

Note: Any fractional shares that cannot be transferred through ACATS will be liquidated and sent as cash.

To ensure everything is in order, use Mezzi’s aggregated view to verify that your funds have successfully arrived at their new destination and that your Betterment accounts show a zero balance. This unified view eliminates the need to log into multiple platforms to confirm the transition.

Mezzi’s X-Ray feature can also help you double-check that your portfolio has been reconstructed accurately after the transfer. If you’ve moved investments to multiple accounts or brokerages, this tool provides a complete overview of your holdings, making it easy to spot any missing positions or gaps.

If you run into any issues or have questions during the closure process, Betterment’s customer service team is available via email and live chat during business hours. Be sure to save all confirmation emails and final account statements for your records. These documents will be especially important for tax filing, particularly if you’ve realized gains or losses during the transition. Taking these steps ensures your financial transition aligns with your broader wealth management goals.

Step 4: Rebuild and Optimize Your Portfolio After Betterment

Now that you've closed your Betterment accounts, it's time to focus on building a portfolio that works for your long-term goals. This is your chance to take full control of your investments - whether that means sticking to a familiar strategy, exploring new options, or fine-tuning for tax advantages.

Build Your New Portfolio

Start by reassessing your financial goals and risk tolerance. If your circumstances have shifted - like approaching retirement or seeking higher growth - you might need to adjust your asset allocation. A balanced portfolio should reflect where you are in life and where you want to go.

Next, review your current holdings to ensure they're aligned with your new strategy. You may find it helpful to consolidate overlapping investments. For instance, if you own multiple ETFs tracking the S&P 500 across different accounts, consider simplifying into a single fund. This not only reduces complexity but also makes it easier to manage your portfolio.

Pay close attention to expense ratios. Over time, even small differences in fees can add up. For example, a fund with a 0.50% expense ratio versus one with 0.05% on a $500,000 portfolio could cost you $2,250 more annually. That’s money that could be working for you instead of going toward fees.

Don’t overlook tax efficiency. Place tax-inefficient investments, like REITs or bonds that generate regular income, in tax-advantaged accounts like IRAs or 401(k)s. On the other hand, tax-efficient index funds are better suited for taxable accounts. This approach, known as asset location, can save you thousands of dollars in taxes each year without altering your overall allocation.

Lastly, think beyond the usual mix of stocks and bonds. Depending on your goals, you might want to include international markets, real estate, commodities, or other alternative investments. Just make sure every addition serves a purpose and doesn’t complicate your portfolio unnecessarily.

Compare Costs and Performance

Once your portfolio is set up, take a step back to evaluate its cost and performance. One of the biggest perks of moving away from a robo-advisor is the potential for major cost savings.

Consider this: a 0.25% advisory fee on a $250,000 portfolio could cost you over $60,000 in lost compound growth over 30 years. By managing your portfolio independently and using low-cost index funds with expense ratios between 0.03% and 0.10%, you can slash annual costs by 70% or more. On that same $250,000 portfolio, your annual expenses might drop from $625+ to just $75–$250.

Track your returns carefully, not just in absolute terms but also on a risk-adjusted basis. Are you achieving similar or better returns with less volatility? If you've made significant changes to your allocation, give your new strategy time to prove itself - at least a full market cycle - before making any major tweaks.

Document your cost savings. Knowing you’re saving $500–$1,000 or more annually can help reinforce your decision to manage your own investments, especially during periods of market uncertainty when it’s easy to second-guess yourself.

Use Mezzi for Long-Term Wealth Management

Just because you’re managing your portfolio independently doesn’t mean you have to go it alone. Tools like Mezzi can make the process smoother and more efficient, giving you the support you need without the high costs of traditional financial advisors.

Mezzi’s account aggregation feature provides a unified view of all your investments, even those spread across multiple brokerages. This comprehensive perspective helps you make smarter decisions around rebalancing, tax planning, and overall portfolio management.

The platform’s affordable plans are designed for proactive investors. By avoiding traditional advisor fees, you could save over $1 million in fees over 30 years on a moderately sized portfolio. Those savings compound over time, accelerating your path to financial independence.

Mezzi also identifies inefficiencies in your portfolio and offers actionable recommendations to reduce risks and improve returns. The best part? You don’t need to move your accounts or overhaul your setup. You stay in full control while benefiting from advanced analysis typically reserved for high-net-worth individuals.

To keep things on track, schedule regular portfolio reviews - quarterly or semi-annually. Mezzi’s consolidated dashboard simplifies this process, flagging potential issues before they become bigger problems. This allows you to make adjustments proactively rather than reacting to market swings.

Transitioning away from a robo-advisor is a step toward greater financial independence. With the right tools and a disciplined approach, you can achieve your financial goals at a fraction of the cost, all while staying flexible as your needs and priorities evolve.

Conclusion

Stepping away from a robo-advisor vs. financial advisor comparison is a move toward taking full control of your financial journey. It’s not a decision to rush - each stage, from reviewing your accounts and understanding tax implications to selecting the right transfer method and rebuilding your portfolio, requires careful thought and planning.

Rushed decisions can lead to costly mistakes, including unexpected tax bills, disruptions to your investment strategy, or avoidable fees. For those with taxable accounts, transferring investments "as-is" is often the smarter route. This approach preserves your cost basis and postpones taxable events, giving you more flexibility to sell strategically when the timing is right.

Tax considerations are especially important during this process. Overlooking small details can lead to significant financial losses. Double-check your strategy to ensure you’re maximizing tax efficiency and minimizing unnecessary costs before closing any accounts.

Once you’ve transitioned, the focus shifts to building a portfolio tailored to your goals while keeping expenses low. Cutting out advisory fees and opting for low-cost index funds can lead to substantial savings - potentially hundreds or even thousands of dollars each year. Over time, those savings compound, helping you grow your wealth instead of losing it to management fees.

This is where Mezzi’s tools come into play. As highlighted earlier, Mezzi provides the insights and support you need to manage your portfolio effectively. With AI-driven analysis, the platform helps you spot tax-saving opportunities, identify hidden risks, and view all your accounts in one place. It’s designed to keep your portfolio optimized and aligned with your goals, even as your circumstances evolve.

FAQs

What are the tax consequences of withdrawing money from a Betterment retirement account before age 59½?

Taking money out of a Betterment retirement account before reaching 59½ usually comes with a 10% early withdrawal penalty on the amount you withdraw. On top of that, the withdrawn funds are typically subject to regular income taxes.

That said, there are exceptions to the penalty. For instance, you might avoid it if the funds are used for qualified expenses like medical bills or higher education costs. Still, it’s a smart move to talk to a tax professional. They can help you understand how these rules apply to your situation and guide you in reducing potential tax burdens.

How can I avoid a wash sale when moving my investments from Betterment to another brokerage?

A wash sale happens when you sell an investment at a loss and then buy back the same or a very similar investment within 30 days before or after the sale. This rule is designed to prevent investors from claiming tax benefits from losses while maintaining their position in the same or nearly identical securities.

To steer clear of a wash sale when moving investments, make sure you don’t repurchase the same securities during this 30-day period. If you’re uncertain about the specifics, it’s a good idea to consult a tax professional or financial advisor. They can provide advice tailored to your situation and help you stay on top of your investment and tax strategies. Planning ahead can save you from unnecessary complications.

How can I create a tax-efficient investment portfolio after leaving Betterment?

When moving on from Betterment, creating a tax-efficient portfolio requires thoughtful planning. One effective strategy is tax-loss harvesting - selling investments at a loss to offset taxable gains or even reduce your ordinary income. This can be a smart way to lower your overall tax burden.

Another key step is structuring your portfolio with taxes in mind. For instance, consider holding tax-advantaged investments, like municipal bonds, in taxable accounts. Meanwhile, tax-inefficient assets, such as dividend-paying stocks, are better suited for tax-advantaged accounts like IRAs or 401(k)s. For personalized advice, reaching out to a tax professional can help ensure your strategy aligns with your unique financial goals.

Related Blog Posts

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• How to leave Wealthfront and manage your own investments