Vanguard announced new annual fees on legacy mutual-fund-only accounts to start September 1, 2023, so this convinced me at long last to transition all my Vanguard legacy accounts to brokerage accounts, which will have no annual fees. The transition is now complete. But there’s a catch.
One of my taxable mutual-fund-only accounts had always been set up to direct all dividends and capital gain distributions from all holdings in that account to a Vanguard Federal Money Market mutual fund in the same account, VMFXX, where funds would accumulate for a few months at a time until I decided that it’s time to rebalance fund percentages or reinvest dividends. This made it easy to coordinate tax loss harvesting on short notice without wash sale worries caused by a recent automatic dividend reinvestment.
But VMFXX is also Vanguard’s default fund for brokerage settlement accounts.
Problem: Now that the transition to brokerage accounts is complete, I have all my former funds including VMFXX, plus I have a new settlement account in VMFXX that currently has a zero balance. As soon as dividends sweep into the settlement account, I’ll own VMFXX twice in the same brokerage account, some as a regular holding, some in the settlement account.
I tried experimentally setting up a SELL transaction for all shares of VMFXX with the proceeds going to the settlement account as VMFXX, and the transaction input was accepted. I canceled it for now. There are no tax implications, no capital gains, because the share price is always $1 per share.
Question: Is there any reason to continue keeping VMFXX as a separate holding when it could be in the settlement account as the same fund? It seems like a no brainer: just put the dollars in the settlement account as VMFXX. Am I missing something?