I'm thinking of turning on Wealthfront's tax loss harvesting, but want to avoid any "wash sales". The only securities I have outside Wealthfront are Vanguard target date funds in some companies' 401k plans. Will those conflict?

  • Question: if you "harvest" losses now for tax purposes, that means paying more capital gains tax later, right,? So you're just shifting when you pay the tax.... Unless you do something like donate the shares to a tax exempt charity, which lets them redeem them under the exemption...
    – keshlam
    Mar 15 '16 at 4:14

If you are worried about wash sales within your Wealthfront portfolio, it appears that you should be safe. According to Wealthfront, their harvesting algorithm avoids wash sales:

Wealthfront’s tax-loss harvesting algorithms manage your accounts to avoid wash sale issues within your Wealthfront investment portfolio. This includes both sale and purchase timing, as well as choosing alternate ETFs that are not substantially identical to your primary (initial) ETFs.

Wealthfront doesn't use Vanguard target date funds, so there should be no danger of wash sales across the two companies.

One question you may have regards on the phrase substantially identical in the IRS code regarding wash sales. To my knowledge there haven't been rulings about what constitutes substantially similar. However, no Wealthfront ETF would ever be confused as being substantially similar to a target date fund.

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