Convert to Vanguard Admiral Shares
Last weekend, I received a letter from Vanguard, informing me that one or more of my Vanguard funds held in IRA account with the company now qualify to be promoted to Admiral Shares. This followed a recent announcement from Vanguard that it has lowered the minimum amount required to qualify for the lower-cost Admiral Shares. Under the new requirements, a holding is eligible for converting from traditional Investor Shares to Admiral Shares conversion must meet one of the following conditions:
- Have a balance of $10,000 or more in an index fund that offers Admiral Shares.
- Have a balance of $50,000 or more in an actively managed fund that offers Admiral Shares.
- Have a balance of $100,000 or more in certain sector index funds and tax-managed funds that offer Admiral Shares.
For funds that I currently held in IRA account at Vanguard, the Total Stock Market Index Fund (VTMSX) is eligible for the conversion because the market value of the fund in my account is over the $10K threshold. Even though the letter said that my shares will be automatically converted to Total Market Index Fund Admiral Share (VTSAX) in the next few weeks, I decided to do the conversion myself to speed up the process.
The conversion process actually is very simple. Once I logged into my account and located the fund that is eligible for the conversion, I noticed a “Convert shares of this fund to Admiral Shares” link on the right hand side of the fund details. Following the link, the whole process took only a couple of minutes to finish by simply clicking a few “Continue” buttons. At the end, I was shown a summary page of what I will expect after the conversion is completed.
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Basically, conversions from Investor Shares to Admiral Shares within the same fund are tax-free and do not incur any special Vanguard fees and all the VTSMX shares I have will be converted to VTSAX. Even though it’s actually a fund exchange process, changes from Investor Shares to Admiral Shares of the same fund are tax free. Since a fund’s Admiral Shares may have a different net asset value (NAV, or price), the number of shares owned before and after the conversion may also be different, but the total account value in dollar amount will remain the same (of course). In addition, there are a few other changes:
- When switching from Investor Shares to Admiral Shares, the investment remains in the same fund. The only difference between Investor Shares to Admiral Shares of the fund is cost. For example, VTSMX has an expense ratio (ER) of 0.18% while VTSAX’s ER is only 0.07%.
- All cost-basis information from Investor Shares will automatically be transferred to Admiral Shares.
- Any checkwriting privileges with Investor Shares account will transfer to Admiral Shares account with a new check book.
- If you convert to Admiral Shares and your account balance drops below the minimum investment amount, your account may be reclassified to Investor Shares.
We still own a few other Vanguard funds in our IRA accounts, such as Vanguard Wellington Income Fund (VWELX), Vanguard Total International Stock Fund Index (VGTSX), Vanguard Inflation-Protected Securities Fund (VIPSX), and Vanguard Interm-Term Bond Index (VBIIX). However, they don’t qualify for the conversion yet because of the values of these funds. Once we accumulate enough shares of these funds to meet the conversion threshold, we will do the switch to save on owning these funds. Since these funds are in IRA accounts and we plan to hold them for a long time, the money saved could be quite significant.
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