Disclaimer: We’re not tax professionals, this does not constitute tax advice. Please consult a tax professional.
As I start to reconsider whether completing brokerage sign up bonuses are worth doing or not, one of the questions asked by a reader was does moving from one brokerage to another cause a taxable event? The short answer is that as long as you’re transferring your investments and not selling them it’s not considered a taxable event. The long answer is that as always you should consult a tax professional to understand your unique circumstances.
When you transfer between brokerages this is handled by an automated process called Automated Customer Account Transfer Service (ACATS) and this is managed by National Securities Clearing Corporation (NSCC). To transfer between brokerages you need to complete something called a Transfer Initiation Form, this process is usually clearly outlined by the new brokerage you’re transferring your investments to.
The only time you’d need to sell your investments when transferring between brokerages is if the new brokerage doesn’t handle the investments you currently hold (e.g some brokerages will offer proprietary investment vehicles that others don’t support. Some will argue this is done in large part to prevent you switching brokerages). If this is the case I don’t think it’s worth considering a new brokerage with a sign up bonus as the tax implication and headache involved simply won’t be worth the effort.
