Fund Switch Break-Even Calculator
How many years a lower-cost fund takes to make up the capital gains tax paid to move into it, and the gap between the two choices at a horizon you pick.
Result
Years to break even: 10.6Estimate
On one steady return for both funds. Real returns vary, and two funds tracking different indexes will not earn the same.
- Tax on the move
- $9,000.00
- Amount reinvested
- $91,000.00
- Value at the horizon, kept
- $179,084.77Estimate
- Value at the horizon, moved
- $178,176.03Estimate
- Moved minus kept
- -$908.74Estimate
- After a sale at the horizon, kept
- $158,222.05Estimate
- After a sale at the horizon, moved
- $165,099.63Estimate
- Moved minus kept, after a sale
- $6,877.57Estimate
https://calcgallery.com/investment-returns/fund-switch-break-even-calculator/
Results are arithmetic on the returns, rates and horizons you enter, not a forecast and not investment, tax or retirement advice. The site supplies no expected return, inflation rate, contribution limit, tax rate or withdrawal rate. Real returns vary from year to year, and fees, taxes and the order of returns all change the outcome. Check anything that matters with a qualified adviser. Read the full disclaimer
How to use the Fund Switch Break-Even Calculator
- Enter what the holding is worth today and its cost basis from your brokerage statement.
- Enter the tax rate that would apply to this gain, combining federal and state if both tax it.
- Enter the yearly return you assume before costs, and the expense ratio of each fund.
- Pick how many years to compare over, then read the break-even and both values at that horizon.
The model
tax on the move T = (value − basis) × tax rate (zero if there is no gain)kept value × (1 + return − old expense ratio)^yearsmoved (value − T) × (1 + return − new expense ratio)^yearsbreak-even years ln(value ÷ (value − T)) ÷ ln((1 + r − new ER) ÷ (1 + r − old ER))The break-even is the year in which the smaller, cheaper holding grows back to the size of the larger, dearer one. Both start from the same market return; the only difference between them is the expense ratio each one takes out.
Reading the two gaps
The first gap compares balances. The second compares what each would leave after a sale at the horizon, with the same tax rate applied to each gain. The two tell different stories because of basis. When 20,000 with a 10,000 basis is moved and 1,500 of tax is paid, the new position is 18,500 with an 18,500 basis. The kept fund still owes tax on its whole original gain whenever it is eventually sold. The Bogleheads wiki page “Paying a tax cost to switch funds” works exactly this case, with the moved fund returning 10% and the kept one 9.25%, and finds both worth 20,072.50 after a sale one year later. The page reproduces those figures in its quick reference table.
So a break-even of ten years on balances can already be a small gain after tax at year ten. Which comparison matters depends on whether the money is likely to be spent, given away or left to heirs, and that is outside what arithmetic can settle.
What the page leaves out
- Different returns before costs. Two funds following different indexes, or an active fund against an index fund, will not earn the same, and past differences say little about future ones.
- Taxes paid each year on distributions, and short-term against long-term rates.
- Loads, redemption fees and trading costs on the move, which add to the one-off cost.
- State rules that tax gains differently from the rate you enter.
What the diagram shows
The moved holding year by year as the solid curve, starting lower by the tax, and the kept holding dashed. Where the solid curve crosses the dashed one is the break-even.
With your numbers
- Tax = ($100,000.00 − $40,000.00) × 15% = $9,000.00, leaving $91,000.00 to reinvest
- Growth a year: kept 1.06, moved 1.0695
- Break-even = ln($100,000.00 ÷ $91,000.00) ÷ ln(1.0695 ÷ 1.06) = 10.6 years
Quick reference
On one steady return for both funds. Real returns vary, and two funds tracking different indexes will not earn the same.
| Example | Years to break even |
|---|---|
| 100,000 worth, 40,000 basis, 1% vs 0.05% | 10.6 |
| Bogleheads wiki example, one year | 11.4 |
| 0.5% cost gap, 20% tax, 30 years | 27 |
| Small gain, 0.8% vs 0.03% | 2.1 |
| Holding at a loss | 0 |
| Other fund costs more |
Common questions about the Fund Switch Break-Even Calculator
- Why does the page show two comparisons at the horizon?
- The first compares the two balances as they stand. The second takes each one through a sale at the horizon. The kept fund still carries an untaxed gain on its original basis, while the moved money starts again with a basis equal to what was reinvested, so after a sale the gap narrows or reverses. The break-even in years uses the first comparison, which is the more cautious of the two.
- What if the holding is at a loss?
- Then there is no tax to recover and the break-even is zero years whenever the other fund costs less. A realised loss can also be used against other gains, which this page does not count, so the real position is at least as good as shown.
- Why is there no break-even when the other fund costs the same?
- The tax comes out of the money that is reinvested, and with equal costs and equal returns the smaller amount grows at the same rate as the larger one. It never catches up, so the page reports no break-even rather than a very large number.
- Does this include dividends and capital gains distributions?
- Not separately. Both funds are assumed to earn the same return before costs, so any difference in how much each one distributes, and the tax paid on it each year, is left out. If one fund is much less tax-efficient, its after-tax return is lower than the page assumes.
- Where do the expense ratios come from?
- From each fund's prospectus or fact sheet, where the total annual fund operating expenses are shown as a percentage of assets. The page stores no fund data and no tax rates.