Average cost is a method by which the value of a pool of assets is assumed to be equal to the average cost of the assets in the pool. While a new average cost is calculated each time an acquisition is made, there is no change to the pool upon the disposition of an asset. When average cost is used, it is required that all lots be taken from FIFO.
Average cost is only applicable to qualified funds and DRIP equities. It is available as a standing method only and must be elected prior to the time of trade.
Please note: Once you choose average cost as the tax lot ID method for qualified funds and DRIP equities, you will not be able to select a different tax lot ID method at the time of a trade that includes these securities.
Changing average cost as the tax ID method for securities already purchased will require written notification within one year of choosing it as your standing method, or the date of the first sale it applies to (whichever occurs first). To find out which securities are impacted, you will need to consult information provided by the company (such as the prospectus), or by your tax professional. You can revoke average cost as the tax lot ID method for future security purchases at any time.
If you were enrolled in average cost for your mutual funds prior to Jan. 1, 2012, and have re-enrolled after Jan. 1, 2012, you will have two average cost pools. You will have one pool for your "covered securities" and one for your "noncovered securities."
TD Ameritrade does not provide tax advice. Please consult a tax advisor regarding your personal situation.