Normally if you sell one equity and buy another with that money, any gains or losses are reflected in your taxes at the time you do that rebalancing and you have a new cost basis on the new investment.
Moving money around inside a traditional pre-tax 401k does not get reflected in taxes in that year. But I can't believe Los Federales would just let me raise the cost basis this way and pay tax only on what happens after I shuffle the deck.
So what do they use for the basis when you start withdrawing that money? Track each dollar back to an original purchase? Treat the whole account as one meta-equity, compute an effective overall cost basis, and tax based on that and the percentage you're withdrawing? Something else?
(I did a fairly massive rebalancing before retirement, shifting to a strategy that reflected not having the salary coming in. Quicken shows the cost basis of the 401k adjusting after those moves as if it was a normal investment account. I don't believe it.)
