I opened up a tax loss harvesting account with Fidelity recently with the proceeds of my rental sale, and when discussing it with the rep. he showed that over 10 years, the TLH plan with FXAIX has beat the S&P by 1.5% after accounting for fees. When I look at FZROX which I completely understand is new, it feels like that might make sense with the zero fees and it's performance (in the current tax laws).

Edit: The caveat is I initially asked for an investment plan to act as a "high yield savings account." So perhaps TLH is better since I'll be taking money out occasionally for vacation/remodeling, etc. while I still have earned income which would incur the 15% long-term capital gains. Also, the expense ration is 0.65% paid quarterly for the tax smart investing.

Edit #2: Do y'all use 10% as your default return for long-term (10+yr.) investments?

Here's my email to the guy. What are y'all's comments?

________________________________________________________________________________________

First, I promise not to be that annoying person/client (at least I'll try not to)!

I know FZROX is a newer fund, but it appears to be beating both the S&P (>4%) and FXAIX (>2%). When we discussed the TLH plan, the total realized gain after TLH and fees beat the S&P by ~1.5%. However, it appears that the gap would close with FZROX since it doesn't have the fees, and so far performing better than FXAIX.

If we compared the tax smart investing just over the past year versus FZROX, would it still be a win?

The other question is this. If I didn't plan on taking money out until I'm 55, and I'm retired with no earned income and therefore pay no capital gains on the first $80k (of course assuming the tax laws don't change), would the benefit of TLH be eroded? Or is it still worth it once I begin pulling out of the IRA's when I'm eligible at 59.5 and potentially having a combined income >than the 0% capital gains bracket?

• Now, if I were to exhaust the after tax long-term investments before ever touching the IRA's, I could potentially never pay capital gains (again assuming the tax laws don't change and my expenses will be under the threshold, which my house will be paid off by then so $80k (or $104k before the standard deduction) seems very doable).

• Also, what if I were to decide to only use the long-term investments until 59.5, start pulling from the Roth/401k, and bequeath the remaining of the long-term to my kids, what would be the taxes on that (of course using 2020 tax laws)?

What question am I not asking, or what am I missing?

Bump for any advice on my though process.

2girlsdad said:

---

• Now, if I were to exhaust the after tax long-term investments before ever touching the IRA's, I could potentially never pay capital gains (again assuming the tax laws don't change and my expenses will be under the threshold, which my house will be paid off by then so $80k (or $104k before the standard deduction) seems very doable).

• Also, what if I were to decide to only use the long-term investments until 59.5, start pulling from the Roth/401k, and bequeath the remaining of the long-term to my kids, what would be the taxes on that (of course using 2020 tax laws)?

---

I can't answer your question about tax loss harvesting, never looked into that, but a couple of comments on these points.

I'm retired with no income other than interest and dividends, and I am currently following a version of your first bullet point. Living off savings and taxable investment income for the next few years, not touching the IRA/401k or Roth accounts. Near the end of the year I roll as much over from my conventional IRA into a Roth as is possible to keep me just below the $80k taxable income threshold so that I pay zero tax on capital gains. One additional thing to consider is that if you have an active Health Savings Acct, you should be able to keep contributing to it until age 65. That's another $8k+ of deductions (assuming you are married) that you may be able to take for several years if you retire early, so another $8k of income without paying capital gains. You can use your HSA to pay Medicare premiums when you hit 65.

On the second point, and somewhat related, by limiting my annual rollovers to avoid paying capital gains, it's going to take me a long time to "liberate" all the $$ in my IRA, most likely will not get it all out before I die. The tax implications are that anything left in your conventional IRA that is passed on to your kids will have a maximum window of 10 years to be cashed out. They used to be able to use the RMD rules for inherited IRAs, but they changed the law to cap the window at 10 years.

If you aren't an engineer, I think you missed your calling.

That email has virtually no clear, concise response possible. My primary critique is that you aren't outlining clear prioritized goals. Maybe you have had plenty of discourse with the recipient of the email for them to have full context, but it is missing here.

Near-term and long-term tax planning typically fight against each other. Managing risk (high-yield SAVINGS ?!?) and seeking return (seeking to beat S&P 500) often fight against each other.

As far as what is missing, I think it is framing around the newer fund. I would rather see a fund have a three year+ track record before using, even if that meant a 15bp fee drag in the interim. Have you considered why the newer fund outperformed, albeit over a very short period (within the past quarter)? What make you think it will continue gross outperformance when the delta isn't pure cost differential?

I read it that way at first too but I don't think OP used "savings account" as actual savings account. I thought it was going to be a risk tolerance issue but OP probably just meant account to save in. If that makes sense.

First I wouldn't promise not to be annoying. Annoy the **** out of them early with specifics and questions and they'll dot I's and cross t's just so they don't have to talk to you on the phone later. Half kidding on that, but I would not start an email with an apology.

Second, I agree with others that you need to organize your questions, probably into bullet points. You might want to organize a list of what specific information you hope to receive or what action items you want the advisor to have.

Third, I would take 35% of the investment money and follow OldArmy01 in a trading account. Mostly kidding on that.

Email him that you want to avoid any losses thus having no losses to harvest.

30wedge said:

---

Email him that you want to avoid any losses thus having no losses to harvest.

---

Technically the losses are a good thing because they help you limit the recognition of short term capital gains which are taxed at a higher rate.

I digress.

Yeah this guy works for you, never feel bad about asking questions

Good Poster said:

---

30wedge said:

---

Email him that you want to avoid any losses thus having no losses to harvest.

---

Technically the losses are a good thing because they help you limit the recognition of short term capital gains which are taxed at a higher rate.

I digress.

---

I understand using losses to offset gains. While you are digressing, do yourself a spreadsheet and let me know how much better off you are if you have all gains (short-term or long-term) with no losses to use to offset any of them, versus having sold at a loss to get the tax deduction.

Imagine being this rude about a sarcastic quote.

What exactly are you trying to do?

Why not just pick up the phone

Fzrox is the top 2200 plus USA equities starting with aapl and ending with number 2200 or so ranked by market cap. Those names after the top 500 helped the portfolio get its 20% over the s&p 18.5

Next year they may hurt. Or help.

Your strategy can be done with VOO, IVV and SPY if any of them are negative for the year.

You can also convert short term gains to long term gains at the end of every year using another strategy.

I don't think what fund you are invested in is going to make a difference to how your gains are taxed years in the future.

The performance of the funds might differ, but lets say you want to cash out 50k, how it's taxed will probably be the same no matter what the fund was.

The performance of a fund relative to the S&P could not possibly matter any less. If that's your main concern, coupled with the tax questions in the OP that are totally impossible to answer, then you might be taking yourself and your situation too seriously.

But the biggest problem is that you're so unsure about whether your demands are rational that you needed to run to an anonymous internet message board for confirmation before sending an email. If you're trusting this guy with decisions you feel are important to your financial future, pick up the phone and call him.

Casey TableTennis said:

---

If you aren't an engineer, I think you missed your calling.

That email has virtually no clear, concise response possible. My primary critique is that you aren't outlining clear prioritized goals. Maybe you have had plenty of discourse with the recipient of the email for them to have full context, but it is missing here.

Near-term and long-term tax planning typically fight against each other. Managing risk (high-yield SAVINGS ?!?) and seeking return (seeking to beat S&P 500) often fight against each other.

As far as what is missing, I think it is framing around the newer fund. I would rather see a fund have a three year+ track record before using, even if that meant a 15bp fee drag in the interim. Have you considered why the newer fund outperformed, albeit over a very short period (within the past quarter)? What make you think it will continue gross outperformance when the delta isn't pure cost differential?

---

THIS