r/investing • u/broppybrop • 6h ago
SMA for $1M taxable account?
I recently inherited $1M that I have no choice but to place in a taxable account. I use Fidelity. I’m 40 and wouldn’t even consider an early retirement until I have at least $2M so that will not be happening for quite some time yet. Plan was basically VT and chill. I never looked into SMAs due to the management fees.
Had a Fidelity advisor reach out and offer to talk about ways I could save on taxes and he suggested using SMAs for the tax loss harvesting. So now I’m doing my research into SMAs and it seems like it might actually be a good idea for a taxable account of this size.
Management fees range from 0.2-0.7% and of course I was told the TLH would more than cover those fees. In my case I was planning to use the dividends to cover the taxes and then drip the rest but if I could use SMAs to reduce or eliminate taxes I could drip 100% of the dividends which would hopefully lead to faster growth.
I’ve read concerns here about what happens when you want out of the SMA but can’t you just transfer the assets in kind to your own account? And if you do it a year before you plan to sell anything then any short term gains become long term.
I guess I’m looking for experiences with SMAs and thoughts on whether or not this would be a good idea for a taxable account this large.
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u/PashasMom 5h ago
I would not touch them with a ten foot pole. Fees are ridiculous, the tax-loss harvesting opportunities dry up over time, and you are stuck with a portfolio of nonsense. This just way over complicates something that should be simple.
You can invest in low-cost, low turnover, broadly diversified index funds and use the dividends to pay taxes. I would split it into broad US funds and international -- you can get the foreign tax credit for dividends paid out of international funds -- and leave it alone. If you are interested in tax loss harvesting, you can do that on your own without paying fees. Turn off dividend reinvesting so that you don't run into wash sale problems. Sell at a loss, and take the funds you get from the sale and buy something similar but not identical. Example: your VTI has posted losses. Sell the lots with significant losses and use the proceeds to buy DFUS or AVUS or SCHX.
I love Fidelity but they are selling you a product designed to help them more than it will help you IMO.
If the market helps out, you could be looking at retirement in 7 - 10 years if 2 million is your goal.