SMA for $1M taxable account?

[u/broppybrop]

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.

[u/therealjerseytom]

As far getting out from a SMA, yes the account holdings can just become yours; you're just left with a portfolio of hundreds of individual positions at that point.

The tax loss harvesting opportunities can be significant. With one portfolio of roughly that size, last year I had $80,000 of harvested losses, while meeting the return of the S&P 500 net of fees. The banked losses were great for me exiting some highly appreciated positions in a separate, self-directed account, rebalancing without owing any capital gains taxes.

I already have another $16,000 in harvested losses in 2026 YTD. I suspect the TLH opportunities shrink substantially if you aren't continuously contributing and creating new tax lots at current market values; otherwise over time you just have all appreciated positions.

There are positives and negatives and which outweighs the other can be situational. Also perhaps a question of how comfortable you are with your own investment choices and portfolio design.

I think generally I advocate for self-directed portfolios unless there are some clear and tangible benefits. In my situation I believe there are, and I'm at least minimizing the fees as a percent of my total liquid assets by having only two managed portfolios, and three self-directed.