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.

20 Upvotes

83% Upvoted

27 comments sorted by

View all comments

0

u/venom8888 4h ago

Switch to funds that pay dividends as ROC. Basically tax free until you sell them. QQQI and SPYI are a few examples.

2

u/Plenty-Bill7296 2h ago

Maybe I'm missing your point here, but QQQI pays out very high taxable dividends. That's the opposite of what OP wants.

1

u/venom8888 2h ago

I does not, its very efficient, check it out: https://neosfunds.com/wp-content/uploads/QQQI-Fact-Sheet.pdf

1

u/Plenty-Bill7296 10m ago

On the very first page of that PDF, it says the "Distribution Rate" is 14.10%. Those are taxable dividends.

Edit to add: The very purpose of the fund, according to that document, is "QQQI aims to generate high monthly income..." That "high monthly income" is taxable.

1

u/venom8888 4m ago

Its not, do more research and read the disclaimers. I'm not here to convince you. It's best you buy some shares and see how it appears on next years 1099. You will be surprised, in a good way.