kmiyashiro

I read the tax loss harvesting white paper which listed the average amounts saved by TLH by age of user. The argument was that users saved more than the fee, on average. However, the fee goes up with the account size, and the benefits of TLH do not past a $3k deduction per year, unless you are liquidating/tax gain harvesting. Does wealthfront automate tax gain harvesting?

For example, take a hypothetical portfolio of 500k.

Wealthfront's fee: 500k * .0025 = $1250

Max annual tax loss harvesting deduction: 3k

Max annual tax savings from TLH at 35% marginal tax bracket: 3k * .35 = $1050

In this case, Wealthfront's fee of $1.25k will almost always be greater than the maximum annual benefit of tax loss harvesting, as long as you are not realizing capital gains.

Got it, so if I don't have capital gains to offset, then I effectively am left with the 3k income offset each year. If I never have more than 40k in realized gains per year after I retire, and no ordinary income, then I effectively get 0 benefit from my accumulated tax loss harvesting.

edit: although it can still offset 3k in 401k withdrawals in retirement, so I suppose that continues.

Yup, if you read past the comma, I say "unless you are liquidating/tax gain harvesting". And my following question, "Does wealthfront automate tax gain harvesting?"

If not, then I will have to manually tax gain harvest. Otherwise, I will be accumulating capital losses until I retire and my tax bracket goes down.