The impact of taxes on investments may be significant
A comprehensive tax-sensitive investment plan can help reduce your tax burden
Smart money movement
Harvest tax losses
Manage capital gains
Invest in municipal bonds
We search for ways to integrate your existing eligible holdings* into your managed account, as opposed to selling all of your existing investments in order to "start from scratch." This can help reduce the potential tax consequences of creating your personalized investment strategy.
For clients with eligible investments, we take a personalized approach, carefully considering which investments to keep and which to sell in an effort to reach the desired investment mix and reduce potential capital gains taxes.
In addition, when it's time to take money from your account, we'll work to reduce the impact of those withdrawals. We can do that by anticipating any planned withdrawal needs and maintaining an adequate cash position in your account in order to meet those needs. When we do sell securities to raise cash in your account, we’ll make an effort to be mindful of the tax impact of those sales.
As markets fluctuate, sometimes losses from an investment can create the opportunity to reduce the tax impact of investments that have risen in value. Unlike some investment firms, which wait until year end to search for tax-loss harvesting opportunities, we're looking at your account throughout the year. This enhances our ability to offset any realized gains you may have in your account.
We can harvest tax losses to help reduce the impact of capital gains*
However, by selling Investment B and realizing the $4,000 loss during the same tax year the investor sold Investment A, they can use that loss to partially offset the gain in Investment A. By doing this, they net long-term capital gain from $5,000 to $1,000, which would reduce their tax liability from $1,190 to $238.
*This illustration is hypothetical and is not intended to represent the performance of any security in a Fidelity® Wealth Services account. Investing in this manner involves risk, including the risk of loss, and will not ensure a profit.
This hypothetical illustration assumes the investor met the holding requirement for long-term capital gains tax rates (longer than one year), the gains were taxed at the current maximum federal rate of 23.8%, and the loss was not disallowed for tax purposes due to a wash sale, related party sale, or other reason. It does not take into account state or local taxes, fees, or expenses, or the net gain's potential impact on adjusted gross income, which could impact exemption and deduction phaseouts and eligibility for other tax benefits.
Potential tax savings are based on the following calculation: (Realized Long-Term Losses x Long-Term Tax Rate) + (Realized Short-Term Losses x Short-Term Tax Rate). A 3.8% Medicare surtax may be added to tax rates, if applicable to your situation. If an investor subject to the alternative minimum tax (AMT), the appropriate AMT tax rate may also be added to the calculation.
We work to manage your exposure to income distributed by the mutual funds in which you're invested, due to either capital gains or because the securities held by those funds pay dividends or interest.
Mutual fund distributions present an opportunity for tax-sensitive investment management
We seek to manage exposure to mutual fund distributions that can have costly tax implications
Depending on your tax bracket and financial situation, the investment team may look to municipal bond funds when it comes to the fixed income portion of your strategy, drawing on the extensive analysis of our in-house research team. Municipal bond funds may help you keep more of what your investments earn because they typically generate income free from federal taxes and, in some cases, state taxes. Note that municipal bond yields are often lower than similarly rated taxable bonds. However, when you adjust for federal tax rates, their after-tax yields may actually be higher.
A closer look at after-tax yields shows that income from municipal bonds may be more attractive
This hypothetical example assumes an initial $1 million investment in a Growth Strategy (70% stocks/30% bonds and short-term investments) from 1/1/2002 through 12/31/2017, with no contributions or withdrawals. When tax-sensitive investment techniques were applied, the result was an increase in account value of $417,454.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and Fidelity Personal Trust Company, FSB (FPTC), a federal savings bank. Nondeposit investment products and trust services offered through FPTC and its affiliates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, are not obligations of any bank, and are subject to risk, including possible loss of principal. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FPTC, FBS, and NFS are Fidelity Investments companies.
Tax-sensitive investment management techniques are applied in managing taxable accounts (including "tax-loss harvesting") on a limited basis, at the discretion of Strategic Advisers primarily with respect to determining when assets in a client’s account should be bought or sold. As a discretionary portfolio manager, Strategic Advisers may elect to sell assets in an account at any time. A client may have a gain or loss when assets are sold. Strategic Advisers does not currently invest in tax-deferred products, such as variable insurance products, or in tax-managed funds, but may do so in the future if it deems such to be appropriate for a client. Strategic Advisers does not actively manage for alternative minimum taxes; state or local taxes; foreign taxes on non-U.S. investments; or estate, gift, or generation-skipping transfer taxes. Strategic Advisers relies on information provided by clients in an effort to provide tax-sensitive investment management, and does not offer tax advice. There are no guarantees as to the effectiveness of the tax-sensitive management techniques applied in serving to reduce or minimize a client’s overall tax liabilities, or as to the tax results that may be generated by a given transaction. Except where Fidelity Personal Trust Company (FPTC) is serving as trustee, clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917