Tax-loss harvesting1

One of the ways we manage your account for taxes


The Fidelity® Tax-Managed U.S. Equity Index Strategy uses a number of strategies designed to help you keep more of what you earn, evaluating your account each business day for tax-savings opportunities. One of those strategies is tax-loss harvesting.

Strategic Advisers uses a number of strategies throughout the year to manage your account for taxes, including: harvest tax losses, invest in municipal bond funds, manage exposure of distributions, and defer realization of short-term gains.

Tax-loss harvesting can help reduce your current tax liability

Tax-loss harvesting is the practice of selling one or more tax lots (investments in a stock or bond) at a loss to offset capital gains elsewhere in your account. This strategy may also potentially help reduce your tax liability on ordinary income and may improve your after-tax performance.


To take advantage of this strategy, Strategic Advisers LLC, the portfolio manager for your account, regularly analyzes every tax lot in your account to determine how price fluctuations may affect taxes owed when securities are sold. For example, if an individual security has a capital loss, they may decide to sell the position and realize that loss. The tax savings on the loss would offset the taxes on any capital gains realized for securities that increase in price. In such cases, the sold position usually will be replaced with a similar investment to maintain consistent market exposure.

A hypothetical example of how tax-loss harvesting works

hypothetical bar chart;

hypothetical bar chart;

In this chart, assume an individual realizes a long-term capital gain of $5,000 in Investment A, and a long-term capital loss of $4,000 in Investment B. If the individual has not realized the loss, he or she would incur $1,190 in federal capital gains tax (tax rate of 23.8%) on the realized gain from Investment A. By realizing the loss on Investment B, that loss can be used to offset the gain on Investment A. The individual's net long-term gain on the sale of Investment A and Investment B would be $1,000, and only $238 would be incurred in federal capital gains taxes.


This illustration is hypothetical and is not intended to represent the performance of any security in a Fidelity ® Tax-Managed U.S. Equity Index Strategy 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.

Excess losses can help reduce next year's capital gains taxes

Tax-loss harvesting by the portfolio manager may also be used to reduce your future realized gains and tax liabilities by generating loss carryforwards. With this strategy, generally, excess capital losses can be used as loss carryforwards to offset capital gains and portions of ordinary income in future tax years. This is particularly useful during periods of market volatility because it can help you carry forward large losses to offset capital gains, and it may be used over multiple years.2

We work year-round seeking to help reduce or defer taxes in your account

While many investment management firms only use tax-loss harvesting at year end, the portfolio manager uses this and a number of other strategies throughout the year in an effort to reduce your tax liability and help you reach your goals as quickly as possible. Here are some of the strategies they may use:

  • Defer realization of short-term gains in favor of seeking long-term capital gains, as appropriate
  • Proactively look to harvest tax losses while maintaining an exposure that's similar to the S&P 500

Learn more

Call to learn more about the tax-sensitive investment strategies the portfolio manager uses on your behalf.

800-544-3455

Your Potential Tax Savings Rate Methodology: Potential tax savings are based on the following calculation: (Realized Long-Term Losses × Long-Term Tax Rate) + (Realized Short-Term Losses × Short-Term Tax Rate). Since account calculation is calculated for each year and then added together to create the account opening figure. Accounts opened prior to 2001, will show an account opening date as of January 1, 2001. A 3.8% Medicare surtax may be added to tax rates, if applicable to your situation. If you're subject to the alternative minimum tax (AMT), the appropriate AMT tax rate may also be added to the calculation.

1.

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.

2. The tax-sensitive investment management strategies described apply only to a Fidelity® Tax-Managed U.S. Equity Index Strategy account. An assumption of this paper is that investors want to accumulate tax-loss carryforwards through the use of ongoing tax-sensitive investing strategies. Unused tax-loss carryforwards can generally be carried forward indefinitely to offset future realized capital gains and some ordinary income, but at death they do not carry over or "pass down" to a surviving heir.

S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. It is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Indexes are unmanaged. It is not possible to invest directly in an index. Securities indices are not subject to fees and expenses typically associated with managed accounts.

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® Strategic Disciplines provides discretionary investment management for a fee. Fidelity® Strategic Disciplines includes the Breckinridge Intermediate Municipal Strategy, the Fidelity® Equity-Income Strategy, the Fidelity® Tax-Managed U.S. Equity Index Strategy, the Fidelity® Intermediate Municipal Strategy, and the Fidelity® Core Bond Strategy. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), 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, FBS, and NFS are Fidelity Investments companies.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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