Tax Efficient Investing for Retirees with High Net Worth: Direct Indexing?
What would you do?
A recent 60-yr.-old retiree with a pension over $100K/yr. and rental income of ~$30K/yr. My expenses are ~$70K/yr. As you can see I have no need to withdraw any $ from my retirement accounts (~$1.09M in trad. IRA and $2.2K in Roth) or two brokerage accounts ($1.5M-a bunch of mutual funds (18) & $500K- Schwab Intelligent Portfolio-robo advisor; overall asset allocation of 85% stocks & 15% bonds.) Seriously considering doing Roth conversions before reaching RMD at 75.
I have a checking account and some emergency cash held in MM muni funds in the four accounts mentioned. All of my assets are held at Schwab. I am a DIY, "buy-and-hold" investor who likes to manage a portfolio with no/low fees and expenses, and I've had the mutual funds (index funds from Vanguards, T. Lowe Price, and some mid & small cap funds) for a long time and they have appreciated greatly over the years with serious tax consequences; it appears that some/many of them are not tax-efficient!
Due to large distributions and gains from the mutual funds, last year my taxes were very high (tail end of 32% fed. & 9.3% CA brackets). I was recommended to gradually sell the mutual funds and invest in a direct-indexing product, such as Schwab Personalized Indexing or Fidelity's "SMA- Direct Indexing, both of which have 0.4% advisory fee. Tax-loss harvesting was the major reason these products were recommended.
What are your thoughts on these products? There are pros and cons of this strategy, but directly owning hundreds of stocks will create a nightmare when unloading or discontinuing in the future. Also, pages of 1099 to upload during tax preparation!
How about robo advisors (Betterment, M1, Wealthfront) that do tax-loss harvesting automatically for a fee (~0.25%) or direct indexing, like Wealthfront's S&P 500 Direct Indexing with .09% fee?
Any feedback, thoughts or recommendations would be deeply appreciated, for I'm having a hard time making a decision on how to invest in tax-efficient products that cost very little or have no/low fees.
A recent 60-yr.-old retiree with a pension over $100K/yr. and rental income of ~$30K/yr. My expenses are ~$70K/yr. As you can see I have no need to withdraw any $ from my retirement accounts (~$1.09M in trad. IRA and $2.2K in Roth) or two brokerage accounts ($1.5M-a bunch of mutual funds (18) & $500K- Schwab Intelligent Portfolio-robo advisor; overall asset allocation of 85% stocks & 15% bonds.) Seriously considering doing Roth conversions before reaching RMD at 75.
I have a checking account and some emergency cash held in MM muni funds in the four accounts mentioned. All of my assets are held at Schwab. I am a DIY, "buy-and-hold" investor who likes to manage a portfolio with no/low fees and expenses, and I've had the mutual funds (index funds from Vanguards, T. Lowe Price, and some mid & small cap funds) for a long time and they have appreciated greatly over the years with serious tax consequences; it appears that some/many of them are not tax-efficient!
Due to large distributions and gains from the mutual funds, last year my taxes were very high (tail end of 32% fed. & 9.3% CA brackets). I was recommended to gradually sell the mutual funds and invest in a direct-indexing product, such as Schwab Personalized Indexing or Fidelity's "SMA- Direct Indexing, both of which have 0.4% advisory fee. Tax-loss harvesting was the major reason these products were recommended.
What are your thoughts on these products? There are pros and cons of this strategy, but directly owning hundreds of stocks will create a nightmare when unloading or discontinuing in the future. Also, pages of 1099 to upload during tax preparation!
How about robo advisors (Betterment, M1, Wealthfront) that do tax-loss harvesting automatically for a fee (~0.25%) or direct indexing, like Wealthfront's S&P 500 Direct Indexing with .09% fee?
Any feedback, thoughts or recommendations would be deeply appreciated, for I'm having a hard time making a decision on how to invest in tax-efficient products that cost very little or have no/low fees.
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