Experience the next generation of tax loss harvesting
What is Tax Loss Harvesting?
Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or "harvesting" a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining an optimal asset allocation and expected returns.
Additional after‑tax returns with Tax Loss Harvesting+ in a taxable account
Assumes an initial investment of $50,000 at a 70% stock allocation, with bimonthly incremental deposits of $750.
See how Tax Loss Harvesting+ compares
| Tax Loss Harvesting+ | Traditional TLH | |
|---|---|---|
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Automated algorithm that checks regularly |
Tax Loss Harvesting+
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Traditional TLH
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No extra trading costs to harvest losses |
Tax Loss Harvesting+
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Traditional TLH
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Every harvested dollar reinvested |
Tax Loss Harvesting+
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Traditional TLH
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No short-term capital gains tax, ever |
Tax Loss Harvesting+
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Traditional TLH
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IRA harvest protection |
Tax Loss Harvesting+
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Traditional TLH
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Harvests rebalance |
Tax Loss Harvesting+
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Traditional TLH
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Customer-realized losses protected |
Tax Loss Harvesting+
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Traditional TLH
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To estimate additional gains of $44,692 (annualized at 0.77%), we used IRR to calculate the excess return of a portfolio with TLH+ as compared to a baseline Betterment portfolio, both with a constant 70% stock allocation. We assumed an initial $50,000 investment, and twice monthly auto-deposits of $750, escalated 5% annually (to account for inflation and salary increases). We assumed a single California resident (where Betterment has the most customers) making $100,000/year (federal: 28% on income, 15% on LTCG; state: 9.3%). We assumed no short-term capital gains for offset: just long-term capital gains and ordinary income (a more conservative assumption). All dividends and tax savings were reinvested into the portfolio. At the end of the period, we assumed a taxable liquidation of 50% for both portfolios. For more detail, including results under different assumptions, see our white paper. For example, assuming maximum California tax rates, short-term capital gains for offset, and no liquidation, the benefit would have been 1.40%.
The analysis that produced this estimate was done over the 13-year period from 2000 to 2013. No reliable data was available prior to 2000 that could adequately represent the performance of the full Betterment portfolio. Past performance is no guarantee of future results. The information used as the foundation for historical backtesting was compiled from third-party sources, and while we believe the information provided here is reliable, we do not warrant its accuracy or completeness. For more on how we backtest against historical data, see here.
The analysis is not based on actual client trading history, and actual Betterment clients may experience different results. Factors which will determine the actual benefit of TLH+ include, but are not limited to, market performance, the size of the portfolio, the stock exposure of the portfolio, the frequency and size of deposits into the portfolio, the availability of capital gains and income which can be offset by losses harvested, the tax rates applicable to the investor in a given tax year and in future years, the extent to which relevant assets in the portfolio are donated to charity or bequeathed to heirs, and the time elapsed before liquidation of any assets that are not disposed of in this manner.
Tax loss harvesting is not suitable for all investors – especially those in low income tax brackets. Nothing herein should be interpreted as tax advice, and Betterment does not represent in any manner that the tax consequences described herein will be obtained, or that any Betterment product will result in any particular tax consequence. Please consult your personal tax advisor as to whether TLH+ is a suitable strategy for you, given your particular circumstances. The tax consequences of tax loss harvesting are complex and uncertain and may be challenged by the IRS. You and your tax advisor are responsible for how transactions conducted in your account are reported to the IRS on your personal tax return. Betterment assumes no responsibility for the tax consequences to any client of any transaction.