If you could hold all the stocks in the S&P 500 in your taxable portfolio at low cost, and then match winners and losers when you make annual retirement withdrawals, you could go quite a while without realizing any taxable capital gains.
New competitors in this space are now charging fees as low as 0.10% of assets (t.e., $1,000 on $1 MM invested) If that meant that you could take a non-taxable 4% ($40,000 withdrawal from a $1 million dollar portfolio that would otherwise be taxed at the 15% to 20% capital gains rate (e.g. $6,000 OR $8,000) it would produce significant tax savings in the current year. Of course, over time as the stock market grows and your “winners” make up more of the portfolio, you’re ability to continue this strategy will decline while the 0.10% fee continues.
I’m not sure how this would work. If you sell losers and winners to balance the capital gains each year, then at the end of the year you don’t quite match the S&P500 anymore. Now go out 10 years, and you’ve sold the S&P500 winners, and you’ve sold the S&P500 losers, and you’ve mostly held the middling S&P500 stocks. What happens to total performance over a few decades? My gut tells me that it’ll be lower than just the plain old S&P500 as is. But I don’t know how big the tax effect is over the years. Maybe the tax effect makes it worth it? Anyone run the numbers on historical data? (similarly to the REHP spreadsheets of ~30 years ago)
No. You can transfer your money (in-kind) to another broker with the cost basis and gains intact. Over time, you’ll have more unrealized gains and fewer unrealized losses in the portfolio.
I’ve been doing this myself in my taxable account for 30 years with about 20 stocks. And now I have almost no unrealized losses, a low tax paid cost basis, and almost all the value of the portfolio is unrealized capital gains. You’ll pay the taxes eventually, unless you’re successful in transferring it your heirs with the stepped up cost basis on death.