When it comes to investing, one of the last things you want is a big chunk of your returns unnecessarily going to taxes. At Wealthfront, a core part of our investment philosophy is using software to automatically look for ways to lower your taxes so you can keep more of what you earn.
In this post, I’ll walk you through the highlights of how we help you do just that.
Tax-loss harvesting
There’s a reason Chief Investment Officer Burt Malkiel called tax-loss harvesting the “crown jewel of tax management strategies.” Automated tax-loss harvesting is one of the most valuable services we offer, and we estimate that through the end of 2025, it has generated a total of $1.27 billion in client tax savings since its inception. (You can read more about how we calculate this here.) You can use harvested losses to offset capital gains at tax time, thus lowering what you owe. They can be especially beneficial for anyone who has sold securities at a gain, like company RSUs that have increased in value, or appreciated investments you’re selling to make a down payment on a home. We include Tax-Loss Harvesting in our advisory fee, so you get it at no extra cost.
Tax-loss harvesting involves selling an investment that has decreased in value below its purchase price, “harvesting” the loss, and then buying a similar investment (or investments) to maintain the overall risk and return characteristics of your portfolio. Many investment advisors only do this annually, but Wealthfront’s software automatically looks for opportunities to harvest losses daily. This is how we were able to capture over $100 million of losses in just three market days following the announcement of tariffs in April 2025.
Direct indexing
Direct indexing with tax-loss harvesting is a sophisticated tax minimization strategy that Wealthfront makes both affordable and accessible through automation. With direct indexing, rather than conducting tax-loss harvesting with an index-based ETF, you hold individual stocks from an index and harvest losses using those. Wealthfront’s direct indexing products are customizable, low cost, and can lower your tax bill more than tax-loss harvesting with ETFs alone, because individual stocks tend to be more volatile.
If you want to invest in a globally diversified portfolio that is managed for you, you can access direct indexing in our US Direct Indexing account (one of our Automated Investing Accounts) at no additional fee. The minimum account value for US Direct Indexing is $100,000. But if you prefer to have more control over asset allocation choices, you can use our standalone direct indexing products, Wealthfront’s S&P 500 Direct and Nasdaq-100 Direct. These products are both designed to offer similar performance to popular indices and generate tax savings at the same time—and for a lower fee than many other direct indexing products available today.
Wealthfront’s direct indexing products
| Product | Investments | Advisory fee | Tax-Loss Harvesting? |
| S&P 500 Direct | Stocks from the S&P 500® Index | 0.12% | Yes, see year one results |
| Nasdaq-100 Direct | Stocks from the Nasdaq-100 Index® | 0.09% | Yes |
| US Direct Indexing | Up to 100 from the CRSP US Total Market Index, plus completion ETFs | No additional fee beyond 0.25% annual advisory fee | Yes, see results in our white paper |
Tax-optimized portfolio allocations
Portfolio allocation matters when it comes to your taxes, because not all investments receive the same tax treatment. For our taxable Automated Investing Accounts, we offer three separate versions tailored for clients’ tax level, and we recommend a portfolio for you based on the income information you provide us with, in addition to your state of residence and risk tolerance.
Californians don’t need to be told that their home state has some of the highest tax rates in the country. For that reason, we also offer California-specific versions of our taxable Automated Investing Accounts which include a California municipal bond ETF. Interest earned from this ETF is exempt from both state and federal income taxes, helping you keep significantly more of what you earn.
Tax-aware rebalancing, withdrawals, and transfers
It’s a fact of investing that portfolios drift over time. Consider this simplified example: If your portfolio is 50% bonds and 50% stocks, but stocks have a great year and bonds less so, your portfolio will end up being more than 50% stocks. That’s where rebalancing, or buying and selling investments to move you back to your target allocation, comes in. But that selling can also run up your tax bill. We use dividends and deposits to rebalance in our managed accounts whenever possible to help minimize taxable events.
Similarly, when you make a withdrawal from a managed investing account with us, we will sell investments to keep you close to your target allocation. Within asset classes, we aim to sell tax efficiently. And when you bring investments over to Wealthfront, whenever possible, we will incorporate them into your Wealthfront portfolio without selling so you don’t incur taxable gains.
Portfolio Line of Credit
Sometimes, you have near-term expenses that strain the amount of cash you have on hand, like a large tax bill. In that instance, you might consider selling some investments (potentially realizing a taxable gain) to handle the expense. Wealthfront’s Portfolio Line of Credit offers an alternative to withdrawing—taxable Automated Investing Account, Automated Bond Portfolio, or standalone direct indexing account clients with at least $25,000 in the account can borrow up to 30% of their portfolio value at a competitive interest rate. This allows you to access cash quickly without needing to sell your investments and potentially incurring a taxable gain—instead, you’ll pay interest on the line of credit until you’ve repaid it in full. This approach can make sense for bridging short-term gaps when you know you’ll have the cash to repay the loan soon.
Fixed income with tax advantages
A ladder of US Treasuries (whose interest is exempt from state and local taxes) can help you earn more and keep more after taxes than you would with most savings accounts and some certificates of deposits. However, maintaining your own ladder (where you monitor maturity dates and handle purchases yourself) can be a real headache. Wealthfront’s Automated Bond Ladder takes the busywork out of this strategy, and is designed to help you earn more on your extra cash with zero state taxes. You can compare the after-tax yield of Treasury interest with fully taxed interest using our calculator here.
Keep more of what you earn
Wealthfront wants to help you keep more of what you earn automatically, and this philosophy is woven into all of our products. Our commitment to improving your after-tax returns extends across your entire financial life, from managing your cash and near-term funds to maximizing your long-term investments. The list provided here details some of the most significant ways we work to improve your after-tax returns, but is certainly not exhaustive. We’re proud to help keep more money in your pocket so you can meet your financial goals sooner.
Disclosure
The information contained in this blog is provided for general informational purposes only, and should not be construed as investment or tax advice. Nothing in this communication should be construed as a solicitation, offer or recommendation to buy or sell any security or to open any account. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Wealthfront Advisers, Wealthfront Brokerage or any affiliate endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.
$1.27 billion estimated tax savings: We calculated the estimated tax savings based on our clients’ current self-reported income, state of residence, and tax-filing status. From that, we inferred a combined federal and state tax rate for each client. We then multiplied each client’s rate by their harvested losses and added those numbers up to get the total estimated tax savings since inception (2012) in this blog. This calculation also assumes that there are enough capital gains to be fully offset by the harvested losses and that current tax laws and rates remain in effect. The actual tax savings realized by any individual client will vary based on their specific tax situation, investment activity, and market performance. These figures are an estimate of potential tax benefits and are not guaranteed. Investors should consult with a tax professional regarding their specific circumstances.
The effectiveness of the tax-loss harvesting strategy to reduce the tax liability of the client will depend on the client’s entire tax and investment profile, including purchases and dispositions in a client’s (or client’s spouse’s) accounts outside of Wealthfront Advisers and type of investments (e.g., taxable or nontaxable) or holding period (e.g., short-term or long-term).
Keep in mind, any harvested losses are first used to offset capital gains of the same type. This means short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other type of gain.
Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and the strategy could introduce portfolio tracking error into your account. Tracking error is a measure of financial performance that determines the difference between the return fluctuations of an investment portfolio and the return fluctuations of a chosen benchmark. There may also be unintended tax implications.
Wealthfront Advisers’ investment strategies, including portfolio rebalancing and tax loss harvesting, can lead to high levels of trading. High levels of trading could result in (a) bid-ask spread expense; (b) trade executions that may occur at prices beyond the bid ask spread (if quantity demanded exceeds quantity available at the bid or ask); (c) trading that may adversely move prices, such that subsequent transactions occur at worse prices; (d) trading that may disqualify some dividends from qualified dividend treatment; (e) unfulfilled orders or portfolio drift, in the event that markets are disorderly or trading halts altogether; and (f) unforeseen trading errors. The performance of the new securities purchased through the tax-loss harvesting service may be better or worse than the performance of the securities that are sold for tax-loss harvesting purposes.
Tax loss harvesting may generate a higher number of trades due to attempts to capture losses. There is a chance that trading attributed to tax loss harvesting may create capital gains and wash sales and could be subject to higher transaction costs and market impacts. In addition, tax loss harvesting strategies may produce losses, which may not be offset by sufficient gains in the account and may be limited to a $3,000 deduction against income. The utilization of losses harvested through the strategy will depend upon the recognition of capital gains in the same or a future tax period, and in addition may be subject to limitations under applicable tax laws, e.g., if there are insufficient realized gains in the tax period, the use of harvested losses may be limited to a $3,000 deduction against income and distributions. Losses harvested through the strategy that are not utilized in the tax period when recognized (e.g., because of insufficient capital gains and/or significant capital loss carryforwards), generally may be carried forward to offset future capital gains, if any.
Wealthfront Advisers and its affiliates do not provide legal or tax advice and do not assume any liability for the tax consequences of any client transaction. Clients should consult with their personal tax advisors regarding the tax consequences of investing with Wealthfront Advisers and engaging in these tax strategies, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the investor’s personal tax returns. Wealthfront Advisers assumes no responsibility for the tax consequences to any investor of any transaction.
Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
Wealthfront’s S&P 500 Direct: The S&P 500® index is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by Wealthfront Advisers LLC. Standard & Poor’s®, S&P®, S&P 500®, US 500 and The 500 are trademarks of Standard & Poor’s Financial Services LLC and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Wealthfront Advisers LLC. Wealthfront’s S&P 500 Direct Portfolio is not sponsored, endorsed, sold or promoted by SPDJI or its affiliates and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500®.
Wealthfront’s Nasdaq-100 Direct: Nasdaq®, Nasdaq-100 Index®, NDX®, and Nasdaq-100® are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Wealthfront Advisers LLC. The Product(s) (“Wealthfront Nasdaq-100 Direct Index”, “Wealthfront Nasdaq-100 Direct”, “Nasdaq-100 Direct”) have not been passed on by the Corporations as to their legality or suitability. The Product(s) are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE PRODUCT(S).
Portfolio Line of Credit is a margin lending product offered exclusively to clients of Wealthfront Advisers by Wealthfront Brokerage. You should consider the risks and benefits specific to margin when evaluating your options. Repayment is flexible, provided your account equity remains above the minimum requirement to avoid a margin call. Learn more in the Margin Handbook.
Automated Bond Ladder: Investing in U.S. Treasuries involves risks, including but not limited to interest rate risk, credit risk, and market risk. While U.S. Treasuries are considered to be among the safest investments, they are not entirely risk-free, and there is a potential for loss of principal. Returns on U.S. Treasuries can also be affected by changes in the credit rating of the U.S. government, although such occurrences are rare. Investors should consider their tolerance for these risks and their overall investment objectives before investing in U.S. Treasuries.
The yield earned from U.S. Treasuries is exempt from state and local income taxes. However, interest income from Treasuries is subject to federal income tax. Tax treatment may vary depending on your individual circumstances. To understand implications for your specific financial situation, consult with a tax professional.
All investing involves risk, including the possible loss of money you invest, and past performance does not guarantee future performance. Please see our Full Disclosure for important details.
Investment management and advisory services are provided by Wealthfront Advisers LLC (“Wealthfront Advisers”), an SEC-registered investment adviser, and brokerage related products are provided by Wealthfront Brokerage LLC (“Wealthfront Brokerage”), a Member of FINRA/SIPC.
Wealthfront Advisers and Wealthfront Brokerage are wholly-owned subsidiaries of Wealthfront Corporation. © 2026 Wealthfront Corporation. All rights reserved.
About the author(s)
Dave Myszewski is the Vice President of Product at Wealthfront where he oversees product development, consumer research, and client support. Prior to Wealthfront, Dave worked at Apple for 12 years including an engineering role on the first iPhone. Dave holds an MS and BS in Computer Science from Stanford University. View all posts by Dave Myszewski
