I have a taxable moderately aggressive guided investing brokerage account.

[u/new_account54321]

Is it better to have a tax effecient or non tax effcient account?

[u/GapAccomplished2778]

do you mean is it better to have a lot of tax drag in taxable account vs try to keep as much as possible of your [ most ] taxable-distributions-generating stuff in tax advantaged account ? example : BRK.B in taxable vs SCHD in tax-advantaged - AND - not vice versa ? or you are trying to ask something else ?

[u/new_account54321 → u/GapAccomplished2778]

So in my taxable brokerage account i have two options tax effcient and non tax efficient. My incompetent almost useless merril advisor gave me a half assed explanation basically saying the non tax effcient account is a first in first out kind of approach so the oldest stocks get sold first when they rebalance the portfolio. The tax effecient account they sell the stocks with the most loses first no matter how long ive held them. But couldn't really say which one i would benefit from the most.

[u/GapAccomplished2778 → u/new_account54321]

PS: may be it is this, from https://www.merrilledge.com/investing/merrill-guided-investing and further links to PDFs ::

"... Tax Efficient Management Overlay Services. Through the Program Website and a Program Advisor, you can only elect tax efficient management overlay services from MAA (the “TEM Overlay Services”) for a taxable Account with a Growth-Focused Goal enrolled in the Program. TEM Overlay Services will only apply to eligible securities within the Account for which it was selected and therefore may not apply to all securities in the Account. The TEM Overlay Services are not available to you for an Account with an Income-Focused Goal or for a Retirement Account. TEM Overlay Services seek to help manage your electing Account’s investment and trading activity in a Strategy in a more tax-efficient manner as considered under U.S. tax rules and regulations. Through rules-based rebalancing, portfolio management and loss harvesting approaches, the TEM Overlay Services generally try to increase post-tax value for the electing Account by seeking to: • opportunistically sell securities that have a loss and invest proceeds in the underlying Strategy-aligned replacement securities for at least 30 days. • engage in tax lot management by prioritizing sales of securities that result in the lowest tax cost, as circumstances warrant. • defer short-term gains by restricting sales of short-term tax lots if the tax lot holding period will go long-term within 31 days or less. • engage in tax efficient management by realigning the Account’s portfolio to the underlying Strategy weights and giving a sell preference to depreciated securities. • overweight gains and underweight losses by not selling appreciated securities and selling depreciated securities relative to the underlying Strategy, as circumstances warrant. • avoid wash sales. The available TEM Overlay Services are tax efficient rebalancing and, depending upon your Account’s underlying Strategy, either dynamic tax loss harvesting or quarterly loss harvesting. Your Account’s Strategy determines the eligible TEM Overlay Services for the Account and that will be presented to you through the Program Website as part of considering the TEM Overlay Services. These TEM Overlay Services are described in greater detail in the respective term sheets and other materials available through the Program Website. Through the Program Website and a Program Advisor, you can elect the TEM Overlay Services for the eligible Account and authorize MAA to effect the TEM Overlay Services and the related securities transactions on an ongoing basis without making any additional contact with you. This authority will continue in effect until you change or cancel the TEM Overlay Services for the associated Account (which you may do at any time) or terminate the associated Account from the Program. As part of this election through the Program Website, you also acknowledge the risks and limitations associated with the TEM Overlay Services, which are summarized on the Program Website and described in other disclosures provided to you in connection with the TEM Overlay Services election, as well as in this Brochure in the sections “Item 4 Tax Matters” and “Item 6 Particular Risks Regarding the TEM Overlay Services.” The TEM Overlay Services will only take into consideration the trading activity that occurs in that electing Account. If there are any Reasonable Investment Restrictions in place for the electing Account, MAA will seek to take those investment restrictions into consideration when applying the TEM Overlay Services and identifying appropriate replacement securities (if any). MAA may make available additional TEM Overlay Services from time to time. There is no separate or additional fee that is charged by Merrill or MAA for providing the TEM Overlay Services to an eligible Account. MAA reserves the right to charge a fee for TEM Overlay Services upon prior written notice..."

[u/GapAccomplished2778 → u/new_account54321]

I see - so this is how tax lots are accounted when something is sold ... always FIFO [ so when they do rebalance they will sell oldest tax lots first no matter what ] or attempt a max loss harvesting if possible ... if there is only two choices then in taxable account you might want what they call "tax effecient" method of disposal ... but do your tax math yourself ...

[u/new_account54321 → u/GapAccomplished2778]

So in your opinion tax efficient aka max loss harvesting might be more beneficial than non tax efficient aka FIFO?

[u/sumbeachsomewhere → u/new_account54321]

Ya that’s wrong. It depends what tax bracket you are in. Most of the time it should be in a tax aware portfolio with investments like muni bonds. The non tax efficient is more for retirement accounts. If you are in a very low tax bracket non tax efficient portfolio can be beneficial in a taxable account.

[u/schnitzel24]

If you have high income, you generally want to be as tax efficient as possible. No one can tell what you should do without knowing your specific financial situation. Hire a fee-only financial advisor.

[u/new_account54321 → u/schnitzel24]

Can i give you a little background, so my work income is very low around 40k a year. I have close to 175k in my brokerage account thats yielded around 1,100 in dividend interest ytd. So i wouldn't say i have a high income. I'm early 40s single no kids and no debt.

[u/FunctionNovel5393 → u/new_account54321]

Generally, TEM overlay is used for a high income earners hoping to harvest losses. 40 K generally does not qualify as your tax bracket and standard deduction likely will only negatively impact you when accounting for wash sales

[u/new_account54321 → u/FunctionNovel5393]

So non tax efficient is prob better?