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Topic · Funds, wrappers and fees

Which fund wrapper keeps the most after tax, and who keeps the fees?

The same loss-harvesting logic sells for 9 basis points to a retail investor and about 115 through an adviser. The wrapper and the price decide the outcome more than the strategy does.

7 short reads · about 24 minutes in total · each one stands on its own

Start here3 reads · 13 min

The few ideas everything else rests on.

  1. Why ETFs pay less tax than mutual funds

    The average stock mutual fund lost 1.9% a year to tax over the last decade; the average stock ETF lost 0.7%. The gap comes from one line in the tax code, not from smarter managers.

    5 min

  2. Direct indexing, in one page

    Own the 500 stocks instead of the fund that owns them. A $1.16 trillion business built on that idea. What you get, what you pay, and who it fits.

    5 min

  3. Same harvesting, 9 basis points or 115

    Retail direct indexing charges 9 basis points a year. Through an adviser and a platform the same logic costs about 115. Against a long-run benefit of 0 to 30, the price decides the sign.

    3 min
Concepts used here
Basis pointCost basisDirect indexingHarvest yieldIn-kind redemptionTax cost ratioTax dragTax-loss harvestingWash-sale rule

How it works1 read · 2 min

The mechanics and the numbers behind them.

  1. The dividend tax no wrapper removes

    An index ETF defers its capital gains almost completely. It cannot defer its dividends. At a 1.3% yield and a 35% rate, that is 46 basis points a year, and it is most of the ETF's remaining tax drag.

    2 min · note
Concepts used here
Holding periodNet investment income taxQualified dividend

Go deeper3 reads · 9 min

Edge cases, products, and what could change.

  1. ETF share classes: the patent that expired

    One firm held a patent on attaching an ETF share class to a mutual fund until May 2023. Since November 2025 the SEC has let others do it, and the funds that get one stop paying out gains.

    3 min

  2. Section 351: moving a portfolio into an ETF without selling

    Since December 2024, 113 ETFs have launched by taking in investors' stock portfolios for shares, no gain recognized, about $21 billion so far. The two tests, and why the IRS has not said yes.

    3 min

  3. Exchange funds, for one big stock

    Contribute one concentrated stock to a partnership, receive a slice of everyone's, pay no tax, wait seven years. The fee is 0.4% to 0.95% a year, and a fifth of the fund is real estate by law.

    3 min
Concepts used here
Cost basisETF share classExchange fundIn-kind redemptionSection 351 seedingTax drag
Concepts

Terms this topic relies on

All concepts
Basis pointDirect indexingETF share classExchange fundHarvest yieldIn-kind redemptionSection 351 seedingTax cost ratio