Comparing Tax-Loss Harvesting Thresholds Across Robo Platforms

• by Katie Crawford
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When you're investing in a taxable account, every dollar you save on taxes is a dollar that stays invested and keeps growing. That’s where tax-loss harvesting comes in. It’s not magic. It’s not a loophole. It’s a simple idea: sell investments that have dropped in value to lock in a loss, use that loss to cut your tax bill, and immediately buy something similar to stay in the market. Robo-advisors automate this process so you don’t have to track every dip and dip again. But not all platforms do it the same way. Some wait for big drops. Others pounce on small ones. Some only help if you have $100,000. Others start at $10,000. If you’re trying to figure out which robo-advisor actually gives you the most tax savings, you need to know the thresholds - the exact point where each platform decides to pull the trigger.

What Actually Triggers a Tax-Loss Harvest?

Most robo-advisors don’t harvest losses the moment your stock or ETF drops 1%. They wait. Why? Because trading costs, tax complexity, and the wash-sale rule make tiny moves not worth it. The magic number? Between 2% and 5% below your original purchase price. That’s the range most platforms use, but the exact trigger varies. Wealthfront’s system, based on reverse-engineering by Yale researchers, has historically kicked in around a 3.5% loss. Betterment doesn’t publish its number, but user data and tax simulations suggest it’s closer to 2-3%. Schwab Intelligent Portfolios, according to their 2023 documentation, waits until losses hit about 5% - making it the most conservative of the major players.

It’s not just about percentage. It’s about timing. Wealthfront and Betterment scan portfolios daily. Schwab checks once a week. That means if the market drops sharply on a Tuesday, Wealthfront and Betterment can act by Wednesday. Schwab might wait until Monday. In volatile markets, that delay can mean missing a harvest opportunity entirely.

How Different Platforms Handle the Wash-Sale Rule

The IRS doesn’t let you claim a loss if you buy back the same or "substantially identical" security within 30 days. That’s the wash-sale rule. Robo-advisors get around it by swapping one ETF for another that tracks the same index but is made by a different company. For example: sell Vanguard’s small-cap ETF, buy iShares’ small-cap ETF. The IRS hasn’t challenged this - yet. But the quality of the swap matters. Betterment and Wealthfront use a wide range of ETFs from different providers. Schwab, however, favors its own funds. That’s a problem. If you’re selling a Schwab ETF because it dropped, and you can only buy another Schwab ETF, your options are limited. You might not find a good enough substitute. That’s why Yale researchers called Schwab’s approach "inferior" - not because it’s illegal, but because it reduces how often and how well harvesting works.

Direct Indexing: The Big Leap Forward

Wealthfront introduced something called Direct Indexing+ in 2022. Instead of holding just a few ETFs, it holds dozens or even hundreds of individual stocks - all in your portfolio. This changes everything. With ETFs, you can only harvest losses when the whole fund drops. With individual stocks, you can sell just the ones that dipped - even if the rest of the portfolio is up. That means more chances to harvest. Hive AI’s 2025 analysis found Direct Indexing+ creates 2 to 3 times more harvesting opportunities than traditional ETF-based systems. In a year like 2022, when markets fell hard, that meant Wealthfront saved clients an average of $1,240 on a $100,000 portfolio. Betterment saved $980. Schwab? Just $720. The difference wasn’t luck. It was structure.

Minimum Balances and Who Gets Access

Not everyone qualifies. Betterment lets you use tax-loss harvesting with as little as $10,000 in a taxable account. Wealthfront requires $500. Schwab wants $5,000. But Interactive Advisors? They only offer it if you have $100,000 - and even then, you have to turn it on yourself. That’s unusual. Most platforms do it automatically. Interactive Advisors puts the choice in your hands: "Is the expected tax savings worth the trading cost?" That’s smart for high-net-worth investors who understand the trade-offs. But for most people? Automation is better. You don’t want to remember to click a button every time the market dips. You want it to just happen.

Does Tax-Loss Harvesting Work in a Bull Market?

Here’s the hard truth: tax-loss harvesting thrives in down markets. In 2021, when the market was climbing, Wealthfront’s automated harvesting only added 0.15% to after-tax returns. In 2022, when stocks fell nearly 20%, it added 0.82%. That’s a fivefold difference. NerdWallet’s 2025 report confirmed this pattern across platforms. If you’re expecting tax-loss harvesting to make you money every year, you’re setting yourself up for disappointment. It’s a risk-management tool, not a return booster. The real value isn’t in the dollar amount you save - it’s in the peace of mind that you’re not paying more taxes than you have to when things go south.

What You’re Not Getting: The Hidden Costs

Some investors think tax-loss harvesting is free. It’s not. Every time a robo-advisor sells and rebuys, there’s a trading cost. Some platforms absorb it. Others pass it on indirectly through tracking error - when your new investment doesn’t perfectly match the old one. Hive AI found that in some cases, aggressive harvesting actually cost clients 0.2% to 0.4% in net returns because the trades were too frequent. That’s why Betterment introduced "Tax Impact Preview" in March 2025. Before it sells anything, it shows you: "This harvest will save you $420 in taxes, but may cost you $30 in tracking error." That transparency matters. You should know what you’re trading.

Who Should Use It - and Who Should Skip It

If you have less than $50,000 in taxable investments, the benefit is small. Commons LLC’s 2025 report found that below that threshold, tax savings often don’t outweigh the complexity. If you’re in the 10% or 12% tax bracket, you don’t pay capital gains tax anyway - so harvesting gives you nothing. If you’re in the 24% bracket or higher, and you have a taxable account with $50,000 or more, it’s worth it. The bigger your account and the more volatile your investments, the more value you get. And if you’re investing in a Roth IRA or traditional IRA? Forget it. Tax-loss harvesting doesn’t work in retirement accounts. The IRS doesn’t allow it. You can’t claim losses there. Only taxable accounts qualify.

What’s Changing in 2025

Schwab just announced it’s lowering its harvest threshold from 5% to 3% - responding to client feedback. Betterment’s Tax Impact Preview is now standard. Wealthfront added municipal bonds to its Direct Indexing+ lineup. These aren’t just tweaks. They’re signs the feature is maturing. The next wave? AI that doesn’t just react to drops but predicts them. Hive AI says "agentic AI in tax" will soon adjust portfolios in real time, not just after a loss hits. But Yale’s Jonathan Lam warns: "The marginal benefit of increasingly aggressive harvesting may not justify additional complexity." In other words, don’t expect 10% harvesting thresholds. The sweet spot - 2% to 5% - is probably staying.

What to Do Next

If you’re using a robo-advisor and have a taxable account, check your platform’s help section. Look for "tax-loss harvesting," "tax optimization," or "automatic tax savings." See what the minimum balance is. See if it’s automatic or manual. See if it’s ETF-based or direct indexing. Then look at your portfolio. If you’ve had more than $50,000 in it for over a year, and you’ve seen at least one market correction, you’re probably already benefiting - even if you didn’t notice. If you’re not seeing any harvesting activity, and you’re above the minimum, reach out to support. Ask: "Has my account triggered any harvests this year?" If the answer is no, and you’re in a higher tax bracket, it might be time to switch.