How to minimize tax when investing in a long term S&P 500 ETF?

Investments in a traditional 401(k) or IRA will defer taxes on capital gains and dividends until the money is pulled from the account, and then it is taxed as regular income.

Investments on Roth IRAs or 401(k)s are tax exempt if the funds are pulled out after retirement. That means you will never pay taxes on the dividends and capital gains.

Investments in non-retirement accounts generally will have to deal each year with capital gains and dividends. They could be taxed at different levels depending on the nature of the income and the total income for the taxpayer.

There are two ways to invest in non-retirement accounts and not have to deal with capital gains and dividends: 529 plans, and health savings accounts. As long as the money is spent according to the rules, the money will grow tax free.

So for $1M, it will be about $4,000, and we need to pay tax for this $4000, in addition to the dividend of 1.33%, which is about $13,300.

So if you need to invest a lump sum of $1M then the annual maximums of the IRA, 401(k), 529, and HSA will not allow you to put all of the money into these types of accounts.

So is there a way to minimize this $4,000 tax liability? Let's say if we invest in FXAIX, which is a mutual fund, will that help, and how do we find out what usually is this "0.4%" number for the case of FXAIX? What if we invest in VOO, SPY, SPLG, can those lower that "0.4%" number?

The annual reports and the prospectus for a fund will tell you the types and sizes of returns the fund has been generating in recent years. It will also specify the annual expenses you will be charged.

how do we find out what usually is this "0.4%" number for the case of FXAIX?

Most ETFs will publish their "distribution history" that will include both dividends and capital gains.

What if we invest in VOO, SPY, SPLG, can those lower that "0.4%" number?

Look at their performance sheets and see how their capital gains distributions compare. If they track the same index I suspect they'll be comparable if the capital gains are due to changes in the underlying index (cap-weighted indexes like the S&P 500 do not need to be "rebalanced" except when there is a change in the index). But some may be more efficient at it than others.

So is there a way to minimize this $4,000 tax liability?

Donate it to charity? It is earnings to you and subject to income tax. The flip side is that this is less tax that you'll pay later when you sell your investment since the value of the fund drops by the amount of capital gain distribution, and the cost basis is likely higher if you reinvested the dividends.

You can also look at other funds that have smaller dividend yields, although 1.33% is not terrible - many "dividend funds" pay 4 to 5% or more, but are meant for people that want an income stream without having to actively buy./sell shares.

You can think of it as paying tax now while you (presumably) have the money to do it and paying less tax at retirement when the taxes will have to come out of your retirement funds.

This does not answer your specific question, but are you paying this adviser? If so they should be fired immediately. They should know the answer to this. I feel like they do know the answer and are trying to use the fear of taxes to modify your decisions. Such cases are financial malpractice and frequently used by life insurance agents.

First, perspective, with at least 1 million in investable assets does about 13k of income dramatically change your tax picture? If it does, are their other changes you can make in your life that this becomes negligible?

If these monies are held in a brokerage account both long term capital gains and qualified dividends can be received tax free in the amounts you are talking about. So in my mind this is not really an issue. I prefer FXAIX which typically only spins off long term capital gains (in minimal amounts) and dividends (which become qualified after being held for a year).

One cannot really predict an amount, but it is minimal.