Optimized Storage Settings
To get to the settings, head to Apple Menu > About This Mac > Storage > Manage.
This will open up the System Information app, where you can configure iCloud Optimized Storage. The “Store in iCloud” setting is the one that should be turned on. “Optimize Storage” is different, and just optimizes your iTunes files. From here you can also empty the Trash automatically and review large files for deletion.
Optimized Storage is enabled by default on newer macOS versions, so you may not have to enable anything.
Disabling Optimized Storage
While optimized storage is great if you have a paid iCloud account, if you’re stuck on the 5GB free tier, you’ll quickly run out of space.
To disable it, uncheck the box next to iCloud Drive. However, make certain you select “Keep a Copy” on the confirmation screen, or else Apple will delete a lot of your documents that you think are stored on your drive, but are just in iCloud.
Annoyingly, when you turn it off, instead of just downloading the remaining files, it uploads your entire Desktop and Documents folders to iCloud and then moves them to a completely different folder. It can take forever, but you can get around it by clicking “Stop Updating and Turn Off.”
And then confirm that you want to turn off iCloud Drive immediately.
Even this will move all of your Desktop and Document items to an archived folder in your home folder. Your files won’t be deleted, just misplaced. Luckily, they’re organized by folder, so it’s easy to place them back where they were.
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