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by island » Mon Nov 25, 2013 9:32 pm
Can you please tell me, are these Admiral index funds equally
tax efficient for a taxable account?
VTSAX Total US stock index
VTIAX International index
VEXAX Extended Market US index
I know index funds are considered tax efficient, but what other parameters does one look at to compare tax efficiency?
Thank you.
VTSAX Total US stock index
VTIAX International index
VEXAX Extended Market US index
I know index funds are considered tax efficient, but what other parameters does one look at to compare tax efficiency?
Thank you.
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Joined: 23 Jul 2013
by livesoft » Mon Nov 25, 2013 11:14 pm
No they are not. But you used the word "equally" which
is not the same as "similarly".
What to consider:
1. Annual dividends per invested amount (i.e. yield)
2. Fraction of dividends which are qualified
3. Your tax rate on qualified dividends and non-qualified dividends
4. Whether fund distributes capital gains or not
5. Whether fund pays foreign taxes or not and if so, whether you take the foreign tax credit or not and if so, fraction of foreign sourced dividends.
If you are at all concerned about this, I recommend that you create a spreadsheet to show the amount of taxes you would've paid in 2012 on a $10,000 purchase of each of these on Dec 31, 2011.
What to consider:
1. Annual dividends per invested amount (i.e. yield)
2. Fraction of dividends which are qualified
3. Your tax rate on qualified dividends and non-qualified dividends
4. Whether fund distributes capital gains or not
5. Whether fund pays foreign taxes or not and if so, whether you take the foreign tax credit or not and if so, fraction of foreign sourced dividends.
If you are at all concerned about this, I recommend that you create a spreadsheet to show the amount of taxes you would've paid in 2012 on a $10,000 purchase of each of these on Dec 31, 2011.
It's all about market timing, uh, I mean rebalancing, uh, I mean
opportunistic rebalancing, uh, I mean short-term opportunistic rebalancing due
to a short-term change in one's asset allocation.
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Joined: 1 Mar 2007
by kevinpet » Mon Nov 25, 2013 11:31 pm
Everything Livesoft says is true, but I think it's useful to
point out that two of them are more similar than the third.
VEXAX holds a subset of VTSAX so the only meaningful tax difference will be yield and whether there are capital gains distributions. I'd expect VEXAX to need to sell off any holdings that get added to S&P 500, but it looks like both funds have realized losses this year.
VTIAX will be foreign dividends which gives you a foreign tax credit in some cases, which makes it more tax-efficient to hold foreign funds in taxable accounts.
VEXAX holds a subset of VTSAX so the only meaningful tax difference will be yield and whether there are capital gains distributions. I'd expect VEXAX to need to sell off any holdings that get added to S&P 500, but it looks like both funds have realized losses this year.
VTIAX will be foreign dividends which gives you a foreign tax credit in some cases, which makes it more tax-efficient to hold foreign funds in taxable accounts.
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Location: CA
by abuss368 » Mon Nov 25, 2013 11:43 pm
I would step back and look at the big picture. I would forget
Extended Market, which is comprised of Mid and Small Caps as these are included
in Total Stock Market. That fund combines with Total International is all you
need. Add Total Bond and you are set.
At the end of the day, you are considering low cost, diversified, tax efficient, passive index funds. You are probably splitting hairs.
At the end of the day, you are considering low cost, diversified, tax efficient, passive index funds. You are probably splitting hairs.
John C. Bogle: "You simply do not need to put your money
into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio +
REITs
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Joined: 3 Aug 2009
by livesoft » Mon Nov 25, 2013 11:48 pm
An anecdote: Many years ago I owned vanguard extended market
index fund shares in a taxable account and it paid out about a 10% cap gains
distribution. Ouch! That was before ETFs and the ETF share class of this fund,
so it may not happen again.
It's all about market timing, uh, I mean rebalancing, uh, I mean
opportunistic rebalancing, uh, I mean short-term opportunistic rebalancing due
to a short-term change in one's asset allocation.
Posts: 28578
Joined: 1 Mar 2007
by rkhusky » Tue Nov 26, 2013 9:19 am
Large
stocks are more apt to give a dividend than small stocks. Value stocks are more
apt to give a dividend than growth stocks. Total Stock has a yield of 1.7%,
Extended Market has a yield of 1%, Total Intn'l looks like it has a yield of
2%+. While one can get the foreign tax credit with the latter, only 68% of the
dividends are qualified, meaning it might be a wash depending on your tax
situation. So, just judging based solely on the merits of dividends paid out
over the year, I would go with Extended Market in taxable (but you should
account for the 18% of dividends that are not qualified).
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