What to put in taxable/RothIRA accounts-am I doing it right?
Posted: Sat Feb 09, 2013 11:32 pm
When I am comparing ETFs like VXUS (Vanguard Total International Stock ETF), VBR (Vanguard Small-Cap Value ETF), and VWO (Vanguard MSCI Emerging Markets ETF), is the following method correct, in determining which one is best/worst to put in a taxable account or a Roth IRA account?
First, I calculate that my long-term capital gains tax rate and qualified dividend tax rate will be 15% and that my marginal tax rate will be 25%.
Second, I find out the 12-month yield of the ETF (available on the "Fees & Expenses" tab on the Morningstar quotes for the ETFs), and I find out an estimate of the percentage of the yield that is distributed as qualified dividends (available for Vanguard ETFs, here).
Once I know the yield and the percentage of qualified dividends that each ETF distributes, I can calculate how much of a tax liability each ETF generates. For instance, here is the yield and percentage of distributions that are qualified dividends for VXUS, VBR, and VWO:
Also...
First, I calculate that my long-term capital gains tax rate and qualified dividend tax rate will be 15% and that my marginal tax rate will be 25%.
Second, I find out the 12-month yield of the ETF (available on the "Fees & Expenses" tab on the Morningstar quotes for the ETFs), and I find out an estimate of the percentage of the yield that is distributed as qualified dividends (available for Vanguard ETFs, here).
Once I know the yield and the percentage of qualified dividends that each ETF distributes, I can calculate how much of a tax liability each ETF generates. For instance, here is the yield and percentage of distributions that are qualified dividends for VXUS, VBR, and VWO:
- VXUS: 2.89% yield; 68% qualified dividends
VBR: 2.46% yield; 78% qualified dividends
VWO: 2.19% yield; 57% qualified dividends
- VXUS will generate $289 in annual dividends, and 68% of that amount will be qualified and taxed at 15% (for me) and 32% of it will be ordinary and will be taxed at 25% (for me), resulting in $45 dollars of taxes each year.
VBR will generate $246 in annual dividends, and 78% of that amount will be qualified and taxed at 15% (for me) and 22% of it will be ordinary and will be taxed at 25% (for me), resulting in $42 dollars of taxes each year.
VWO will generate $219 in annual dividends, and 57% of that amount will be qualified and taxed at 15% (for me) and 43% of it will be ordinary and will be taxed at 25% (for me), also resulting in $42 dollars of taxes each year.
Also...
BrandonBogle wrote:Don't forget that VXUS will give you dividends AFTER foreign taxes paid, which can be tax-deductible, giving a preference for VXUS to be in a taxable account.
grabiner wrote:I usually estimate the foreign tax credit at 7% of the dividend yield.