dividend fund in a taxable account

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mesaverde
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Joined: Wed May 02, 2007 4:14 pm

dividend fund in a taxable account

Post by mesaverde »

I'm in the 15% federal tax bracket & should remain in it for the rest of my life.
I pay zero tax on qualified dividends & long term capital gains.

I have a substantial amount of $ in the Vanguard Total International fund in my taxable account... it is the only fund I hold in my taxable account (currently ~68% of its dividends are qualified). And I receive the foreign tax credit.

I'm thinking that it may be better to invest in a dividend fund such as the Vanguard High Dividend Yield Index Fund instead of Total International. The dividend fund has 100% qualified dividends and maybe it pays larger dividends as well.
I could really use higher (tax free) dividends as a source of income.

How can I accurately compare VG Total International to the VG High Dividend Yield Index Fund in this situation?
Does the dividend fund pay enough dividends to give it an advantage?
Last edited by mesaverde on Fri Oct 24, 2014 6:33 pm, edited 1 time in total.
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livesoft
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Re: dividend fund in a taxable account

Post by livesoft »

Very simply: Look up historical distributions for 2012 and 2013 for both funds, then create a spreadsheet.
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grabiner
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Re: dividend fund in a taxable account

Post by grabiner »

mesaverde wrote:I'm in the 15% federal tax bracket & should remain in it for the rest of my life.
I pay zero tax on qualified dividends & long term capital gains.

I have a substantial amount of $ in the Vanguard Total International fund in my taxable account... it is the only fund I hold in my taxable account (currently ~68% of its dividends are qualified). And I receive the foreign tax credit.
You actually make a net profit on this fund; the foreign tax credit exceeds the tax you pay on the non-qualified portion of the dividend yield. Typically, the foreign tax credit on a foreign fund is about 7% of the dividend yield, and in the 15% tax bracket, you would pay tax of only 5% of the dividend yield since 1/3 of the dividends are non-qualified. (If you have $20,000 of foreign income, you'll lose the foreign tax credit on the qualified dividends, but I don't think you are close to that point; this would require about $600K in the fund.)
I'm thinking that it may be better to invest in a dividend fund such as the Vanguard High Dividend Yield Index Fund instead of Total International. The dividend fund has 100% qualified dividends and maybe it pays larger dividends as well.
I could really use higher (tax free) dividends as a source of income.
If you need more income from your stock fund, you can sell the stock fund for a long-term capital gain. This is actually better than dividends, because you don't report the whole amount as income. (For example, if you sell stock for $20K which you bought for $10K, you have $20K to spend but only $10K of income; this leaves you more room in the 15% bracket and reduces other effects such as the phase-in of Social Security taxation.)
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