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by grabiner
Mon Mar 18, 2024 7:39 pm
Forum: Personal Investments
Topic: DCA with sell to open puts
Replies: 6
Views: 941

Re: DCA with sell to open puts

Resurrecting this thread since I'm considering this as well. https://www.bogleheads.org/forum/viewtopic.php?t=97682 ^ This thread posits that options sellers have a slight premium as the "insurance" company, taking on the risk. https://www.cboe.com/us/indices/dashboard/put/ ^ The performance of the put/write index from CBOE would seem to support this (~6.5% CAGR). (Note, this must be reduced by the 1-3 month t-bill index; however, over the above period of time, that index returned only ~1.08% https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-bloomberg-1-3-month-t-bill-etf-bil This makes sense, but it is not a benefit because you are taking a non-diversifiable risk. If you write a put on a stock, you take all of the downside...
by grabiner
Mon Mar 18, 2024 7:23 pm
Forum: Personal Finance (Not Investing)
Topic: Reevaluating social security
Replies: 49
Views: 4158

Re: Reevaluating social security

I just used the opensecurity.com site and I'm confused about the advice that it is given. It states it would be best for me to take my social security at age 64 5 months which is next month and for my husband to wait until age 70. I understand the waiting until age 70 which is what we planned but trying to understand why they are recommending that I take my social security at age 64 5 months instead of waiting until FRA. If I took it at 64 5 months, I would get approx. $1743 vs. $2077 at FRA. I'm thinking it has to do with the investing a dollar received now is worth more than one received in the future as mentioned on the website. Claiming SS is a trade-off between the amount earned and the number of years you get that amount. The optimal...
by grabiner
Sun Mar 17, 2024 8:01 pm
Forum: Personal Finance (Not Investing)
Topic: Reevaluating social security
Replies: 49
Views: 4158

Re: Reevaluating social security

I just used the opensecurity.com site and I'm confused about the advice that it is given. It states it would be best for me to take my social security at age 64 5 months which is next month and for my husband to wait until age 70. I understand the waiting until age 70 which is what we planned but trying to understand why they are recommending that I take my social security at age 64 5 months instead of waiting until FRA. If I took it at 64 5 months, I would get approx. $1743 vs. $2077 at FRA. I'm thinking it has to do with the investing a dollar received now is worth more than one received in the future as mentioned on the website. Claiming SS is a trade-off between the amount earned and the number of years you get that amount. The optimal...
by grabiner
Sun Mar 17, 2024 7:54 pm
Forum: Investing - Theory, News & General
Topic: VTIAX and VFWAX are only 90% international, VSS only 85%
Replies: 4
Views: 803

Re: VTIAX and VTWAX are only 90% international, VSS only 85%

The funds may hold futures or options for liquidity, or they may lend out stocks to short-sellers and receive US-source income.

In either case, the loss of foreign income is not reducing the foreign tax credit, since the US-source income is not taxed by the foreign countries.
by grabiner
Sun Mar 17, 2024 7:48 pm
Forum: Personal Investments
Topic: HSA Fund selection
Replies: 5
Views: 671

Re: HSA Fund selection

Since your HSA and Roth IRA are both growing tax-free for expenses in retirement, they can be invested as if they were a single account. Thus, for simplicity, you might invest in just one fund in the HSA. Total International Institutional Plus might be a good choice for simplicity, as you can then balance it out with Total Stock Market in another account to get your desired international allocation.

(I do this with my own HSA. I hold a single ETF in the HSA, and since this doesn't cover my desired allocation to that ETF, I also hold the ETF in another account.)
by grabiner
Sun Mar 17, 2024 7:39 pm
Forum: Personal Investments
Topic: TSP F fund question
Replies: 16
Views: 1998

Re: TSP F fund question

It is also important to understand that there is more than one interest rate. If the bonds in a fund have their yields decrease by 1%, the fund value will increase by a percentage equal to its duration, which would be 6% for the F fund since it has a 6-year duration. But If the Fed cuts rates, that will not directly affect the F fund, because the Fed targets very-short-term rates, not the rates on the longer-term bonds in the F fund.

If the 10-year Treasury rate (a rate often discussed in the financial news) falls, then the F fund should gain value, as it holds a lot of intermediate-term and long-term Treasury bonds, and also corporate bonds whose rates usually track the Treasury rates.
by grabiner
Sun Mar 17, 2024 7:34 pm
Forum: Personal Investments
Topic: Thoughts on GQRPX? [GQG Partners Global Quality Equity Fund]
Replies: 4
Views: 273

Re: Thoughts on GQRPX? [GQG Partners Global Quality Equity Fund]

Welcome to the forum! It may be a good idea to diversify globally, but you give up a lot of the potential benefit if your fund charges high management fees. You may be looking at funds which performed well in the past, but funds are required to tell you that past performance is not a good indication of future peformance. However, high investment fees are a good indication of inferior future performance, because they are a guaranteed cost. If you use VOO (most on this forum would prefer the broader-market VTI), you can pair that with Vanguard Total International ETF (VXUS) to cover the world. With both funds, you don't care whether US or foreign stocks do better, only how well the stock market does as a whole. And there is no way to avoid st...
by grabiner
Sun Mar 17, 2024 7:28 pm
Forum: Personal Investments
Topic: Newbie - Municipal Bonds vs MF / ETF Muni Tax Free
Replies: 7
Views: 642

Re: Newbie - Municipal Bonds vs MF / ETF Muni Tax Free

You will have the same gains or losses on a managed account or a mutual fund. If bond yields rise, bonds lose value. Your total investment may still gain value, because bonds make coupon payments. If you hold a bond to maturity (or until it is called), gains and losses along the way will cancel out; the bond must pay its par value at maturity, or its call price if it is called. In either a managed account or a mutual fund, you also have the extra loss to the management fees and trading costs. For a mutual fund or ETF, the trading costs tend to be very low; individual investors pay a large spread on munis unless they buy at initial offering and hold to maturity. If you buy something like VTEB (Vanguard Tax-Exempt Bond ETF), the fee is very l...
by grabiner
Sat Mar 16, 2024 7:33 am
Forum: Personal Investments
Topic: Bonds in taxable versus tax deferred - revisiting the topic
Replies: 9
Views: 1405

Re: Bonds in taxable versus tax deferred - revisiting the topic

Thanks very much for the reply. I am curious to know how you arrived at the below? This seems like an important point and the conclusion isn't so obvious to me. And you can adjust similarly for stocks in taxable versus tax-deferred, although the tax cost isn't usually that different. All of the tax-deferred account will get taxed at your full rate eventually (or at your heirs' rate), while stocks in a taxable account will be taxed at a lower nominal rate, but the taxation of dividends every year compounds to produce a similar tax cost. It seems to me that to fully explore this, one would have to model the two possibilities for stock placement: 1. Put stocks in taxable -- in this case, they compound subject to a tax drag (say 45 bps) and ar...
by grabiner
Fri Mar 15, 2024 10:23 pm
Forum: Investing - Theory, News & General
Topic: Model and spreadsheet for asset location
Replies: 24
Views: 2979

Re: Model and spreadsheet for asset location

I'm still working through this spreadsheet and trying to remain more objective than I was last night; I'm amazed at @grabiner's silent patience with me. I'm starting to understand better having read this thread backwards from the bottom. Regarding your modification, is it not true that E2 should only be 0%, 15%, or 20% which are the fixed LTC and QD tax rates? Plus state tax and NIIT. If you don't pay state tax, E2 could be 0%, 15%, 18.8% (adding NIIT), and 23.8% (top rate plus NIIT), with a few other values possible if you are in some phase-out in the tax code. Values to use If you are in a high tax bracket and there is no low-cost muni fund for your state, D2 should be 25% plus your state tax, based on the assumption that munis have 75% ...
by grabiner
Fri Mar 15, 2024 8:12 am
Forum: Investing - Theory, News & General
Topic: Model and spreadsheet for asset location
Replies: 24
Views: 2979

Re: Model and spreadsheet for asset location

I don't doubt that if you have an asset with >50% annual return then the math shows that Roth is the right location for that asset in all circumstances. Very few people on this board have such assets. If you are one of them, then good for you. but you never know in advance. It could be 0% return. Therefore, fill the Roth with the highest volatility assets you have. Maybe you will be as lucky as PT. And that is the reason to adjust for risk. If you have a stock worth $10,000 which pays no dividends which will be worth either $40,000 or $0 when you sell it, and you hold it in a taxable account, you will have $35,500 or $1,500 when you sell, assuming a 15% tax on capital gains. If you hold $8500 in the same stock in your Roth, you will have $...
by grabiner
Fri Mar 15, 2024 7:49 am
Forum: Personal Finance (Not Investing)
Topic: Part-Year Resident in KS & NYC - State Tax Credits?
Replies: 6
Views: 721

Re: Part-Year Resident in KS & NYC - State Tax Credits?

But the pro-rating does mean that there is normally no double taxation. If she earned $40K while a KS resident, and $60K while a NY resident, then her KS tax is 40% of the KS tax on $100K, and her NY tax is 60% of the NY tax on $100K, which is a fair allocation of the tax. (Some states don't prorate for part-year residents, which makes the total tax lower. When I moved to NJ in late 2010, I paid NJ tax only on about 1/3 of my 2010 income, which led me to pay tax at a much lower rate than was appropriate for my total income in 2010.) I took your example and ran the numbers assuming KS Full-Year Resident ($40K), NY Full-Year Resident ($60K) and then Part-Year Resident in each state (total income $100K with $40K in KS and $60K in NY). I looke...
by grabiner
Wed Mar 13, 2024 9:01 pm
Forum: Investing - Theory, News & General
Topic: DFUV tax efficiency?
Replies: 7
Views: 923

Re: DFUV tax efficiency?

You missed the 3.8% Net Investment Income Tax, which is another 0.06 for DFUV and 0.05 for VTI. I did, and purposely left it out since I have not seen you include it in your calculations of tax costs such as in this thread: https://www.bogleheads.org/forum/viewtopic.php?t=426104 I am not positive, but I don't believe Morningstar includes it in their tax cost ratio metrics either. I left it out in that post because it didn't apply in the example I used there; I used 24% and 15% tax rates, which are common for many investors with taxable accounts who do not owe NIIT. I do include NIIT in other discussions, particularly in the discussion of whether to hold stocks or municipal bonds in a taxable account, since taxpayers considering municipal b...
by grabiner
Wed Mar 13, 2024 7:52 pm
Forum: Investing - Theory, News & General
Topic: DFUV tax efficiency?
Replies: 7
Views: 923

Re: DFUV tax efficiency?

DFUV has 100% qualified dividends, a TTM Div Yield of 1.65%, and expense ratio of 0.21%. Therefore the calculation for total cost to hold it last year in a taxable account at the 37% rate and 12.3% state tax would be: ((Dividend yield * [(Qualified percentage*QDI tax rate)+((1-Qualified percentage)*normal tax rate)-Foreign tax credit]) + (Dividend yield * state income tax rate)) + expense ratio [1.65*((1*0.2)+((1-1)*0.37))]+(1.65*0.123)+0.21 = 0.74 Because there are no non-qualified dividends, the high bracket 37% rate does not come in to play. All income received from the fund would be taxed at the federal level at 15% [corrected to 20% in the calculations] and at the state level at 12.3%. For VTI which last year had 95% QDI, the total wo...
by grabiner
Wed Mar 13, 2024 7:44 pm
Forum: Investing - Theory, News & General
Topic: Reducing the impact of non-qualified (ordinary) dividends
Replies: 17
Views: 2322

Re: Reducing the impact of non-qualified (ordinary) dividends

1. Do you all buy these ETFs keeping an eye on the dividend date to avoid this tax bite? The cost of staying out of the market for more than a week while waiting for a dividend is usually more than the tax cost of the dividend. Therefore, it only makes sense to wait to buy a fund if it is about to make a large distribution. I did this once, in 2010, when I knew that Vanguard FTSE All-World Ex-US Small-Cap (VSS) was about to distribute a capital gain in December. (Normally, you don't want to buy funds that distribute capital gains in a taxable account, but I expected that this was a temporary issue, as this was a new fund that had started near the 2009 market bottom and thus had large gains on all of its stock. It hasn't distributed a gain ...
by grabiner
Wed Mar 13, 2024 7:41 pm
Forum: Investing - Theory, News & General
Topic: Inherited IRA optimal investment
Replies: 12
Views: 1176

Re: Inherited IRA optimal investment

The money has to be taken out of the account under RMD rules, but it doesn't have to be spent then, so it should be invested according to your time horizon. If you aren't maxing out your 401(k), you can take money out of the inherited IRA and invest it in the 401(k), which is tax-neutral. If you are maxing out, you will have to take money out of the inherited IRA and invest it in a taxable account. Therefore, the inherited IRA should be invested in bonds, to minimize the likely tax cost of moving the money; if you invest it in stocks and the stock market booms, you may lose a larger fraction of the inherited IRA to taxes because you get pushed into a higher bracket. If your taxable account is invested in stock, you can take money from the i...
by grabiner
Wed Mar 13, 2024 7:32 pm
Forum: Personal Investments
Topic: APY vs YTM
Replies: 10
Views: 1195

Re: APY vs YTM

There is one minor technical difference. Bond yields are computed as twice the six-month yield, because bonds traditionally pay coupons every six months. APY is the one-year yield. Thus, if you buy a bond at par for $1000 and it pays a $20 coupon every six months, the bond yield is 4%. If you buy a CD for $1000 and it is worth $1020 after six months, it will be worth $1040.40 after one year, so it will report a 4.04% APY. The other factor is that CDs can reinvest interest automatically; unless you buy a zero-coupon bond, you have to reinvest coupons at an unknown future rate. In the example above, if you can reinvest the first $20 coupon at 4%, you will have the same $1040.40 in one year as with the CD, but if rates rise or fall, you will h...
by grabiner
Wed Mar 13, 2024 7:20 pm
Forum: Personal Investments
Topic: Anyone buying a portfolio of corporate bonds instead of Treasuries?
Replies: 10
Views: 1046

Re: Anyone buying a portfolio of corporate bonds instead of Treasuries?

The other problem with corporate bonds is that it is difficult to get a diversified portfolio. This is the advantage of a bond fund for corporate bonds; you reduce the risk in the bond portfolio because so little of the fund will be invested in any one issuer which might default.

With Treasury bonds, you don't need the diversification, so you can build a ladder by buying just a few bonds maturing each year.
by grabiner
Wed Mar 13, 2024 7:15 pm
Forum: Personal Finance (Not Investing)
Topic: NJ: Is TLH still worth it?
Replies: 10
Views: 1163

Re: NJ: Is TLH still worth it?

One way to use the TLH on state taxes: if you hold stocks in your HSA, you can sell enough stock for a gain equal to your harvested loss in the same year. There is no NJ tax because the gain and loss offset, and no federal tax because the gain in the HSA is taxed only by NJ. (I usually recommend not making this possible and holding Treasury bonds in your HSA as a NJ resident.) this HSA point is a genius idea. i don't do stocks in the HSA but presumably i can TGH the index funds i own there right? i've never sold anything in HSA so have never seen first-hand how NJ taxes it, but i indeed had heard that the gains are not exempt. it's taxes at realizing the gain, not when withdraw funds from HSA for example? NJ doesn't recognize HSAs, so you ...
by grabiner
Wed Mar 13, 2024 7:48 am
Forum: Personal Investments
Topic: Bonds in taxable versus tax deferred - revisiting the topic
Replies: 9
Views: 1405

Re: Bonds in taxable versus tax deferred - revisiting the topic

The 25% rule of thumb is not particularly relevant for asset location; it is a guide for which type of bonds to hold in taxable if you hold bonds. The relevance to asset location is that it provides a cap on the effective federal tax rate on bonds. If you are in the 22% tax bracket with no state tax, the tax cost of bonds is 22% of the yield, which would be 0.88% if taxable bonds yield 4%. If you are in a very high tax bracket in CA, the tax cost of bonds for you is only 25% of the taxable bond yield. CA munis with a 3% yield should have about the same risk as taxable bonds with a 4% yield, and thus you lose 1% of returns if you hold bonds in a taxable account, In either case, you can compare these tax costs to the tax cost of stocks in a t...
by grabiner
Tue Mar 12, 2024 9:05 pm
Forum: Personal Finance (Not Investing)
Topic: NJ: Is TLH still worth it?
Replies: 10
Views: 1163

Re: NJ: Is TLH still worth it?

One way to use the TLH on state taxes: if you hold stocks in your HSA, you can sell enough stock for a gain equal to your harvested loss in the same year. There is no NJ tax because the gain and loss offset, and no federal tax because the gain in the HSA is taxed only by NJ. (I usually recommend not making this possible and holding Treasury bonds in your HSA as a NJ resident.) You can also sometimes plan to take a gain a bit early. I missed such an opportunity in 2012. I harvested losses that year while a NJ resident, and decided in 2013 that I wanted to buy a home. If I had decided in 2012 to buy the home (even though I wasn't going to buy for another year), I could have sold stock for a capital gain to use up the 2012 losses; instead, I s...
by grabiner
Tue Mar 12, 2024 8:53 pm
Forum: Investing - Theory, News & General
Topic: Taxable accounts: VTI vs AVUS (VT vs AVGV etc)
Replies: 26
Views: 5867

Re: Taxable accounts: VTI vs AVUS (VT vs AVGV etc)

hiddenpower wrote: Sat Dec 16, 2023 7:20 am
livesoft wrote: Sat Dec 16, 2023 7:03 am you can tax-loss harvest AXUS as well, so I am not sure what you mean by "the ability to TLH VTI ...."
Not sure what I would TLH AVUS into. I know AVUV has DFSV, but event they aren't completely 1:1.
The way I usually handle tax loss harvesting is to sell the stock fund and buy another stock fund that I already hold. If the replacement fund is down in 31 days, I can go back. If it is up in 31 days, I stay invested in that fund, and fix the imbalance with dividends and new money; I never have to sell the replacement fund. So I can sell AVDV and buy AVIV (small-cap versus large-cap developed markets value).
by grabiner
Mon Mar 11, 2024 10:03 pm
Forum: Personal Finance (Not Investing)
Topic: Part-Year Resident in KS & NYC - State Tax Credits?
Replies: 6
Views: 721

Re: Part-Year Resident in KS & NYC - State Tax Credits?

Generally states allow a credit on mutually taxed income. But if you're a part-year resident of both (rather than a non-resident of one) I'm not sure that you would have any income that was taxed by both states. One possible exception: if you earned income with a source in one state while a resident of the other state. For example, if her employer relocated her from KS to NY, but she also worked some in NY before the relocation, the NY income earned while a KS resident would be taxed by both states. Similarly, if she sold a house in KS for a taxable gain, but she had already moved to NY, she would owe both KS and NY tax on the capital gain, and could take a credit for the double-taxed income. But the pro-rating does mean that there is norm...
by grabiner
Mon Mar 11, 2024 9:42 pm
Forum: Investing - Theory, News & General
Topic: How Can I Measure - Find the Tax Efficiency of an ETF?
Replies: 9
Views: 1005

Re: How Can I Measure - Find the Tax Efficiency of an ETF?

This is what I learned here many years ago. It seems to be right, but I can't verify that myself. Bring up the Vanguard webpage for the ETF in question. Click on "Performance and Fees", scroll down and click on "Quarterly after-tax returns" . It is grey and easy to overlook. You will see a chart. Subtract line 2 (returns after taxes on distributions) from line 1 (returns before taxes). The smaller the number the better the tax-efficiency. Note that these assume the highest federal tax rate, no state tax, and ignore NIIT. That is, the assumed tax rate is 37% on non-qualified dividends and short-term gains, 20% on qualified dividends and long-term gains. Your own rate may be different. In particular, if you are in a moder...
by grabiner
Mon Mar 11, 2024 8:29 pm
Forum: Personal Investments
Topic: HSA taxes in New Jersey
Replies: 23
Views: 2188

Re: HSA taxes in New Jersey

Sorry per = over, sigh. I am on the end of a terrible network. Follow the rules in worksheet c but treating treasury income as after tax basis. As mentioned, no does not give explicit guidance on how to fill out your return. For simplicity, say the whole IRA was treasuries. I contributed 100k and the value of the account is now 120k. Does that mean I can take out up to 20k and not pay NJ tax? I can't see from GIT-1&2, Retirement Income how the Treasury interest and proration rules interact; there is no case for this on the worksheet. Normally, withdrawals are prorated; if you withdraw $12K from an IRA with $20K of basis and $100K of gains or previously taxed money, you pay tax on $10K. Logically, if you have $20K of non-taxable gains a...
by grabiner
Sun Mar 10, 2024 9:18 pm
Forum: US Chapters
Topic: Suggestions for the Wiki
Replies: 694
Views: 535321

Re: Suggestions for the Wiki

retired@50 wrote: Sun Mar 10, 2024 10:47 am The Kiddie Tax wiki page appears to have an extra digit in a number related to the child's income...
The following characterizes the kiddie tax:

Applies if the child is < 24 and a full time student (lower ages if not), and has more than $2,5300 in unearned income for 2023, $2,600 for 2024
I suspect that should just read 2,500...???

Regards,
Typo fixed.
by grabiner
Sun Mar 10, 2024 9:11 pm
Forum: Investing - Theory, News & General
Topic: 2023 tax costs for value ETFs
Replies: 19
Views: 2450

Re: 2023 tax costs for value ETFs

Yes, this is correct with 2023 numbers.. When international yields are twice US yields, it is more tax-efficient for most investors to hold US stock in taxable. In many tax brackets, this works even though VFVA has a higher dividend yield. In 2020, VEA was more tax efficient, but that was a one-time anomaly because many foreign stocks cut their dividends in 2020. Thanks for the confirmation, grabiner. I've seen a number of posts of yours throughout the forums and it seems like a lot has changed since I first started here 15 years ago. We used to be worried about factor and active funds having turnover and leading to capital gains distributions. Now, it seems that (outside of some rare historical exceptions) we've nearly abandoned that fear...
by grabiner
Sun Mar 10, 2024 8:57 pm
Forum: Personal Finance (Not Investing)
Topic: Lump Sum Mortgage Payment: Recast?
Replies: 8
Views: 1045

Re: Lump Sum Mortgage Payment: Recast?

A $304K loan with 28 years left has a monthly payment of $1379; if you recast, you reduce the monthly payment to $1323 This is the effect of the paydown, not the recast. You lost me here. I was under the impression that the paydown will not change my monthly payment unless I recast. It will only knock time off the end of the loan and pay the mortgage off sooner. I was expecting the numbers that lakpr posted, and I'm not sure how you got to $1323. You are correct here. The paydown does not change your monthly payment, so you get both payment reductions from the recast. I was incorrectly computing the recast as if it were from 28 years to 30, rather than from the reduced term after the paydown to 30. So lapkr and I were each only half right....
by grabiner
Sun Mar 10, 2024 8:55 am
Forum: Personal Finance (Not Investing)
Topic: Lump Sum Mortgage Payment: Recast?
Replies: 8
Views: 1045

Re: Lump Sum Mortgage Payment: Recast?

The value of the recast is that you get to make lower payments at below the market rate; effectively, you borrow more money at 3.25% which you can use for other purposes, and this loan comes due upon sale. However, the benefit is so low that is isn't worthwhile. You should certainly pay down the loan to $304K to eliminate PMI. A $304K loan with 28 years left has a monthly payment of $1379; if you recast, you reduce the monthly payment to $1323 To estimate the benefit for each dollar, compare the low-risk return on that dollar to the mortgage rate. For example, since the recast reduces the payment by $674 this year, if you can invest in a three-year CD which yields 1% more than the mortgage rate after tax, this $674 gains you $20 over three ...
by grabiner
Sat Mar 09, 2024 9:16 pm
Forum: Investing - Theory, News & General
Topic: 2023 tax costs for value ETFs
Replies: 19
Views: 2450

Re: 2023 tax costs for value ETFs

grabiner, thanks so much for this post (and for the similar posts from prior years). It's got me thinking a lot harder about my tax costs now that I'm in the 32% marginal bracket. In particular, the thought that funds like VEA might almost be as tax-inefficient for me than something like VFVA is not something that I was remotely thinking about until now. As I understand, VEA has 73% qualified dividends with a 6% FTC. So, if I understand the math, then 0.73 * 0.188 + (0.27 * 0.358 - 0.06) = 0.1739 where I used a 15% QDI bracket with a 32% marginal with a 3.8% NIIT tax. The math is right but you put the parentheses in the wrong place: (0.73 * 0.188 + 0.27 * 0.358) - 0.06 = 0.1739 That's a 17.39% of its dividend yield tax cost. Whereas, with ...
by grabiner
Sat Mar 09, 2024 9:07 pm
Forum: Personal Investments
Topic: HSA taxes in New Jersey
Replies: 23
Views: 2188

Re: HSA taxes in New Jersey

BogleAlltheWay wrote: Sat Mar 09, 2024 9:05 pm Got it. I am planning to hold my nj mini fund in taxable and the bond fund in my hsa and ira.
grabiner wrote: Sat Mar 09, 2024 4:17 pm NJ doesn't tax interest from Treasury bonds even in an IRA, which makes Treasuries particularly attractive there. It isn't clear from the NJ tax instructions whether this exemption also applies to a 401(k).
Do other states tax Treasuries in an IRA?
I am trying to understand if that is a benefit of NJ or just on par with most other states.
NJ is the only state I know that doesn't tax Treasuries in an IRA.. NJ is also the only state that doesn't tax capital gains from Treasury or in-state muni funds; several other states do not tax capital gains from the bonds themselves, but do tax capital gains from mutual funds that hold them.
by grabiner
Sat Mar 09, 2024 9:06 pm
Forum: Personal Finance (Not Investing)
Topic: Income Taxes: Living in Missouri But Will Work On-Site One Week Per Month in North Carolina
Replies: 15
Views: 1814

Re: Income Taxes: Living in Missouri But Will Work On-Site One Week Per Month in North Carolina

3/9/24 Update: My NC-based employer ended up setting me up as a remote employee and set up my withholdings for MO state income taxes, where I work from. I am still 100% remote in MO as I write this. I am in discussions with my employer if I can remain 100% remote, as that has been working well so far, and would be a much better fit for my wife and our kids over the longer term. Getting ready to start our income taxes for 2023 with Turbo Tax. I am wondering if I had any 2023 income for NC to report since my employer did not withhold on that basis, and for payroll purposes treated me as a 100% remote employee working from the state of MO? If you didn't do any work in NC, you don't owe any NC tax. And if your employer reported all the wages a...
by grabiner
Sat Mar 09, 2024 6:47 pm
Forum: Personal Finance (Not Investing)
Topic: TurboTax handles HSAs in CA very well
Replies: 4
Views: 891

Re: TurboTax handles HSAs in CA very well

The error that I reported is still there, and it is more serious for me this year because I worked in CA for part of the year. TurboTax asked, "How much of your salary of $X was earned in CA?" where $X was my W-2 reported salary. If I multiplied X by (days worked in CA/total days worked), I would underpay my CA tax, since my salary under CA law should also include the employer HSA contributions. Also, I sold an ETF in my HSA, and I don't know whether TurboTax reported this the way it should; the total is right but the records may be wrong. It just asked for the total amount of capital gains in the HSA, and in Forms mode, it made an entry "HSA Gain or Loss" on CA Schedule D, reporting the total. I would expect that it sho...
by grabiner
Sat Mar 09, 2024 4:17 pm
Forum: Personal Investments
Topic: HSA taxes in New Jersey
Replies: 23
Views: 2188

Re: HSA taxes in New Jersey

Since NJ does not tax capital gains on the sale of bonds, should I move all of my bonds into a taxable account? You may not want to hold all your bonds in NJ munis, and in your high tax bracket, you probably don't want to hold Treasury bonds in your taxable account. Rather than non-NJ munis, you might choose to hold part of your bonds in a 401(k). NJ doesn't tax interest from Treasury bonds even in an IRA, which makes Treasuries particularly attractive there. It isn't clear from the NJ tax instructions whether this exemption also applies to a 401(k). Is a fund with multi-state munis such as (Vanguard Tax-Exempt Bond Index Fund) exempt from NJ taxes? In attempting to understand the NJ tax law, I think the answer is no because only NJ and fe...
by grabiner
Sat Mar 09, 2024 8:47 am
Forum: Personal Investments
Topic: HSA taxes in New Jersey
Replies: 23
Views: 2188

Re: HSA taxes in New Jersey

If you have not yet moved to NJ, you can sell the fund. NJ taxes part-year residents only on capital gains earned while they are residents.

If Treasury bonds or TIPS meet your investment needs, they are particularly good in an HSA in NJ, as NJ does not tax capital gains on "qualified investment funds" which hold NJ-tax-exempt bonds. You can compensate for having bonds in your HSA by moving an equal amount from bonds to stock in some other account such as your 401(k).
by grabiner
Sat Mar 09, 2024 8:43 am
Forum: Personal Investments
Topic: Life Cycle fund placeement
Replies: 5
Views: 615

Re: Life Cycle fund placeement

Lifecycle funds only make sense if they are almost the whole portfolio. The advantage of these funds is that they manage themselves, keeping an appropriate allocation over time. If you also have separate stock and bond funds, you lose the simplicity advantage.

Therefore, I recommend lifecycle funds only for investors with just a tax-sheltered portfolio. It's fine to hold one lifecycle fund in your 401(k) and a different one in your Roth IRA as long as both are low-cost.

If you value the simplicity, you can use lifecycle funds in your taxable account as well, but they tend to lead to higher tax costs.
by grabiner
Sat Mar 09, 2024 8:41 am
Forum: Personal Investments
Topic: Tax Managed accounts
Replies: 21
Views: 1520

Re: Tax Managed accounts

A 1% fee for tax management doesn't make sense, since the taxes you will owe are less than 1%. You can buy something like Vanguard Total Stock Market Index (VTI/VTSAX) and pay about 0.3% per year in taxes on the dividends.
by grabiner
Sat Mar 09, 2024 8:38 am
Forum: Personal Finance (Not Investing)
Topic: US Tax credit on Cap Gain paid on ag land sold in France
Replies: 2
Views: 507

Re: US Tax credit on Cap Gain paid on ag land sold in France

On Form 1116, you report how much of your US income was also taxed by France. You then do various adjustments to determine what fraction of your US taxable income was taxed by France. The tax credit is limited to that fraction of your US tax. That is, if 1% of your US taxable income was taxed by France, the credit is the lower of 1% of your US tax, or the tax actually paid to France. To make use of the rest of the credit, you will need to have future years in which you have more foreign tax withheld than the US-tax limit in the same category of income. Selling agricultural land may be passive category income; if so, you can create passive category income by holding international stock in your taxable account. If you hold an international st...
by grabiner
Sat Mar 09, 2024 8:27 am
Forum: Personal Investments
Topic: Moving Target funds out of Taxable
Replies: 13
Views: 1368

Re: Moving Target funds out of Taxable

I have ETFs in my taxable account that in retrospect were a bad decision because of higher than necessary ERs. However, one has appreciated a LOT so I don't want to sell it all. However, I have sold individual lots from it that either have losses or small gains. I would do the same with that target date fund if you can. However, if you have sold shares of that fund already, and did it using an average cost basis, then you won't be able to sell individual lots. If you are charitably inclined, another way to deal with these large capital gains is to donate the fund to charity. Don't do this just for the tax savings, but if you are going to make a large charitable donation anyway, you might as well use the appreciated shares to get a tax bene...
by grabiner
Sat Mar 09, 2024 8:25 am
Forum: Personal Investments
Topic: Time to convert mutual funds to ETF?
Replies: 28
Views: 2292

Re: Time to convert mutual funds to ETF?

Those Vanguard ETFs are just a different share class of those mutual funds, and have identical tax-efficiency. I think the ETF distributions end up being slightly different? The after-tax return for the ETF vs the Mutual Fund does seem very close, but I'd question if they're "identical," especially the 3-year return (Δ ≈12%) Returns are 1yr, 3y,r 5yr, and 10yr ETF: Returns after taxes on distributions and sale of fund shares 9.91% 1.41% 5.71% 3.05% Fund: Returns after taxes on distributions and sale of fund shares 9.67% 1.26% 5.66% 3.08% Relative Δ: +2.5% +11.9% +0.9% -1.0% (+ is in favor of ETF, - is in favor of Fund) You want to compare absolute change, not relative change; a difference of .1% has the same significance to an in...
by grabiner
Sat Mar 09, 2024 8:16 am
Forum: Personal Investments
Topic: 16 yr old - how can I best take on high risk?
Replies: 65
Views: 5234

Re: 16 yr old - how can I best take on high risk?

IF this money is truly not going to be touched for 50 years, then it probably doesn't make sense to buy any form of fixed income, and therefore can make sense to use a 100% equity allocation. Mathematically, this is correct. If you are going to put the money in a box, open the box in 50 years, and want the best returns, 100% stock will do this; there are arguments both for and against taking the extra risks in something like AVGE for extra returns. But practically, I don't recommend this for new investors, because you don't really know how you will react to losing a lot of money until it actually happens. If you search this forum for posts from 2008, or March 2020, you will find a lot of investors who pulled out of the stock market; they m...
by grabiner
Sat Mar 09, 2024 8:05 am
Forum: Personal Investments
Topic: Vanguard NJ LT Tax-exempt bond fund (VNJUX)
Replies: 7
Views: 705

Re: Vanguard NJ LT Tax-exempt bond fund (VNJUX)

Don't overlook the fact that tax-exempt income gets added back to compute MAGI. This affects my IRMAA a lot. However, in a high tax bracket in which you would use munis, this is still better than taxable income. If you are in the 32% tax bracket plus 3.8% NIIT, you can get the same $6420 after-tax income from $6420 of in-state muni income, or $10,000 of Treasury income. The fact that tax-exempt income is still counted for many uses of MAGI is more important as a reason not to use munis in the phase-in of Social Security taxation. If the 12% tax bracket reverts to 15%, then investors in the higher SS phase-in will have a marginal tax rate of 27.75%, which is high enough that munis might look attractive; however, they pay 12.75% marginal tax...
by grabiner
Fri Mar 08, 2024 9:19 pm
Forum: Personal Investments
Topic: VTIP ETF yield to maturity
Replies: 12
Views: 1963

Re: VTIP ETF yield to maturity

I'm trying to understand the relationship between the rate of return, yield, duration, maturity, and holding period. I know that if someone holds the ETF long enough the rate of return will approach the yield. How long is that holding period? Assuming a constant 2% annual inflation rate, an average duration of 2.5 years, and an average effective maturity of 2.6 years, can I expect the annual return to be 3.83% if held for 2.5 years, or 2.6 years? For an individual bond, you can guarantee a rate of return by holding to maturity. For a fund, you cannot guarantee this, because rates can change at any time. If yields rise by 1% just before you sell a bond fund with a 2.5-year duration, you will have 2.5% less than if rates had not changed. If ...
by grabiner
Fri Mar 08, 2024 9:11 pm
Forum: Personal Investments
Topic: VNYUX (NY long term tax-exempt bonds)
Replies: 20
Views: 2273

Re: VNYUX (NY long term tax-exempt bonds)

hcs77135 wrote: Fri Mar 08, 2024 8:57 am
grabiner wrote: Fri Jun 16, 2023 6:43 pm Another alternative is to hold Treasury bonds (such as TIPS). They are exempt from state tax, and while they are subject to federal tax, the low risk means that they tend to have lower yields than other taxable bonds and thus a lower tax cost.
In addition to Federal cap gains tax do you pay NYS/NYC income tax on the cap gains?
Yes, you pay NY tax, on both Treasury bonds and NY munis; however, capital gains on bonds tend to be relatively small. (There are a few other states that do not tax capital gains on state-tax-exempt bonds, and NJ doesn't even tax capital gains on funds which hold them.)
by grabiner
Fri Mar 08, 2024 7:49 am
Forum: Personal Investments
Topic: Vanguard NJ LT Tax-exempt bond fund (VNJUX)
Replies: 7
Views: 705

Re: Vanguard NJ LT Tax-exempt bond fund (VNJUX)

What is your marginal tax rate? In a 32% or higher bracket, I would recommend this fund, but for no more than half your total bond allocation to reduce the single-stock risk. In a lower bracket, a better way to avoid NJ state tax is to hold a Treasury fund (including TIPS if you are sensitive to inflation risk). Treasuries have an extra advantage in NJ because NJ does not tax capital gains on "qualified investment funds" which hold bonds exempt from NJ income tax. We should be in the 24% bracket. Should I just put the sales proceeds in Vanguard Federal Treasury Money Market? Or perhaps VGIT for a little more risk? Either one makes sense, depending on your intended use for the money. Money-market funds are best for short-term cash...
by grabiner
Thu Mar 07, 2024 8:55 pm
Forum: Personal Investments
Topic: VTIP ETF yield to maturity
Replies: 12
Views: 1963

Re: VTIP ETF yield to maturity

Thanks dcabler. Assuming 0% inflation and a real yield of 1.83% can I expect to earn 1.83% a year if I hold the ETF for 2.6 years (the average effective maturity)? Would it be better to invest in a short-term treasury bond ETF like VGSH because they are currently yielding over 5%? If inflation is 0%, nominal bonds will outperform TIPS. However, investors aren't expecting inflation to be that low. With a 5-year Treasury bond yielding 4.07% and a 5-year TIPS yielding 1.73%, the break-even inflation rate is 2.34%. Assuming an efficient market, nominal bonds versus TIPS is a fair trade for the average investor; the reason you should prefer one or the other is that you are more or less sensitive to inflation than the average investor. For examp...
by grabiner
Thu Mar 07, 2024 8:48 pm
Forum: Personal Investments
Topic: VTIP ETF yield to maturity
Replies: 12
Views: 1963

Re: VTIP ETF yield to maturity

Thanks dcabler. Assuming 0% inflation and a real yield of 1.83% can I expect to earn 1.83% a year if I hold the ETF for 2.6 years (the average effective maturity)? Would it be better to invest in a short-term treasury bond ETF like VGSH because they are currently yielding over 5%? If inflation is 0%, nominal bonds will outperform TIPS. However, investors aren't expecting inflation to be that low. With a 5-year Treasury bond yielding 4.07% and a 5-year TIPS yielding 1.73%, the break-even inflation rate is 2.34%. Assuming an efficient market, nominal bonds versus TIPS is a fair trade for the average investor; the reason you should prefer one or the other is that you are more or less sensitive to inflation than the average investor. For examp...
by grabiner
Thu Mar 07, 2024 8:44 pm
Forum: Personal Investments
Topic: Vanguard NJ LT Tax-exempt bond fund (VNJUX)
Replies: 7
Views: 705

Re: Vanguard NJ LT Tax-exempt bond fund (VNJUX)

What is your marginal tax rate?

In a 32% or higher bracket, I would recommend this fund, but for no more than half your total bond allocation to reduce the single-stock risk. In a lower bracket, a better way to avoid NJ state tax is to hold a Treasury fund (including TIPS if you are sensitive to inflation risk). Treasuries have an extra advantage in NJ because NJ does not tax capital gains on "qualified investment funds" which hold bonds exempt from NJ income tax.
by grabiner
Wed Mar 06, 2024 9:32 pm
Forum: Personal Finance (Not Investing)
Topic: Payoff mortgage or maintain liquidity?
Replies: 52
Views: 3604

Re: Payoff mortgage or maintain liquidity?

All things being equal, would you rather maintain liquidity or payoff a mortgage? Assumption: there is no advantage to either option, ie, you can't earn more after taxes maintaining the cash. The cash is in a taxable account. You can't right off the mortgage interest. The interest earned on the pile of taxable cash and the mortgage exactly offset each other. There is no other debt, just the mortgage. You do not need to tap an emergency fund to payoff the mortgage, you have adequate cash reservrs to payoff the mortgage and maintain your emergency fund. The choice is to be debt free or maintain liquidity Which would you prefer? Even if the liquidity isn't worth anything, the optionality is. If you keep the mortgage, hold bonds, and bond yiel...
by grabiner
Wed Mar 06, 2024 9:19 pm
Forum: Personal Finance (Not Investing)
Topic: Pay cash or take out a mortgage?
Replies: 12
Views: 1334

Re: Pay cash or take out a mortgage?

How much free cash flow do you have? If you use all your cash, and stock sales with a small capital gain, to put down as much as possible, then you are paying 6.5% (mostly non-deductible unless you contribute a lot to charity) when the low-risk return on investments is 3.61%. But if you lose 10% of your stock sales to capital gains, that isn't worth doing if you will pay off the mortgage anyway in three years: you can use salary, the dividends from your stocks, and stock sales if the market drops.

And since you intend to pay off the mortgage early, can you get a better rate on a shorter-term mortgage, or an ARM?