Place which fund into which account?

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Topic Author
Gaston
Posts: 198
Joined: Wed Aug 21, 2013 7:12 pm

Place which fund into which account?

Post by Gaston »

I plan to rebalance soon and would like some advice on a specific question. Here are two funds:

1. Vanguard VTMGX (Developed Markets Index Fund). Invests in developed markets outside the USA. Annual dividend yield over the last 10 years averaged 2-3%, but not sure how much of this resulted in realized gains.

2. Vanguard VFITX (Intermediate-Term Treasury Fund). Current 30-day SEC yield = 0.83%.

If you had the choice to put one of these funds into a taxable account, and the other into a traditional IRA account, which fund would you put where and why? Thanks in advance for your help on this.
Last edited by Gaston on Sat Jun 12, 2021 1:47 pm, edited 1 time in total.
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retired@50
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Location: Living in the U.S.A.

Re: Place which fund int which account?

Post by retired@50 »

This wiki page on tax efficient fund placement might help you decide.

Link: https://www.bogleheads.org/wiki/Tax-eff ... _placement

Regards,
This is one person's opinion. Nothing more.
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grabiner
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Re: Place which fund into which account?

Post by grabiner »

You need to consider your own tax situation. The Treasury fund is exempt from state tax, but the dividends are all non-qualified. The international stock index fund is subject to both federal and state tax, but the dividends are mostly qualified and are reduced by the foreign tax credit.

If you are in the 12% tax bracket, you pay no federal tax on qualified dividends, and the international stock fund may even have a negative tax cost. If you are in a higher tax bracket, particularly in a high-tax state, the Treasury fund is likely more tax-efficient because the yield is so low. (If Treasury yields eventually rise enough to make the stock fund more tax-efficient, you can switch, probably for no tax cost because rising rates will mean capital losses on the Treasury fund. You will have a tax cost for switching in the other direction.)
Wiki David Grabiner
Topic Author
Gaston
Posts: 198
Joined: Wed Aug 21, 2013 7:12 pm

Re: Place which fund into which account?

Post by Gaston »

Thank you both.
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