Switch to Tax exempt

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mic575
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Switch to Tax exempt

Post by mic575 »

After reading a post here earlier and taking the past advice from Mr Bogle regarding tax efficient investing, I am wondering if I should switch my taxable account bond holding to a tax exempt bond fund.

I am in the 28% tax bracket with relatively few deductions (I am maxed out on tax defered), I may crack the 33% bracket in 2014. I have 20% of my taxable portfolio in Vanguard Short-Term Bond Index Fund Admiral Shares (VBIRX) with a 0.10% ER. But perhaps I would be better off moving that and future allocations into Vanguard Limited-Term Tax-Exempt Fund Investor Shares (VMLTX) with a 0.20% ER?

If so, should I just move it all at once?
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House Blend
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Re: Switch to Tax exempt

Post by House Blend »

Switching to Limited Term Tax exempt looks like a no-brainer to me.

Might as well do it all at once. Most likely, you'll be harvesting a small loss as well.
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BolderBoy
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Re: Switch to Tax exempt

Post by BolderBoy »

House Blend wrote:Switching to Limited Term Tax exempt looks like a no-brainer to me.
+1. That is what I'd do.
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abuss368
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Re: Switch to Tax exempt

Post by abuss368 »

I would agree. I do however prefer the Intermediate Term Tax Exempt fund from Vanguard.
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dratkinson
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Re: Switch to Tax exempt

Post by dratkinson »

abuss368 wrote:I would agree. I do however prefer the Intermediate Term Tax Exempt fund from Vanguard.
+1.

From the recommended books, IT (~5-years duration) is supposed to be the risk/reward sweet spot. But LT TE (~6-years duration) has higher yield for approximately the same duration. I own both and am buying more as LT's NAV dips.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.
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BigFoot48
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Re: Switch to Tax exempt

Post by BigFoot48 »

I've also been thinking about moving some of my mother-in-laws Total Bond funds into tax exempt, as she has a large holding in her taxable account. I posted a thread on this but haven't gotten any replies to the part of my thread that asks about this, so I'm glad to see this thread. She is just inside the 25% rate.

When I look at Morningstar's tax-adjusted returns for 15 years I see: Vanguard Total Bond Market Index Inv VBMFX: 3.23%; Vanguard Ltd-Term Tx-Ex VMLTX: 3.26%; and Vanguard Interm-Term Tx-Ex Inv VWITX: 4.30%

Is there any reason not to select the Interm-Term fund?
Last edited by BigFoot48 on Thu Jan 09, 2014 7:40 am, edited 1 time in total.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 15-time loser
Topic Author
mic575
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Re: Switch to Tax exempt

Post by mic575 »

Thanks for the opinions, very helpful. Its good to get some input from people who know what they are doing.
mall0c
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Re: Switch to Tax exempt

Post by mall0c »

CDs provide a mathematically superior choice to both the Short and Limited Term TE funds right now.
Laura
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Re: Switch to Tax exempt

Post by Laura »

At the bottom of this article you can find The Finance Buff Taxable-Equivalent Yield Calculator or you can use the Morningstar Taxable-Equivalent Yield Calculator to confirm if your after-tax yield would be higher.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
robertalpert
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Re: Switch to Tax exempt

Post by robertalpert »

BigFoot48 wrote:I've also been thinking about moving some of my mother-in-laws Total Bond funds into tax exempt, as she has a large holding in her taxable account. I posted a thread on this but haven't gotten any replies on this particular part of my thread so I'm glad to see this one. She is just inside the 25% rate.

When I look at Morningstar's tax-adjusted returns for 15 years I see: Vanguard Total Bond Market Index Inv VBMFX - 3.23%; Vanguard Ltd-Term Tx-Ex VMLTX - 3.26%; and Vanguard Interm-Term Tx-Ex Inv VWITX - 4.30%

Is there any reason not to select the Interm-Term fund?

Depends on your timeframe of how soon you need to use the funds. For Mic575, Limited term probably makes more sense because limited-term is more similar to his current fund (short-term-bond-index).
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BigFoot48
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Re: Switch to Tax exempt

Post by BigFoot48 »

robertalpert wrote:Depends on your timeframe of how soon you need to use the funds. For Mic575, Limited term probably makes more sense because limited-term is more similar to his current fund (short-term-bond-index).
In this case, it's likely the funds will never be used, neither by my MIL or her heir, my wife.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 15-time loser
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