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Taxes for taxable account

Posted: Tue Oct 03, 2017 4:03 pm
by carguy1993
I have the target retirement fund through Vanguard. Want to start preparing for taxes. Market appreciation, dividends, capital gains??? Are they all taxed as ordinary income for the 25% bracket for example? Or is the dividends and capital gains taxed at a reduced 15% bracket? Need help want to know so I can pay my taxes come early 2018. Thank you!!!

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:07 pm
by triceratop
It is not recommended to hold the Vanguard target retirement fund in a taxable account. The fund makes capital gains distributions and invests in taxable bond funds, which may be better suited for a retirement account where they will not be taxed. Both of these are inefficiencies which may cost you a substantial sum in after-tax returns over the long-haul.

There is no tax for market appreciation until you sell and realize your gains.

Qualified dividends are taxed at the long-term rate, if the shares are held for the appropriate period. The same goes for Long-Term capital gains distributions. That is the 15% rate. However the bond interest, nonqualified dividends, and short term capital gains are taxed at your marginal rate. (Don't forget about state taxes).

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:09 pm
by kaneohe

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:09 pm
by sport
Capital gains distributions are taxed at 15% (or zero) depending on your tax bracket. Qualified dividends are taxed the same as capital gains distributions. Non-qualified dividends are taxes as ordinary income. Capital gains are not taxed until you sell the holding.

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:13 pm
by carguy1993
Then how do I make my Vanguard Target retirement account into tax advantaged account so it is more tax efficiently?

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:14 pm
by triceratop
sport wrote:
Tue Oct 03, 2017 4:09 pm
Capital gains distributions are taxed at 15% (or zero) depending on your tax bracket. Qualified dividends are taxed the same as capital gains distributions. Non-qualified dividends are taxes as ordinary income. Capital gains are not taxed until you sell the holding.
Vanguard retirement funds regularly make short-term distributions too.

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 4:20 pm
by dbr
carguy1993 wrote:
Tue Oct 03, 2017 4:13 pm
Then how do I make my Vanguard Target retirement account into tax advantaged account so it is more tax efficiently?
You can't make a mutual fund into a tax advantaged account. You can open or participate in a tax advantaged account by opening an IRA or participating in a 401K, and so on. In such an account you can buy a mutual fund such as a target retirement fund.

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 8:20 pm
by grabiner
carguy1993 wrote:
Tue Oct 03, 2017 4:13 pm
Then how do I make my Vanguard Target retirement account into tax advantaged account so it is more tax efficiently?
You can't do this directly.

However, if you haven't contributed to an IRA yet for this year, you can sell some of your taxable account fund, and contribute to the IRA. You will owe taxes on any capital gains on your taxable account sale, but you will get tax-deferred growth for the future.

Similarly, if you have a 401(k) which you are not maxing out, you can contribute more to the 401(k), and sell your taxable account to make up for the reduced take-home pay.

Re: Taxes for taxable account

Posted: Tue Oct 03, 2017 8:53 pm
by delamer
The rule of thumb is that you hold bonds in tax-advantaged accounts and stocks in taxable accounts for tax efficiency.

But that obviously only works if you have both types of accounts with enough assets in both to do such as split.

If your only account is taxable or you don't have enough room in your tax-advantaged for all your bonds, there is nothing wrong with keeping bonds in taxable.

This all depends on your desired asset allocation. You wouldn't want to go 100% stocks in a taxable account just to minimize taxes.

Re: Taxes for taxable account

Posted: Wed Oct 04, 2017 12:25 pm
by carguy1993
Right now I am at 90% stocks 10% bonds.

Re: Taxes for taxable account

Posted: Wed Oct 04, 2017 9:05 pm
by abuss368
You should consider maximizing your tax advantaged space with employer plans, Traditional IRAs, and Roth IRAs, before opening a taxable account. This is valuable space that if not used each tax year is permanently lost.

Best.

Re: Taxes for taxable account

Posted: Sun Oct 08, 2017 2:33 pm
by carguy1993
I just started a 401k with 3% employer match. Only issue with not having a taxable account right now is where will I sit my cash. I have about 80k. Cant throw all of that into an IRA. And I wanted to invest and put my money to work and hopefully meet a benchmark 5% yearly return before inflation.

Re: Taxes for taxable account

Posted: Sun Oct 08, 2017 2:36 pm
by livesoft
I don't know your salary, but you could contribute 90% of your paychecks for the rest of the year in order to add money to your 401(k).

If you ask me, "How will I live if I get a paycheck for $0.00 each payday?", then my answer would be "You have $80K in cash, so use it."