Tax implications of holding Wellesley Emergency in taxable

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corey407woc
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Tax implications of holding Wellesley Emergency in taxable

Post by corey407woc » Sun Jun 17, 2018 9:51 am

Hey guys I have currently have my Emergency fund in the Wellesley fund at 33k (30k + 3k if it drops 10 percent). What would be the tax complications if I don't add anymore more to it and let it sit for like 10 -20 years and don't sell it. I also currently contribute 30k a year (2500k a month) to vtsax in taxable as well. These are the only two funds I have. Thanks 28 m 140k income

livesoft
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by livesoft » Sun Jun 17, 2018 9:55 am

You can do the calculations yourself.

See the distributions page of Welleley and then multiply each 2017 number by your number of shares:
https://investor.vanguard.com/mutual-fu ... ions/vwinx

Then put that on your tax return (Form 1040 Schedule B) and see effect.

You can also see the "After-tax returns" at Vanguard.com. It looks like more than 25% of the returns are taxed away for some people. This will be a stealth tax to you because you won't pay the taxes out of Wellesley, but will pay with other money. Thus, you will be fooled into thinking your Wellesley is doing great when it is not.

There is a big difference between some random person on the internet telling you the tax implications and you actually figuring it out for yourself.
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grabiner
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by grabiner » Sun Jun 17, 2018 10:12 pm

livesoft wrote:
Sun Jun 17, 2018 9:55 am
You can do the calculations yourself.

See the distributions page of Welleley and then multiply each 2017 number by your number of shares:
https://investor.vanguard.com/mutual-fu ... ions/vwinx

Then put that on your tax return (Form 1040 Schedule B) and see effect.

You can also see the "After-tax returns" at Vanguard.com. It looks like more than 25% of the returns are taxed away for some people. This will be a stealth tax to you because you won't pay the taxes out of Wellesley, but will pay with other money. Thus, you will be fooled into thinking your Wellesley is doing great when it is not.
The after-tax returns published by Vanguard assume the highest federal tax bracket and no state tax, so your tax cost will be different. They are still useful in comparing different funds; if Fund A costs 1.40% per year and Fund B costs 0.40% per year, you can expect that Fund B has a lower tax cost to you, and then work out the actual cost yourself.
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venkman
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by venkman » Mon Jun 18, 2018 2:05 am

corey407woc wrote:
Sun Jun 17, 2018 9:51 am
Hey guys I have currently have my Emergency fund in the Wellesley fund at 33k (30k + 3k if it drops 10 percent). What would be the tax complications if I don't add anymore more to it and let it sit for like 10 -20 years and don't sell it. I also currently contribute 30k a year (2500k a month) to vtsax in taxable as well. These are the only two funds I have. Thanks 28 m 140k income
The only tax complications would be that you would owe taxes on the distributions each year. If you reinvested the dividends and wanted to use specific share ID, you'd add 4 annoyingly-small tax lots each year.

I would have no problem holding Wellesley as an emergency fund. It's not tax-efficient, but neither are the safe investments most people keep their EF in. You'll pay more in taxes with Wellesley than with, say, CD's or a savings account; but over the long-term, your after-tax return will almost certainly be higher.

Admiral
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by Admiral » Mon Jun 18, 2018 5:53 am

When you say "These are the only two funds I have" it appears that you do not have any tax advantaged accounts, since you note that both of these holdings are in a taxable account.

So you are saving $2,500 per month, but in a taxable account?

I suggest putting that monthly investment in a tax-sheltered account. I own lots of Wellesley but would not hold it in a taxable account due to the bond holdings creating unnecessary taxation. If nothing else, I would open an IRA and keep the Wellesley there.

UpperNwGuy
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by UpperNwGuy » Mon Jun 18, 2018 7:51 am

Admiral wrote:
Mon Jun 18, 2018 5:53 am
When you say "These are the only two funds I have" it appears that you do not have any tax advantaged accounts, since you note that both of these holdings are in a taxable account.

So you are saving $2,500 per month, but in a taxable account?

I suggest putting that monthly investment in a tax-sheltered account. I own lots of Wellesley but would not hold it in a taxable account due to the bond holdings creating unnecessary taxation. If nothing else, I would open an IRA and keep the Wellesley there.
Not everyone on this board is eligible for tax-advantaged accounts. Let's not automatically assume that they are.

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: Tax implications of holding Wellesley Emergency in taxable

Post by Admiral » Mon Jun 18, 2018 8:31 am

UpperNwGuy wrote:
Mon Jun 18, 2018 7:51 am
Admiral wrote:
Mon Jun 18, 2018 5:53 am
When you say "These are the only two funds I have" it appears that you do not have any tax advantaged accounts, since you note that both of these holdings are in a taxable account.

So you are saving $2,500 per month, but in a taxable account?

I suggest putting that monthly investment in a tax-sheltered account. I own lots of Wellesley but would not hold it in a taxable account due to the bond holdings creating unnecessary taxation. If nothing else, I would open an IRA and keep the Wellesley there.
Not everyone on this board is eligible for tax-advantaged accounts. Let's not automatically assume that they are.
Most people can open a personal IRA, can they not? True, not everyone.

UpperNwGuy
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Joined: Sun Oct 08, 2017 7:16 pm

Re: Tax implications of holding Wellesley Emergency in taxable

Post by UpperNwGuy » Mon Jun 18, 2018 8:56 am

You have to have income from sources other than a pension and interest/dividends and be under age 70.

retiredjg
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Re: Tax implications of holding Wellesley Emergency in taxable

Post by retiredjg » Mon Jun 18, 2018 9:12 am

corey407woc wrote:
Sun Jun 17, 2018 9:51 am
These are the only two funds I have. Thanks 28 m 140k income
With that kind of income, it seems likely you have a plan at work. If so, you should almost certainly be using it.

You could also be putting money into IRA (probably Roth) but it is unclear if you would need to use the "back door" to do it.

If you are interested in these things, people here could help you with it. The Wiki (link above) is also full of information on these things.

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