Fidelity Total Market Index Fund on Taxable Account

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wilwoodjoyce
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Fidelity Total Market Index Fund on Taxable Account

Post by wilwoodjoyce » Wed Aug 08, 2018 2:34 pm

So far I have USD 5,700 in Fidelity Total Market Index Fund (taxable account). I don't really have any complaints about it. My current plan is to invest USD 2500-USD 5,000 to this same fund in taxable account. I do have Roth-IRA and current 401K plan with Vanguard though. I have no personal preference with either. To be honest, I couldn't recall why I chose Fidelity for this taxable account investment over Vanguard.

However, I recently read some thread that, Fidelity is better for tax-advantage account and Vanguard is better for taxable account. I don't think it is worth it to sell my investments on Fidelity Total Market Index Fund and purchase Vanguard total Stock Index Fund on taxable account, as that means I will have to pay capital gain tax. But I still would like to hear others' opinions and thoughts. Shall I continue to put money to Fidelity taxable account or shall I change to Vanguard for taxable account? Thanks in advance!

MikeG62
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by MikeG62 » Wed Aug 08, 2018 3:19 pm

wilwoodjoyce wrote:
Wed Aug 08, 2018 2:34 pm
So far I have USD 5,700 in Fidelity Total Market Index Fund (taxable account). I don't really have any complaints about it. My current plan is to invest USD 2500-USD 5,000 to this same fund in taxable account. I do have Roth-IRA and current 401K plan with Vanguard though. I have no personal preference with either. To be honest, I couldn't recall why I chose Fidelity for this taxable account investment over Vanguard.

However, I recently read some thread that, Fidelity is better for tax-advantage account and Vanguard is better for taxable account. I don't think it is worth it to sell my investments on Fidelity Total Market Index Fund and purchase Vanguard total Stock Index Fund on taxable account, as that means I will have to pay capital gain tax. But I still would like to hear others' opinions and thoughts. Shall I continue to put money to Fidelity taxable account or shall I change to Vanguard for taxable account? Thanks in advance!
This is nonsense. They are both fine places to invest. Six of one half dozen of the other really. Do not worry about it.
Real Knowledge Comes Only From Experience

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triceratop
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by triceratop » Wed Aug 08, 2018 3:25 pm

MikeG62 wrote:
Wed Aug 08, 2018 3:19 pm
wilwoodjoyce wrote:
Wed Aug 08, 2018 2:34 pm
So far I have USD 5,700 in Fidelity Total Market Index Fund (taxable account). I don't really have any complaints about it. My current plan is to invest USD 2500-USD 5,000 to this same fund in taxable account. I do have Roth-IRA and current 401K plan with Vanguard though. I have no personal preference with either. To be honest, I couldn't recall why I chose Fidelity for this taxable account investment over Vanguard.

However, I recently read some thread that, Fidelity is better for tax-advantage account and Vanguard is better for taxable account. I don't think it is worth it to sell my investments on Fidelity Total Market Index Fund and purchase Vanguard total Stock Index Fund on taxable account, as that means I will have to pay capital gain tax. But I still would like to hear others' opinions and thoughts. Shall I continue to put money to Fidelity taxable account or shall I change to Vanguard for taxable account? Thanks in advance!
This is nonsense. They are both fine places to invest. Six of one half dozen of the other really. Do not worry about it.
It is not nonsense. The differences may be small but they are differences. Both being fine places to invest does not mean one is not particularly suited for one or the other -- "better" is a comparison that cannot be contradicted by saying that both are "good".

To the OP: If I were investing in taxable at Fidelity I would use the total market ETFs by iShares instead of the Fidelity funds.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

MikeG62
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by MikeG62 » Thu Aug 09, 2018 7:05 am

triceratop wrote:
Wed Aug 08, 2018 3:25 pm
MikeG62 wrote:
Wed Aug 08, 2018 3:19 pm
wilwoodjoyce wrote:
Wed Aug 08, 2018 2:34 pm
So far I have USD 5,700 in Fidelity Total Market Index Fund (taxable account). I don't really have any complaints about it. My current plan is to invest USD 2500-USD 5,000 to this same fund in taxable account. I do have Roth-IRA and current 401K plan with Vanguard though. I have no personal preference with either. To be honest, I couldn't recall why I chose Fidelity for this taxable account investment over Vanguard.

However, I recently read some thread that, Fidelity is better for tax-advantage account and Vanguard is better for taxable account. I don't think it is worth it to sell my investments on Fidelity Total Market Index Fund and purchase Vanguard total Stock Index Fund on taxable account, as that means I will have to pay capital gain tax. But I still would like to hear others' opinions and thoughts. Shall I continue to put money to Fidelity taxable account or shall I change to Vanguard for taxable account? Thanks in advance!
This is nonsense. They are both fine places to invest. Six of one half dozen of the other really. Do not worry about it.
It is not nonsense. The differences may be small but they are differences. Both being fine places to invest does not mean one is not particularly suited for one or the other -- "better" is a comparison that cannot be contradicted by saying that both are "good".

To the OP: If I were investing in taxable at Fidelity I would use the total market ETFs by iShares instead of the Fidelity funds.
triceratop, could you please provide the specific objective factors which make Fidelity better for tax advantaged accounts and Vanguard better for taxable accounts. I'd like to know what they are.
Real Knowledge Comes Only From Experience

mortfree
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by mortfree » Thu Aug 09, 2018 7:56 am

I think the distinction is in the fact that Vanguard has a patent (?) on the concept of ETF and mutual funds being different share classes whereas fidelity's ETF and mutual funds are not the same.

so at fidelity it makes more sense IN TAXABLE account to hold the ETF, to minimize taxes since the ETF-equivalent mutual fund at fidelity is not as tax efficient as the ETF.

Tallis
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by Tallis » Thu Aug 09, 2018 8:14 am

mortfree wrote:
Thu Aug 09, 2018 7:56 am
I think the distinction is in the fact that Vanguard has a patent (?) on the concept of ETF and mutual funds being different share classes whereas fidelity's ETF and mutual funds are not the same.

so at fidelity it makes more sense IN TAXABLE account to hold the ETF, to minimize taxes since the ETF-equivalent mutual fund at fidelity is not as tax efficient as the ETF.
It's indisputable that Vanguard's Total Stock Market funds and ETF result in lower capital-gains taxes. My question is whether the lower tax bill offsets either the bother of setting up a Vanguard account (to buy the funds) or brokerage fees at Fidelity (to buy the ETF), given the comparatively small amounts being invested.

That being said, Mrs. Tallis owns the Fidelity total market index (FSTVX) in a Fidelity tax-advantaged account, while I own two flavors of the Vanguard product, VTSAX in a Vanguard tax-advantaged account, and VTI in a Schwab taxable account.

mortfree
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by mortfree » Thu Aug 09, 2018 8:19 am

Tallis wrote:
Thu Aug 09, 2018 8:14 am
mortfree wrote:
Thu Aug 09, 2018 7:56 am
I think the distinction is in the fact that Vanguard has a patent (?) on the concept of ETF and mutual funds being different share classes whereas fidelity's ETF and mutual funds are not the same.

so at fidelity it makes more sense IN TAXABLE account to hold the ETF, to minimize taxes since the ETF-equivalent mutual fund at fidelity is not as tax efficient as the ETF.
It's indisputable that Vanguard's Total Stock Market funds and ETF result in lower capital-gains taxes. My question is whether the lower tax bill offsets either the bother of setting up a Vanguard account (to buy the funds) or brokerage fees at Fidelity (to buy the ETF), given the comparatively small amounts being invested.

That being said, Mrs. Tallis owns the Fidelity total market index (FSTVX) in a Fidelity tax-advantaged account, while I own two flavors of the Vanguard product, VTSAX in a Vanguard tax-advantaged account, and VTI in a Schwab taxable account.
buy ITOT at Fidelity.

is this your thread?

Tallis
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by Tallis » Thu Aug 09, 2018 8:27 am

mortfree wrote:
Thu Aug 09, 2018 8:19 am

buy ITOT at Fidelity.
Does ITOT have the same unique tax advantages of VTI that the original poster mentioned?

informal guide
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by informal guide » Thu Aug 09, 2018 8:30 am

My beef with the Fidelity Total Market Index in a taxable account is the capital gains they have paid. For the last three fiscal years (ending February 28) they have paid out the following long term capital gains per share (per the annual report)
2018 $0.51

2017 $0.39

2016 $0.31

For 2018, the reinvestment price was $76.27 or 67 basis points. For those of us paying 23.8% capital gains taxes, that is tax expense of $0.121 or 16 basis points, Even at a 15% capital gains tax rate hit is 12 basis points. Vanguard has never declared a capital gain on its total stock market index and is able to do this because of its ETF share class in-kind redemptions to authorized parties. The I-shares ETFs have the same structural benefit.

blessed
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by blessed » Thu Aug 09, 2018 8:59 am

wilwoodjoyce wrote:
Wed Aug 08, 2018 2:34 pm
So far I have USD 5,700 in Fidelity Total Market Index Fund (taxable account). I don't really have any complaints about it. My current plan is to invest USD 2500-USD 5,000 to this same fund in taxable account. I do have Roth-IRA and current 401K plan with Vanguard though. I have no personal preference with either. To be honest, I couldn't recall why I chose Fidelity for this taxable account investment over Vanguard.

However, I recently read some thread that, Fidelity is better for tax-advantage account and Vanguard is better for taxable account. I don't think it is worth it to sell my investments on Fidelity Total Market Index Fund and purchase Vanguard total Stock Index Fund on taxable account, as that means I will have to pay capital gain tax. But I still would like to hear others' opinions and thoughts. Shall I continue to put money to Fidelity taxable account or shall I change to Vanguard for taxable account? Thanks in advance!
Buy ITOT in Fidelity taxable.

Nate79
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by Nate79 » Thu Aug 09, 2018 10:04 am

While ETF's or Vanguard funds are more tax efficient the differences are pretty small when you look at the whole picture. Realize that just because a fund distributes capital gains (and dividends) and you pay tax on these (at favorable rates) if you reinvest the distributions your tax basis increases. So all you are losing is gains on the tax you are paying. It's pretty small.

AlwaysaQ
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by AlwaysaQ » Thu Aug 09, 2018 10:29 am

I have had Fidelity Total Stock Market in my Fidelity taxable account for a number of years. My last purchase of these shares was in December 2016. In 2017 I started to purchase Vanguard Total Stock Market at Vanguard because of capital gains that were paid late in the year by Fidelity.

ITOT is a reasonable choice at Fidelity if you don't mind using ETFs.

mervinj7
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by mervinj7 » Thu Aug 09, 2018 11:11 am

Nate79 wrote:
Thu Aug 09, 2018 10:04 am
While ETF's or Vanguard funds are more tax efficient the differences are pretty small when you look at the whole picture. Realize that just because a fund distributes capital gains (and dividends) and you pay tax on these (at favorable rates) if you reinvest the distributions your tax basis increases. So all you are losing is gains on the tax you are paying. It's pretty small.
What's a good way to estimate the basis point cost of the distributions? For example, Fidelity Total Market Premium had $0.51 of capital gains distribution at a share value of ~$75 in 2017. If we assume that one is in the highest possible brackets (over $479k for MFJ), LTCG is taxed at 20%. That means the effective loss $0.51*20% = $0.1 per share. So the tax hit is $0.1/$75 or $1.33 per $1000. Is that a 13.3 basis point hit due to taxes on distributions?

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jhfenton
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by jhfenton » Thu Aug 09, 2018 11:12 am

Tallis wrote:
Thu Aug 09, 2018 8:27 am
mortfree wrote:
Thu Aug 09, 2018 8:19 am

buy ITOT at Fidelity.
Does ITOT have the same unique tax advantages of VTI that the original poster mentioned?
All ETFs have the same legal structural tax advantage on capital gains. It is only unique to Vanguard index mutual funds. Vanguard has a patent that allows them to have an ETF share class of a mutual fund and share the ETFs ability to avoid capital gains with the mutual fund. The patent expires in March 2021.

Nate79
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by Nate79 » Thu Aug 09, 2018 11:30 am

mervinj7 wrote:
Thu Aug 09, 2018 11:11 am
Nate79 wrote:
Thu Aug 09, 2018 10:04 am
While ETF's or Vanguard funds are more tax efficient the differences are pretty small when you look at the whole picture. Realize that just because a fund distributes capital gains (and dividends) and you pay tax on these (at favorable rates) if you reinvest the distributions your tax basis increases. So all you are losing is gains on the tax you are paying. It's pretty small.
What's a good way to estimate the basis point cost of the distributions? For example, Fidelity Total Market Premium had $0.51 of capital gains distribution at a share value of ~$75 in 2017. If we assume that one is in the highest possible brackets (over $479k for MFJ), LTCG is taxed at 20%. That means the effective loss $0.51*20% = $0.1 per share. So the tax hit is $0.1/$75 or $1.33 per $1000. Is that a 13.3 basis point hit due to taxes on distributions?
I have not made an excel file looking at this in a while but if the capital gains tax rate is the same now vs in retirement the only loss is the potential gains the tax would have had if they were allowed to grow vs paid now. In other words the distribution would be reinvested increasing your basis by that exact amount. The tax is in essence is being prepaid. But you lose the potential gains on the amount you paid in tax.

finagle
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by finagle » Thu Aug 09, 2018 11:43 am

AlwaysaQ wrote:
Thu Aug 09, 2018 10:29 am
I have had Fidelity Total Stock Market in my Fidelity taxable account for a number of years. My last purchase of these shares was in December 2016. In 2017 I started to purchase Vanguard Total Stock Market at Vanguard because of capital gains that were paid late in the year by Fidelity.

ITOT is a reasonable choice at Fidelity if you don't mind using ETFs.
Did you move all your Fido FSTVX money into VTSAX without creating a taxable event?

wilwoodjoyce
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by wilwoodjoyce » Thu Aug 09, 2018 12:23 pm

Thank you for all your inputs!

I was looking at my 2017 tax 1099 form from Fidelity. Total Ordinary Dividends and Distributions Details related to Fidelity Total MKT Investors Class (FSTMX) are as below,

1a Total Ordinary Dividends (includes 1b): 37.87
Dividends Distributions: 1.28
Short-Term Capital Gains: 0.03
Qualified Dividends: 36.86

My question is that, if I choose Vanguard Total Stock Market fund or ITOT (as some of you suggested here) in my taxable account, is this 0.03 the only item I will save?

Another thought is, so far I have already invested USD 5,700 on FSTMX in taxable account; As I invest more into this fund annually, I will be able to enjoy premium(admiral) shares' lower fee benefits within 1 year or 2.If I buy a different fund, I will have to wait a little longer to enjoy premium(admiral) shares' benefits. It may be small difference from long term picture, but I still like to bring it up.
Last edited by wilwoodjoyce on Thu Aug 09, 2018 12:32 pm, edited 1 time in total.

nolesrule
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by nolesrule » Thu Aug 09, 2018 12:28 pm

mervinj7 wrote:
Thu Aug 09, 2018 11:11 am
Nate79 wrote:
Thu Aug 09, 2018 10:04 am
While ETF's or Vanguard funds are more tax efficient the differences are pretty small when you look at the whole picture. Realize that just because a fund distributes capital gains (and dividends) and you pay tax on these (at favorable rates) if you reinvest the distributions your tax basis increases. So all you are losing is gains on the tax you are paying. It's pretty small.
What's a good way to estimate the basis point cost of the distributions? For example, Fidelity Total Market Premium had $0.51 of capital gains distribution at a share value of ~$75 in 2017. If we assume that one is in the highest possible brackets (over $479k for MFJ), LTCG is taxed at 20%. That means the effective loss $0.51*20% = $0.1 per share. So the tax hit is $0.1/$75 or $1.33 per $1000. Is that a 13.3 basis point hit due to taxes on distributions?
23.8%. The 3.8% NIIT kicks in on investment earnings in the AGI stack that are above 200k Single / $250k MFJ AGI.

MikeG62
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by MikeG62 » Thu Aug 09, 2018 1:14 pm

Tallis wrote:
Thu Aug 09, 2018 8:14 am
mortfree wrote:
Thu Aug 09, 2018 7:56 am
I think the distinction is in the fact that Vanguard has a patent (?) on the concept of ETF and mutual funds being different share classes whereas fidelity's ETF and mutual funds are not the same.

so at fidelity it makes more sense IN TAXABLE account to hold the ETF, to minimize taxes since the ETF-equivalent mutual fund at fidelity is not as tax efficient as the ETF.
It's indisputable that Vanguard's Total Stock Market funds and ETF result in lower capital-gains taxes.
Maybe true for Fidelity proprietary ETF’s. I own iShares ETF’s in my Fidelity Brokerge account (have since 2008). To my knowledge (going off top of head, have not gone back to check every 1099 since then) none of these ETF’s have declared any capital gains during the time I have owned them.
Real Knowledge Comes Only From Experience

AlwaysaQ
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Re: Fidelity Total Market Index Fund on Taxable Account

Post by AlwaysaQ » Thu Aug 09, 2018 1:35 pm

Finagle

I didn't sell the Fidelity shares - I still have them. I don't buy them anymore - I buy Vanguard's Total Market instead.

If the market goes down to where some of the Fidelity shares are in the red I will sell them.

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