Vanguard Tax Managed Fund

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Mike11
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Vanguard Tax Managed Fund

Post by Mike11 » Mon May 20, 2019 6:54 pm

Question about Vanguard Tax Managed Balanced Fund Admiral VTMFX. I am still in the learning curve for investing. Early learning curve. I am 60 years old and will close on the sale of 80% of my business soon. I will be placing business sale proceeds into a Vanguard Equity:Bond mix of some sort. For the next 7 years I will have rental and profit income of around $225,000 per year so I will not require using any of my investment income. I don’t like posting specifics but it is important because with deductions I was hoping I could get my income just below the $160,000 24% tax rate. Income of 160,000-204,000 tax rate jumps to 32%. Obviously, with the graduated tax rates if I could only get my reportable income down to 180,000 or so the tax difference would not be dramatic but still, it’s taxes and 8% is 8%. I’m hoping between deductions and investing in the company 401K I can get my reported income down to 160,000. VTMFX is a 50:50 mix of large cap and muni funds. The fund has had no capital gains reported in quite a while and all the bonds are muni bonds. My plan is VTMFX will have 7 years to have potential growth of my investment monies while limiting some equity exposure. I will need to start living off the investment income in 7 years. I read an interesting piece of info stating the S&P has never had a 15 year loss period but has had eleven 10 year loss periods and 26 five year loss periods, hence my conservative AA. I also suspect if I invested in a 50:50 mix of total stock market: total bond market my rebalancing would result in additional taxes but I am not knowledgeable enough to know that answer. Add in the fact I will have enough cash reserves to live off for at least 2 years and I really start to wonder if I’m being too conservative with my AA. Any input?
Mike A

MotoTrojan
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Re: Vanguard Tax Managed Fund

Post by MotoTrojan » Mon May 20, 2019 7:03 pm

If you are fine with 50/50 for life and no international exposure this option seems fine.

What other investments do you have? 401K large enough to move the needle?

Main issue here is you can’t directly/solely tax-loss harvest equities in a big downturn.

Topic Author
Mike11
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Re: Vanguard Tax Managed Fund

Post by Mike11 » Mon May 20, 2019 8:23 pm

Good to know about tax loss harvesting. Thanks. Looks like another subject for me to research. As part of my business sale proceeds I will purchase a delayed SPIA that starts in 7 years and will produce income of 3000 per month. The after tax sale proceeds will also produce just under 7 figures to invest. My SSA at 70 will produce 3400 per month.

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Tyler Aspect
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Re: Vanguard Tax Managed Fund

Post by Tyler Aspect » Mon May 20, 2019 11:12 pm

Putting half of new money into a US stock index fund such as VTSAX, and another half into a municipal bond fund would be similar to the tax managed balanced fund. Depending on your state if you could get a double tax free bond fund then that could be even better.
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MotoTrojan
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Re: Vanguard Tax Managed Fund

Post by MotoTrojan » Tue May 21, 2019 2:12 am

Tyler Aspect wrote:
Mon May 20, 2019 11:12 pm
Putting half of new money into a US stock index fund such as VTSAX, and another half into a municipal bond fund would be similar to the tax managed balanced fund. Depending on your state if you could get a double tax free bond fund then that could be even better.
OP is worried about the tax impact of rebalancing. Fair point if one doesn’t have sufficient tax-advantaged space to handle that beyond dividend reinvestment rebalancing.

FactualFran
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Re: Vanguard Tax Managed Fund

Post by FactualFran » Tue May 21, 2019 2:03 pm

A marginal income tax rate of 32% appears to be about the break-even rate for using the Vanguard Tax-Managed Balanced fund versus a balanced fund that uses taxable bonds. Above that rate tax-exempt bonds should almost certainly be used instead of taxable bonds; below that rate taxable bonds should almost certainly be used instead of tax-exempt bonds.

According to the opening post: "The fund has had no capital gains reported in quite a while". The distribution history that I have for the fund indicates that it has never made a capital gain distribution.

FootballFan5548
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Re: Vanguard Tax Managed Fund

Post by FootballFan5548 » Tue May 21, 2019 2:21 pm

Tyler Aspect wrote:
Mon May 20, 2019 11:12 pm
Putting half of new money into a US stock index fund such as VTSAX, and another half into a municipal bond fund would be similar to the tax managed balanced fund. Depending on your state if you could get a double tax free bond fund then that could be even better.
I'm 35 and aiming for simplicity. For about 3 years I had VTMFX in my Vanguard brokerage account and I was happy with it being 50/50. My overall portfolio was 80/20 but I kept this fund because it was tax managed and balanced.

In an effort to reduce my number of funds, just on Friday I exchanged all of the money out of VTMFX into 50% VTSAX and 50% VWITX, which I already owned. So basically I have one less fund now, which I like.

it's a great fund if you're happy with 50/50 set it and forget it, but for me it was one of many other funds so became unnecessary.

Topic Author
Mike11
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Re: Vanguard Tax Managed Fund

Post by Mike11 » Tue May 21, 2019 10:23 pm

Thanks. All good info. And yes, I could easily see the reportable income from either rebalancing or taxable index monies pushing me from a 24% bracket to a 32% bracket. As a small business owner I have never had access to a 401K but I will for the next 7 years so perhaps I could put any income above 160,000 into the 401K and avoid being pushed into the 32% bracket?

Northern Flicker
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Re: Vanguard Tax Managed Fund

Post by Northern Flicker » Tue May 21, 2019 11:13 pm

Unless you want the "set it and forget it" aspect of the tax-managed balanced fund, you are better off separating equities and bonds into separate funds in a taxable account. With them commingled in one fund, then once there is an embedded capital gain in the equity portion, you will have to realize a capital gain from the equities for any withdrawal. With separate funds, you have the option of withdrawing from the bond fund without realizing any gains from appreciated equities. Similarly, if your tax situation changes, and you want to move the munis into a different bond class, you won't have your hands tied by embedded equity gains.

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