Taxable account

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Eastcoaster212
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Joined: Tue Nov 12, 2019 7:41 pm

Taxable account

Post by Eastcoaster212 » Tue Nov 12, 2019 7:47 pm

Hi, All

New to this site. Currently in my taxable account I hold VGHCX, VLXVX, VYM, VNQ. Does anyone think these are decent investments? ( I do VTSAX in my back door roth, my 401k Through my job is an S/P 500 index, and have an old 403b that is invested in 50% international vanguard fund) Side note: I have only been working 2 years ( doctor, just out of residency)

Any thoughts on the investments in the taxable? Not too worried right now about the tax implications of dividends, or should i be? Currently in a 32% tax bracket

Silk McCue
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Re: Taxable account

Post by Silk McCue » Tue Nov 12, 2019 8:06 pm

Welcome to Bogleheads!

You definitely want to be concerned about taxes now. VTSAX would be very tax efficient in your taxable. What you hold now is not and it will get worse the more it grows.

Please edit your post and add in the fund names in addition to the Symbol. Many people will just move on.

Take a look at this Wiki.

https://www.bogleheads.org/wiki/Tax-ef ... _placement

Cheers

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Artsdoctor
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Re: Taxable account

Post by Artsdoctor » Tue Nov 12, 2019 8:31 pm

Eastcoaster212 wrote:
Tue Nov 12, 2019 7:47 pm
Hi, All

New to this site. Currently in my taxable account I hold VGHCX, VLXVX, VYM, VNQ. Does anyone think these are decent investments? ( I do VTSAX in my back door roth, my 401k Through my job is an S/P 500 index, and have an old 403b that is invested in 50% international vanguard fund) Side note: I have only been working 2 years ( doctor, just out of residency)

Any thoughts on the investments in the taxable? Not too worried right now about the tax implications of dividends, or should i be? Currently in a 32% tax bracket
What exactly is your marginal dividend rate for both federal and state? If you're in the 32% "bracket," you may also be subject to NIIT. State?

Your investments are not tax-efficient at all so unless your 32% estimate is temporary, I'd really reconsider your investment choices.

HomeStretch
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Re: Taxable account

Post by HomeStretch » Tue Nov 12, 2019 9:37 pm

+1 on the Taxable accounts not being tax efficient.

In your Taxable account, consider holding equity mutual funds or ETFs that are more diversified, lower cost and more tax-efficient (like VTSAX/VTI U.S. TSM and VTIAX/VXUS International TSM).

Consider holding your bond allocation in your 401k rather than in a target date fund in your Taxable account.

With a 32% Federal marginal tax rate and possibly 3.8% NIIT, you will notice the tax inefficiencies as your Taxable account balance grows. It gets harder as time passes to adjust Taxable account holdings due to likely tax consequences of selling.

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grabiner
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Re: Taxable account

Post by grabiner » Tue Nov 12, 2019 10:04 pm

Eastcoaster212 wrote:
Tue Nov 12, 2019 7:47 pm
Currently in my taxable account I hold VGHCX, VLXVX, VYM, VNQ. Does anyone think these are decent investments? ( I do VTSAX in my back door roth, my 401k Through my job is an S/P 500 index, and have an old 403b that is invested in 50% international vanguard fund)

Not too worried right now about the tax implications of dividends, or should i be? Currently in a 32% tax bracket
You should be concerned about tax costs, because these eat away at your returns, and compound against you. If you hold an investment for 30 years and pay 1% too much in taxes every year, you lose 26% of the investment's potential return.

VGHCX (Health Care Fund) is an actively managed fund which will generate a lot of taxable capital gains.

VLXVX (Target Retirement 2065) is a fund which is intended for your whole portfolio, as it adjusts automatically over time. It doesn't make sense to hold a target-date fund along with a portfolio in other funds. In addition, in your 32% tax bracket, if you hold bonds in your taxable account, they should be municipal bonds, not the taxable bonds in Total Bond Market Index.

VYM (High DIvidend Yield ETF) is somewhat tax-inefficient because of the high dividend yield. I wouldn't sell this fund for a large capital gain, because it is tax-efficient except for the yield, but I wouldn't add more to it.

VNQ (REIT ETF) has a fairly high yield, and its dividends are non-qualified, which means they are taxed at 32% (possibly 25.6% for you if they are eligible for the QBI deduction). This fund needs to go in an IRA.

Since you haven't been holding them for very long, it's probably best to sell them for a capital gain and get rid of the tax costs. If you want to keep these funds (except the target-date fund, which doesn't make sense in your situation), you can hold them in an IRA. If your old 403(b) doesn't have the appropriate options, roll it into a Roth IRA (not a traditional IRA because that will block the backdoor Roth), or into your 401(k) if it has the options you want.
Wiki David Grabiner

Lalamimi
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Re: Taxable account

Post by Lalamimi » Tue Nov 12, 2019 10:16 pm

HomeStretch wrote:
Tue Nov 12, 2019 9:37 pm
+1 on the Taxable accounts not being tax efficient.

In your Taxable account, consider holding equity mutual funds or ETFs that are more diversified, lower cost and more tax-efficient (like VTSAX/VTI U.S. TSM and VTIAX/VXUS International TSM).

VTSAX was also recommended in another post - what would be the Fidelity counterpart? I recently opened a Taxable account to sell former employer company stock (which has tanked majorly) with Fidelity, and in my zeal of reading about bonds here, purchased two bond funds - FTBFX and FXNAX - Only $1k each, but they are generating income. Retired, about to start Roth Conversions so watching those dollars coming in.
Should I sell them and purchase the Fidelity counterpart? VTSAX has a $75 fee. Thanks much.

HomeStretch
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Re: Taxable account

Post by HomeStretch » Tue Nov 12, 2019 10:34 pm

Lalamimi wrote:
Tue Nov 12, 2019 10:16 pm
HomeStretch wrote:
Tue Nov 12, 2019 9:37 pm
+1 on the Taxable accounts not being tax efficient.

In your Taxable account, consider holding equity mutual funds or ETFs that are more diversified, lower cost and more tax-efficient (like VTSAX/VTI U.S. TSM and VTIAX/VXUS International TSM).
VTSAX was also recommended in another post - what would be the Fidelity counterpart? I recently opened a Taxable account to sell former employer company stock (which has tanked majorly) with Fidelity, and in my zeal of reading about bonds here, purchased two bond funds - FTBFX and FXNAX - Only $1k each, but they are generating income. Retired, about to start Roth Conversions so watching those dollars coming in.
Should I sell them and purchase the Fidelity counterpart? VTSAX has a $75 fee. Thanks much.
Your bond holdings are small enough that likely the additional income isn’t a large dollar amount. But certainly sell if you can if you prefer to move to a more tax efficient equity fund.

Fidelity has two US Total Stock Market (TSM) Funds - FSKAX or the newer zero-fee FZROX. The Fidelity TSM mutual funds have distributed capital gains in past years and are not as tax-efficient as VTSAX (which I wouldn’t buy at Fidelity due to the $75 fee). A more tax-efficient choice in a Fidelity Taxable account (if you don’t mind ETFs) is VTI (Vanguard US TSM) and ITOT (iShares S&P 1500).

Lalamimi
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Re: Taxable account

Post by Lalamimi » Wed Nov 13, 2019 9:48 am

HomeStretch wrote:
Tue Nov 12, 2019 10:34 pm
Lalamimi wrote:
Tue Nov 12, 2019 10:16 pm
HomeStretch wrote:
Tue Nov 12, 2019 9:37 pm
+1 on the Taxable accounts not being tax efficient.

In your Taxable account, consider holding equity mutual funds or ETFs that are more diversified, lower cost and more tax-efficient (like VTSAX/VTI U.S. TSM and VTIAX/VXUS International TSM).
VTSAX was also recommended in another post - what would be the Fidelity counterpart? I recently opened a Taxable account to sell former employer company stock (which has tanked majorly) with Fidelity, and in my zeal of reading about bonds here, purchased two bond funds - FTBFX and FXNAX - Only $1k each, but they are generating income. Retired, about to start Roth Conversions so watching those dollars coming in.
Should I sell them and purchase the Fidelity counterpart? VTSAX has a $75 fee. Thanks much.
Your bond holdings are small enough that likely the additional income isn’t a large dollar amount. But certainly sell if you can if you prefer to move to a more tax efficient equity fund.

Fidelity has two US Total Stock Market (TSM) Funds - FSKAX or the newer zero-fee FZROX. The Fidelity TSM mutual funds have distributed capital gains in past years and are not as tax-efficient as VTSAX (which I wouldn’t buy at Fidelity due to the $75 fee). A more tax-efficient choice in a Fidelity Taxable account (if you don’t mind ETFs) is VTI (Vanguard US TSM) and ITOT (iShares S&P 1500).
Thank you! I do have ITOT though only $2K. I will increase this holding and look into VTI. I am taking baby steps to take control per my July post.

ajkown1
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Re: Taxable account

Post by ajkown1 » Sat Nov 16, 2019 7:05 pm

I found all of this interesting. Does anybody have an example or a link to an article on what the potential tax impact for let's say $10,000 U.S. of FZROX vs ITOT in a taxable account? In my taxable account I am looking to hold one broad based U.S. Stock index and have currently been keeping a tiny amount of money in FZROX. Once I fully fund my 401K and IRA I plan on funneling the rest into my taxable account. This would be no more than $7,500 a year I would imagine. My thinking is I would prefer to hold an index mutual fund to keep me from being tempted to time the market if I used an ETF. Any help would be greatly appreciated. Thanks in advance.

stan1
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Re: Taxable account

Post by stan1 » Sat Nov 16, 2019 8:41 pm

ajkown1 wrote:
Sat Nov 16, 2019 7:05 pm
I found all of this interesting. Does anybody have an example or a link to an article on what the potential tax impact for let's say $10,000 U.S. of FZROX vs ITOT in a taxable account? In my taxable account I am looking to hold one broad based U.S. Stock index and have currently been keeping a tiny amount of money in FZROX. Once I fully fund my 401K and IRA I plan on funneling the rest into my taxable account. This would be no more than $7,500 a year I would imagine. My thinking is I would prefer to hold an index mutual fund to keep me from being tempted to time the market if I used an ETF. Any help would be greatly appreciated. Thanks in advance.
Personally I would still go with an ETF over a mutual fund in a taxable account because the ETF creation/redemption process is fundamentally more tax efficient than a mutual fund. A total market mutual fund will still be tax efficient but has a higher likelihood of paying out a small capital gains distribution than an ETF which under current laws is very, very unlikely to pay out a capital gains distribution. I would use ITOT, SCHB, or VTI not FZROX. Also, an ETF is portable to a different brokerage if you ever have a reason to switch. If you plan to hold this the rest of your life that could be a long time. FZROX can only be held at Fidelity, and although I think Fidelity is a fine choice now I can't predict what it might be like in 10, 20 or 30 years. That said I don't think either is wrong, and certainly something could change in a few years that led us to a different opinion or factual reason to prefer one more strongly over the other.

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grabiner
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Re: Taxable account

Post by grabiner » Sun Nov 17, 2019 12:29 am

stan1 wrote:
Sat Nov 16, 2019 8:41 pm
Personally I would still go with an ETF over a mutual fund in a taxable account because the ETF creation/redemption process is fundamentally more tax efficient than a mutual fund.
This is not necessary with Vanguard, where the ETF is a share class of the mutual fund, so they share the same (usually zero) capital gain distributions. (While you still want to hold Vanguard mutual funds at Vanguard because other brokerages charge transaction fees, you can convert the Vanguard fund to its ETF class if you decide to switch away from Vanguard.) It is important with other brokerages; ETFs bought in your Fidelity brokerage account are likely to be more tax-efficient than Fidelity mutual funds.
Wiki David Grabiner

Call_Me_Op
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Re: Taxable account

Post by Call_Me_Op » Sun Nov 17, 2019 7:15 am

Eastcoaster212 wrote:
Tue Nov 12, 2019 7:47 pm
Hi, All
New to this site. Currently in my taxable account I hold VGHCX, VLXVX, VYM, VNQ. Does anyone think these are decent investments?
Wrong question to be asking. What is important is how all of them work together and of course, diversification and low cost.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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birdog
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Re: Taxable account

Post by birdog » Sun Nov 17, 2019 7:22 am

Eastcoaster212 wrote:
Tue Nov 12, 2019 7:47 pm
Any thoughts on the investments in the taxable? Not too worried right now about the tax implications of dividends, or should i be? Currently in a 32% tax bracket
My opinion is that you should sell those funds and buy VTI and eventually VTEB in your taxable account. I don’t like holding dividend paying ETFs in a taxable account. Taxes matter, especially as your portfolio size grows.

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