foreign tax credit for international stocks

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bogleboyz
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foreign tax credit for international stocks

Post by bogleboyz » Sun Apr 23, 2017 9:30 pm

Generally it is recommended to hold the international stocks in the taxable to allow taking advantage of foreign tax credit
I generally use the Vanguard total international stock index fund.
However when reading bernstein's Four Pillars of investing , he recommends against owning Vanguard total international stock index fund in taxable because it is not eligible for the foreign dividend tax exclusion because it is a fund of funds, consisting of 3 regional funds.

does anyone have any thoughts?
what fund do you use for foreign stocks in taxable?
which funds maximize the foreign tax credit

I would appreciate any input

livesoft
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Re: foreign tax credit for international stocks

Post by livesoft » Sun Apr 23, 2017 9:32 pm

4 pillasr was published years and has outdated (now incorrect) information.
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SeaGSB
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Re: foreign tax credit for international stocks

Post by SeaGSB » Sun Apr 23, 2017 9:45 pm

bogleboyz wrote:Generally it is recommended to hold the international stocks in the taxable to allow taking advantage of foreign tax credit
Due to the higher dividend rate and lower QDI percentage of international vs. domestic stocks, this recommendation is not currently valid.

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White Coat Investor
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Re: foreign tax credit for international stocks

Post by White Coat Investor » Sun Apr 23, 2017 9:51 pm

It's not a bad taxable holding. You certainly do get the foreign tax credit on it. But it's yield is higher than TSMs, so it might not be as tax efficient.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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tetractys
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Re: foreign tax credit for international stocks

Post by tetractys » Sun Apr 23, 2017 9:55 pm

It used to be a fund of funds; but no longer. It's now a single fund investing in the stocks of one index. Check out the fund page and see for yourself. -- Tet

bogleboyz
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Re: foreign tax credit for international stocks

Post by bogleboyz » Sun Apr 23, 2017 9:57 pm

SeaGSB wrote:
bogleboyz wrote:Generally it is recommended to hold the international stocks in the taxable to allow taking advantage of foreign tax credit
Due to the higher dividend rate and lower QDI percentage of international vs. domestic stocks, this recommendation is not currently valid.
thanks for your reply.
so are you saying that holding international stocks in taxable is not recommended? my tax protected space is limited and filled with generally bonds, therefore i was planning to keep the international stocks in the taxable using the Vanguard total international stock index fund.

is there a better fund to use for international stocks in the taxable?

bogleboyz
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Re: foreign tax credit for international stocks

Post by bogleboyz » Sun Apr 23, 2017 9:57 pm

White Coat Investor wrote:It's not a bad taxable holding. You certainly do get the foreign tax credit on it. But it's yield is higher than TSMs, so it might not be as tax efficient.
is there a better fund to use for international stocks in the taxable?

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White Coat Investor
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Re: foreign tax credit for international stocks

Post by White Coat Investor » Sun Apr 23, 2017 10:03 pm

bogleboyz wrote:
White Coat Investor wrote:It's not a bad taxable holding. You certainly do get the foreign tax credit on it. But it's yield is higher than TSMs, so it might not be as tax efficient.
is there a better fund to use for international stocks in the taxable?
Not really. It's quite broadly diversified, low-cost, low turnover etc.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

stlutz
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Re: foreign tax credit for international stocks

Post by stlutz » Sun Apr 23, 2017 10:09 pm

So are you saying that holding international stocks in taxable is not recommended?
Basically is doesn't matter one way or the other. It has a higher dividend which makes it a better candidate for tax advantaged but the FTC makes in a better candidate for taxable. No obvious way to go on this one.

Swelfie
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Re: foreign tax credit for international stocks

Post by Swelfie » Sun Apr 23, 2017 10:21 pm

bogleboyz wrote:
White Coat Investor wrote:It's not a bad taxable holding. You certainly do get the foreign tax credit on it. But it's yield is higher than TSMs, so it might not be as tax efficient.
is there a better fund to use for international stocks in the taxable?
Last I checked, Vanguard's developed market fund was more efficient than total international, with the emerging markets causing the most distributions. So I split it out to VTMGX (Developed) in taxable where I need the tax advantaged space and leave VEMAX (emerging) and VSS (ex-us small cap tilt) in Roth. I prefer to leave developed in Roth also when there is space and just have VTSAX and munis in taxable, as currently VTSAX appears to be the most tax efficient.

And no, I haven't seen a more tax efficient international fund than Vanguard's.

lazyday
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Re: foreign tax credit for international stocks

Post by lazyday » Mon Apr 24, 2017 12:49 am

Swelfie wrote:Last I checked, Vanguard's developed market fund was more efficient than total international, with the emerging markets causing the most distributions. So I split it out to
I think recently Developed may have a higher dividend yield, but in 2016 Emerging may have had higher nonqualified dividends. This could mean that Developed is indeed more tax efficient for many US investors, and it might make sense for some people to put Emerging into a tax deferred account.

Qualified: https://personal.vanguard.com/us/insigh ... -2016?Sc=1

I think this has been discussed in other threads where people have looked at a few years of data to make a more informed opinion. There could also be other considerations such as tax loss harvesting, which may be more extreme with Emerging.

And of course there's the simplicity of Total International. It also won't need to trade when markets move between emerging and developed.

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Duckie
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Re: foreign tax credit for international stocks

Post by Duckie » Mon Apr 24, 2017 3:05 pm

bogleboyz wrote:so are you saying that holding international stocks in taxable is not recommended? my tax protected space is limited and filled with generally bonds, therefore i was planning to keep the international stocks in the taxable using the Vanguard total international stock index fund.
The dividends for Total Stock Market (TSM) are usually about 100% qualified and the dividends for Total International Stock Market (TISM) are about 70% qualified. This makes TSM better in taxable at first glance. But, when you add in the Foreign tax credit that evens things out. One year TSM may do a little better and the next year TISM may, so it's pretty much a wash which fund is better in taxable for IRS purposes. However, if you have state income taxes and the FTC is not deductible (and that's the case for most states) then TISM is at a slight disadvantage in taxable. But in your case you want your tax-sheltered accounts to hold bonds. That means putting TISM in taxable which is just fine.
is there a better fund to use for international stocks in the taxable?
If you want a total international stock fund, then TISM is the way to go.

bogleboyz
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Re: foreign tax credit for international stocks

Post by bogleboyz » Tue Apr 25, 2017 12:26 am

Duckie wrote:
bogleboyz wrote:so are you saying that holding international stocks in taxable is not recommended? my tax protected space is limited and filled with generally bonds, therefore i was planning to keep the international stocks in the taxable using the Vanguard total international stock index fund.
The dividends for Total Stock Market (TSM) are usually about 100% qualified and the dividends for Total International Stock Market (TISM) are about 70% qualified. This makes TSM better in taxable at first glance. But, when you add in the Foreign tax credit that evens things out. One year TSM may do a little better and the next year TISM may, so it's pretty much a wash which fund is better in taxable for IRS purposes. However, if you have state income taxes and the FTC is not deductible (and that's the case for most states) then TISM is at a slight disadvantage in taxable. But in your case you want your tax-sheltered accounts to hold bonds. That means putting TISM in taxable which is just fine.
is there a better fund to use for international stocks in the taxable?
If you want a total international stock fund, then TISM is the way to go.
Thanks for your reply

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