VTI vs VOO vs VV tax impact?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
jco
Posts: 196
Joined: Sat Jan 25, 2020 8:53 am

VTI vs VOO vs VV tax impact?

Post by jco »

I'm considering starting my first taxable account (at Fidelity). Probably only a few thousand dollars or so as part of our Emergency Fund.

I understand that one should take more care with purchases in a taxable account because you can't move out of positions without tax consequences. Naturally, as a Boglehead, I'd like to stick with a broad U.S. market index fund (I don't want to worry about international considerations in taxable).

I'd like to go VTI Total Stock Market Index ETF since it is the broadest U.S. fund. However, it's Qualified Dividend Income (QDI) is a bit lower than other large-cap broad market ETFs like VOO S&P 500 ETF and VV Large-cap index.

Vanguard's current estimates of QDI for this year are: VOO 99.8%, VTI 97.09%, VV 99.01% (https://advisors.vanguard.com/VGApp/iip ... yeartodate)

My question is, what practical difference will this make in taxes? Say I had a $100,000 in each fund. What would the annual tax difference be, roughly?

I know that there are factors like tax bracket to consider, but I really have no idea what the dividends would look like, how to figure it out, etc.
rascott
Posts: 2310
Joined: Wed Apr 15, 2015 10:53 am

Re: VTI vs VOO vs VV tax impact?

Post by rascott »

Irrelevant. Literally talking like a few $ difference, at most.
User avatar
anon_investor
Posts: 3282
Joined: Mon Jun 03, 2019 1:43 pm

Re: VTI vs VOO vs VV tax impact?

Post by anon_investor »

rascott wrote: Tue Sep 15, 2020 7:31 pm Irrelevant. Literally talking like a few $ difference, at most.
+1
000
Posts: 2287
Joined: Thu Jul 23, 2020 12:04 am

Re: VTI vs VOO vs VV tax impact?

Post by 000 »

I use VTI.

Reasons:
1. I am more confident a total market fund will continue to be suitable long term than a large cap only fund.
2. I don't like selling low.
User avatar
grabiner
Advisory Board
Posts: 27762
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: VTI vs VOO vs VV tax impact?

Post by grabiner »

Many of the dividends which are not qualified are Qualified Business Income, which are only 80% taxable; this may be only slightly worse than qualified dividends, depending on your tax situation. For example, in a 22% tax bracket, you pay 15% tax on qualified dividends, and 17.6% on non-qualified QBI. If the QBI deduction goes away, then funds with more than 95% qualified dividends can report 100%.
Wiki David Grabiner
MotoTrojan
Posts: 10627
Joined: Wed Feb 01, 2017 8:39 pm

Re: VTI vs VOO vs VV tax impact?

Post by MotoTrojan »

Just to throw a curve-ball, I seem to recall ITOT (also Total Market like VTI) is marginally more tax-efficient ;).
rascott
Posts: 2310
Joined: Wed Apr 15, 2015 10:53 am

Re: VTI vs VOO vs VV tax impact?

Post by rascott »

MotoTrojan wrote: Tue Sep 15, 2020 9:30 pm Just to throw a curve-ball, I seem to recall ITOT (also Total Market like VTI) is marginally more tax-efficient ;).
Yet these two funds have not given the same returns over time..... according to PV... in some years the differences are as big as nearly 1%.

Must use different indexes.
Uniballer
Posts: 293
Joined: Thu Apr 20, 2017 9:55 am

Re: VTI vs VOO vs VV tax impact?

Post by Uniballer »

I use VOO and VV as a tax loss harvest pair in taxable (currently VV), and VTI in tax-advantaged accounts. That way they don't mess with each other.
statefan03
Posts: 61
Joined: Wed Mar 25, 2020 12:31 pm
Location: NC

Re: VTI vs VOO vs VV tax impact?

Post by statefan03 »

I prefer Morningstar's 3-year Tax Cost Ratio. Example:
https://www.morningstar.com/etfs/arcx/vti/price
User avatar
grabiner
Advisory Board
Posts: 27762
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: VTI vs VOO vs VV tax impact?

Post by grabiner »

statefan03 wrote: Wed Sep 16, 2020 11:32 am I prefer Morningstar's 3-year Tax Cost Ratio. Example:
https://www.morningstar.com/etfs/arcx/vti/price
Morningstar doesn't always know about qualified dividends (as you can see because it often gives different tax costs for ETF and Admiral shares of the same Vanguard fund); it's better to get tax information from the fund provider.
Wiki David Grabiner
User avatar
22twain
Posts: 2524
Joined: Thu May 10, 2012 5:42 pm

Re: VTI vs VOO vs VV tax impact?

Post by 22twain »

jco wrote: Tue Sep 15, 2020 6:59 pm Say I had a $100,000 in each fund. What would the annual tax difference be, roughly?
Assume each ETF pays 2% dividends annually, for simplicity. Might be more like 1.8%, and it will be slightly different for each ETF, but this is just a rough estimate. Then each ETF pays $2,000 in dividends.

Using your percentages (from Vanguard) of qualified dividends:

VOO: 99.8% = $1996 qualified, $4 non-qualified.
VTI: 97.09% = $1941.80 qualified, $58.20 non-qualified.
VV: 99.01% = $1980.20 qualified, $19.80 non-qualified.

You didn't tell us your tax brackets, so I'll use mine: 22% ordinary, 15% qualified. Then the marginal tax on $2000 of dividends is:

VOO: 15% * $1996 + 22% * $4 = $300.28
VTI: 15% * $1941.80 + 22% * $58.20 = $304.07
VV: 15% * $1980.20 + 22% * $19.80 = $301.39
Last edited by 22twain on Thu Sep 17, 2020 4:56 pm, edited 1 time in total.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
BigMoneyNoWhammies
Posts: 225
Joined: Tue Jul 11, 2017 11:58 am

Re: VTI vs VOO vs VV tax impact?

Post by BigMoneyNoWhammies »

rascott wrote: Wed Sep 16, 2020 4:06 am
MotoTrojan wrote: Tue Sep 15, 2020 9:30 pm Just to throw a curve-ball, I seem to recall ITOT (also Total Market like VTI) is marginally more tax-efficient ;).
Yet these two funds have not given the same returns over time..... according to PV... in some years the differences are as big as nearly 1%.

Must use different indexes.
VTI used to hold a much higher # of stocks than ITOT, which previously tracked the S&P 1500 index. This likely accounts for the historical imbalance in annual returns since VTI was capturing a lot of microcap stock growth that ITOT was not, but I don't think this is an issue moving forward since ITOT changed their index in 2015. You're correct that they still utilize different indices. ITOT post-2015 uses S&P Total Market Index and holds 3547 different stocks. VTI uses CRSP US Total Market Index and holds 3516 stocks. Either is a fine total market fund choice and both are fairly tax efficient.
Topic Author
jco
Posts: 196
Joined: Sat Jan 25, 2020 8:53 am

Re: VTI vs VOO vs VV tax impact?

Post by jco »

22twain wrote: Thu Sep 17, 2020 11:43 am
jco wrote: Tue Sep 15, 2020 6:59 pm Say I had a $100,000 in each fund. What would the annual tax difference be, roughly?
Assume each ETF pays 2% dividends annually, for simplicity. Might be more like 1.8%, and it will be slightly different for each ETF, but this is just a rough estimate. Then each ETF pays $2,000 in dividends.

Using your percentages (from Vanguard) of qualified dividends:

VOO: 99.8% = $1996 qualified, $4 non-qualified.
VTI: 97.09% = $1941.80 qualified, $58.20 non-qualified.
VV: 99.01% = $1980.20 qualified, $19.80 qualified.

You didn't tell us your tax brackets, so I'll use mine: 22% ordinary, 15% qualified. Then the marginal tax on $2000 of dividends is:

VOO: 15% * $1996 + 22% * $4 = $300.28
VTI: 15% * $1941.80 + 22% * $58.20 = $304.07
VV: 15% * $1980.20 + 22% * $19.80 = $301.39
Wow! This was incredibly helpful and informative. Thank you so much for taking the time to work through the details so that a relative newbie understands it.

I expect others will find your post helpful also.
statefan03
Posts: 61
Joined: Wed Mar 25, 2020 12:31 pm
Location: NC

Re: VTI vs VOO vs VV tax impact?

Post by statefan03 »

grabiner wrote: Wed Sep 16, 2020 6:41 pm
statefan03 wrote: Wed Sep 16, 2020 11:32 am I prefer Morningstar's 3-year Tax Cost Ratio. Example:
https://www.morningstar.com/etfs/arcx/vti/price
Morningstar doesn't always know about qualified dividends (as you can see because it often gives different tax costs for ETF and Admiral shares of the same Vanguard fund); it's better to get tax information from the fund provider.
I must be blind because I cannot find this info on Vanguard's page.
https://investor.vanguard.com/etf/profile/overview/vti
MrJedi
Posts: 343
Joined: Wed May 06, 2020 11:42 am

Re: VTI vs VOO vs VV tax impact?

Post by MrJedi »

statefan03 wrote: Thu Sep 17, 2020 3:27 pm
grabiner wrote: Wed Sep 16, 2020 6:41 pm
statefan03 wrote: Wed Sep 16, 2020 11:32 am I prefer Morningstar's 3-year Tax Cost Ratio. Example:
https://www.morningstar.com/etfs/arcx/vti/price
Morningstar doesn't always know about qualified dividends (as you can see because it often gives different tax costs for ETF and Admiral shares of the same Vanguard fund); it's better to get tax information from the fund provider.
I must be blind because I cannot find this info on Vanguard's page.
https://investor.vanguard.com/etf/profile/overview/vti
It's in the advisors side of the site with the tax center.

YTD
https://advisors.vanguard.com/VGApp/iip ... yeartodate

2019
https://advisors.vanguard.com/VGApp/iip ... endfigures
User avatar
grabiner
Advisory Board
Posts: 27762
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: VTI vs VOO vs VV tax impact?

Post by grabiner »

statefan03 wrote: Thu Sep 17, 2020 3:27 pm
grabiner wrote: Wed Sep 16, 2020 6:41 pm
statefan03 wrote: Wed Sep 16, 2020 11:32 am I prefer Morningstar's 3-year Tax Cost Ratio. Example:
https://www.morningstar.com/etfs/arcx/vti/price
Morningstar doesn't always know about qualified dividends (as you can see because it often gives different tax costs for ETF and Admiral shares of the same Vanguard fund); it's better to get tax information from the fund provider.
I must be blind because I cannot find this info on Vanguard's page.
https://investor.vanguard.com/etf/profile/overview/vti
Click on "Returns"; Vanguard shows both pre-tax and after-tax returns.
Wiki David Grabiner
User avatar
anon_investor
Posts: 3282
Joined: Mon Jun 03, 2019 1:43 pm

Re: VTI vs VOO vs VV tax impact?

Post by anon_investor »

22twain wrote: Thu Sep 17, 2020 11:43 am
jco wrote: Tue Sep 15, 2020 6:59 pm Say I had a $100,000 in each fund. What would the annual tax difference be, roughly?
Assume each ETF pays 2% dividends annually, for simplicity. Might be more like 1.8%, and it will be slightly different for each ETF, but this is just a rough estimate. Then each ETF pays $2,000 in dividends.

Using your percentages (from Vanguard) of qualified dividends:

VOO: 99.8% = $1996 qualified, $4 non-qualified.
VTI: 97.09% = $1941.80 qualified, $58.20 non-qualified.
VV: 99.01% = $1980.20 qualified, $19.80 non-qualified.

You didn't tell us your tax brackets, so I'll use mine: 22% ordinary, 15% qualified. Then the marginal tax on $2000 of dividends is:

VOO: 15% * $1996 + 22% * $4 = $300.28
VTI: 15% * $1941.80 + 22% * $58.20 = $304.07
VV: 15% * $1980.20 + 22% * $19.80 = $301.39
But this leaves out the Section 199A deduction for VTI, which means the tax is actually less.
Northern Flicker
Posts: 6363
Joined: Fri Apr 10, 2015 12:29 am

Re: VTI vs VOO vs VV tax impact?

Post by Northern Flicker »

MotoTrojan wrote: Tue Sep 15, 2020 9:30 pm Just to throw a curve-ball, I seem to recall ITOT (also Total Market like VTI) is marginally more tax-efficient ;).
VTI was more tax-efficient in 2019. ITOT only had around 91% QDI:

https://www.ishares.com/us/literature/t ... 088762.pdf

I think VTI generally has been more tax-efficient than ITOT, but in the non-US equity space, iShares has been more tax-efficient, e.g. IXUS has been more tax-efficient than VXUS, and IDEV has been more tax-efficient than VEA.
Risk is not a guarantor of return.
User avatar
House Blend
Posts: 4761
Joined: Fri May 04, 2007 1:02 pm

Re: VTI vs VOO vs VV tax impact?

Post by House Blend »

jco wrote: Thu Sep 17, 2020 12:59 pm
22twain wrote: Thu Sep 17, 2020 11:43 am
jco wrote: Tue Sep 15, 2020 6:59 pm Say I had a $100,000 in each fund. What would the annual tax difference be, roughly?
Assume each ETF pays 2% dividends annually, for simplicity. Might be more like 1.8%, and it will be slightly different for each ETF, but this is just a rough estimate. Then each ETF pays $2,000 in dividends.

Using your percentages (from Vanguard) of qualified dividends:

VOO: 99.8% = $1996 qualified, $4 non-qualified.
VTI: 97.09% = $1941.80 qualified, $58.20 non-qualified.
VV: 99.01% = $1980.20 qualified, $19.80 qualified.

You didn't tell us your tax brackets, so I'll use mine: 22% ordinary, 15% qualified. Then the marginal tax on $2000 of dividends is:

VOO: 15% * $1996 + 22% * $4 = $300.28
VTI: 15% * $1941.80 + 22% * $58.20 = $304.07
VV: 15% * $1980.20 + 22% * $19.80 = $301.39
Wow! This was incredibly helpful and informative. Thank you so much for taking the time to work through the details so that a relative newbie understands it.
Before working things out to 6 decimal places, one needs to recognize that the index funds being compared have different benchmarks. The variation in returns of benchmark indexes that supposedly cover the "same" segment of the market is more than an order of magnitude greater than the differences shown here. (Ex: the difference between the CRSP Total and CRSP Large Cap returns for 2019 was 0.6% ( = $600 in this context.) These larger differences can moderate when you compare 10 or 15 year periods, but they are still noticeably larger than a measly basis point per year ( = $10 in this context).

See the wiki:
https://www.bogleheads.org/wiki/US_tota ... ex_returns
https://www.bogleheads.org/wiki/US_larg ... ex_returns

The same cautions apply when obsessing over tax efficiency of cheap index funds from different providers. If the underlying benchmarks are different, tax-efficiency is going to be a secondary factor at most.
User avatar
grabiner
Advisory Board
Posts: 27762
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: VTI vs VOO vs VV tax impact?

Post by grabiner »

House Blend wrote: Fri Sep 18, 2020 10:11 am Before working things out to 6 decimal places, one needs to recognize that the index funds being compared have different benchmarks. The variation in returns of benchmark indexes that supposedly cover the "same" segment of the market is more than an order of magnitude greater than the differences shown here. (Ex: the difference between the CRSP Total and CRSP Large Cap returns for 2019 was 0.6% ( = $600 in this context.) These larger differences can moderate when you compare 10 or 15 year periods, but they are still noticeably larger than a measly basis point per year ( = $10 in this context).

See the wiki:
https://www.bogleheads.org/wiki/US_tota ... ex_returns
https://www.bogleheads.org/wiki/US_larg ... ex_returns

The same cautions apply when obsessing over tax efficiency of cheap index funds from different providers. If the underlying benchmarks are different, tax-efficiency is going to be a secondary factor at most.
However, tax-efficiency is more consistent than returns. There is no reason to expect Vanguard's or Fidelity's total-market index to have better returns in the future, even if one had better returns in the past. But there is a reason to expect Vanguard's to be more tax-efficient, since Fidelity's distributes capital gains, while the ETF class allows Vanguard's fund to avoid capital gains.

The same is true for expenses. For investors who overweight small-cap value, I normally prefer VBR (Vanguard [CRSP] Small-Cap Value ETF) over VIOV (Vanguard S&P 600 Value ETF) because of the cost difference of eight basis points. Even if you need more of VBR to get the desired small-cap value exposure, the total cost will be lower. I don't know whether CRSP's or S&P's definition of small-cap value will give better returns for the same exposure, but I am more confident that VBR will cost less than VIOV.
Wiki David Grabiner
inbox788
Posts: 7480
Joined: Thu Mar 15, 2012 5:24 pm

Re: VTI vs VOO vs VV tax impact?

Post by inbox788 »

22twain wrote: Thu Sep 17, 2020 11:43 amVOO: 15% * $1996 + 22% * $4 = $300.28
VTI: 15% * $1941.80 + 22% * $58.20 = $304.07
VV: 15% * $1980.20 + 22% * $19.80 = $301.39
Since 2004 per Google Finance, VV outperformed VTI by 0.18 simple average percent annually, or about $180 in addition to the < $3 tax benefit.
Vanguard Large-Cap Index Fund ETF 154.27 USD 208.85%
Vanguard Total Stock Market Index Fund ETF 168.65 USD 205.97%


Only 2010, VV outperformed 0.5 over VOO simple average percent annually, or about $500 vs $1.11 tax difference.
Vanguard Large-Cap Index Fund ETF 154.27 USD 199.50%
Vanguard 500 Index Fund ETF 304.35 USD 194.46%

Prior to this year, the difference was far lower and sometimes reversed. Past performance is no guarantee of future results. YMMV depending on the phase of the moon when you lookup these values or when you actually buy and sell.

[Comparison 2010 - September 2019
Vanguard Large-Cap Index Fund ETF 137.03 USD 166.03%
Vanguard 500 Index Fund ETF 275.05 USD 166.11% ]

All things equal, you might consider tax impact, but don't overlook when things aren't equal that have bigger effect.
Post Reply