Best location for international funds.

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CnC
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Joined: Thu May 11, 2017 12:41 pm

Best location for international funds.

Post by CnC »

Hey guys, it's been a while and I I'm just sanity checking myself.


I haven't bought any international index funds in a while and my AA has gotten a bit out of wack.

I believe last time I did research into it, the best place to hold your international funds was in your taxable account. Because you have to pay some taxes on the profits/dividends oversees and you can write some of those taxes off for USA taxes.


Am I correct or am I mixed up.


Thanks
-Cnc
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retired@50
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Location: Living in the U.S.A.

Re: Best location for international funds.

Post by retired@50 »

Generally speaking, yes, holding an international stock index fund in your taxable account is a solid choice.

See wiki page for details: https://www.bogleheads.org/wiki/Foreign_tax_credit

However, too much of a good thing can spoil the broth.
See thread on one potential issue...: viewtopic.php?t=211120

The thread above may or may not apply to your own situation, but really just serves as an illustration that the correct answer in investing is often "It depends".

Regards,
This is one person's opinion. Nothing more.
Topic Author
CnC
Posts: 961
Joined: Thu May 11, 2017 12:41 pm

Re: Best location for international funds.

Post by CnC »

Thanks I knew there was a link somewhere but I haven't been on Bogleheads for a while and I had forgotten how to locate the info.
deikel
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Re: Best location for international funds.

Post by deikel »

Just for reference, if the portfolio is not terribly large, your tax savings holding them in taxable and getting foreign taxes 'back' - it makes like 10-15 USD for me....its laughable. Its also free money, so no complain, but its really not a tax savings strategy until your portfolio must be quite large in taxable - at which point you probably have other avenues to save taxes IMO.

dialing back on the venti latte will save you more
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grabiner
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Re: Best location for international funds.

Post by grabiner »

The first concern may be non-tax-related: do you have better US or international options in your 401(k)? If your 401(k) doesn't have a good international fund, and you hold other things in your IRA, then you need to hold international stocks in taxable.

But assuming comparable options, it depends on your tax bracket, and especially on state taxes. International stocks get the foreign tax credit, but they have higher dividend yields and more non-qualified dividends, which makes it close to a wash in federal tax in a moderate bracket. If you pay high state taxes, this makes international stock in taxable less attractive, unless you live in a state which allows a foreign tax credit (which is usually enough to make international stock exempt from state tax). If you are in a high federal bracket, you pay higher taxes on qualified dividends (with NIIT) and non-qualified dividends, which is a reason to prefer US stock in taxable.
Wiki David Grabiner
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