Evaluating placement of international funds using actual data

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billthecat
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Joined: Tue Jan 24, 2017 2:50 pm

Evaluating placement of international funds using actual data

Post by billthecat » Sat Nov 10, 2018 3:51 pm

On international funds, the wiki says:
The Wiki gods wrote: Whether or not the foreign tax credit is sufficient depends on such factors as the the percentage of the fund's foreign source income component, the foreign tax rate, the percentage of the foreign dividends that are qualified, and the the US marginal tax bracket of the fundholder.
But no further detail is provided. Can you explain how to step through an analysis of whether it should be in taxable, Roth, or tax-deferred, preferably using Schwab's international index fund (SCHF) to illustrate?

PFInterest
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Re: Evaluating placement of international funds using actual data

Post by PFInterest » Sat Nov 10, 2018 4:15 pm

It's fine in all 3. US is still usually more tax efficient however.

retiredjg
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Re: Evaluating placement of international funds using actual data

Post by retiredjg » Sat Nov 10, 2018 4:49 pm

I can't explain it but I can relate that every spring a few people here evaluate the tax-efficiency of their total stock index vs their total international index that they held in taxable the previous year.

Sometimes they report that total stock was more tax-efficient. Sometimes they report their total international was more tax-efficient. Usually the difference is not much either way.

Keep in mind that whether dividends are qualified depends on how long you have held your shares, so there is more going on here than just what is happening with the funds.

There is really no point in figuring out which is better. In general, they are both better than pretty much any other stock funds and it is convenient to hold both in taxable so that one will not get over-allocated. That is why those are the two funds that are repeatedly mentioned as the best choices for a taxable account.

The bottom line for billthecat is that your SCHF can be held anywhere. The "best" place depends on the rest of your portfolio.

When I'm doing portfolio suggestions, I tend to put all the international into taxablei (if it will fit) as a way to avoid wash sales.

Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Evaluating placement of international funds using actual data

Post by Chip » Sat Nov 10, 2018 5:08 pm

billthecat wrote:
Sat Nov 10, 2018 3:51 pm
But no further detail is provided. Can you explain how to step through an analysis of whether it should be in taxable, Roth, or tax-deferred, preferably using Schwab's international index fund (SCHF) to illustrate?
You can use triceratop's tax efficiency spreadsheet and plug in your own numbers.

I haven't been able to find historical numbers for SCHF online. This post of mine shows the 2017 numbers from my 1099-DIV.

retiredjg
Posts: 34177
Joined: Thu Jan 10, 2008 12:56 pm

Re: Evaluating placement of international funds using actual data

Post by retiredjg » Sat Nov 10, 2018 6:15 pm

retiredjg wrote:
Sat Nov 10, 2018 4:49 pm
I can't explain it but I can relate that every spring a few people here evaluate the tax-efficiency of their total stock index vs their total international index that they held in taxable the previous year.

Sometimes they report that total stock was more tax-efficient. Sometimes they report their total international was more tax-efficient. Usually the difference is not much either way.

Keep in mind that whether dividends are qualified depends on how long you have held your shares, so there is more going on here than just what is happening with the funds.

There is really no point in figuring out which is better. In general, they are both better than pretty much any other stock funds and it is convenient to hold both in taxable so that one will not get over-allocated. That is why those are the two funds that are repeatedly mentioned as the best choices for a taxable account.

The bottom line for billthecat is that your SCHF can be held anywhere. The "best" place depends on the rest of your portfolio.

When I'm doing portfolio suggestions, I tend to put all the international into taxablei (if it will fit) as a way to avoid wash sales.
On further thought, these discussions may have been only about Vanguard funds.

This does not change the fact that SCHF is probably OK held in any kind of account. I know of no reason to avoid holding it in taxable or tax-deferred or Roth.

columbia
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Re: Evaluating placement of international funds using actual data

Post by columbia » Sat Nov 10, 2018 6:20 pm

The tax ambiguity is one of the reasons that I think that its perfectly reasonable to hold target date funds in all of your accounts.

Maybe I wish I had done that...but I have what I have and am not going to worry about it now.

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Evaluating placement of international funds using actual data

Post by stan1 » Sat Nov 10, 2018 7:43 pm

One way to look at it is: "if I didn't have international in taxable what would I put there?" "and if I didn't have international in Roth IRA what would I put there?" The answers to those questions push me back to putting more Total International into taxable.

You can plug in your numbers but whatever advantages foreign tax credit used to have are probably offset by the lower QDI percentage compared to domestic, although because you get the lower QDI rate you may still come out ahead of having it taxed as ordinary income when you withdraw from a Traditional IRA/401K. In taxable you tax loss harvest. Since there's no clear answer I happen to have some international in my 401K, Roth IRA, and (mostly) in taxable.

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