Talk:Tax-efficient fund placement

I don't agree with the idea that an Emerging Stock Market Index is very tax efficient. Once a country transitions between emerging to developed, all the companies in the emerging market index would have to be sold and bought in a different index. Possibility for lots of capital gains. (NYCPete)

When this happens, it will lead to a lot of capital gains. If South Korea were promoted from emerging to developed, then since it is 15% of Emerging Markets Index and probably 5% of the basis, that would mean a 10% capital gain distribution, all long-term, and a 1.5% tax bill. However, that is a fairly rare event; if it happens once every ten years, the annualized tax cost would be 0.15%. The other tax disadvantage of emerging markets is that the dividends are only 2/3 qualified, which is currently a tax cost of 0.12% in the top tax bracket. The sum of those two extra tax costs is just about equal to the tax savings from the foreign tax credit; therefore, emerging market indexes are not quite as good in a taxable account as developed or US market indexes, but the difference is small enough that emerging markets should still be placed in a taxable account in preference to anything else. Grabiner 11:54, 25 May 2008 (EDT)

Based on expected tax rates
I think there should be a comment here that this placement recommendation is making some basic (and well reasoned) assumptions about future tax law. What do you think? --Edge 20:39, 29 May 2008 (EDT)


 * Good idea, and I have added a sentence. Grabiner 23:19, 29 May 2008 (EDT)

I would suggest deleting the return-of-capital section; it is useful in the REIT page, but it is too large a part of this page, and it isn't the main point of the page. A correction mentioning that almost all, rather than all, of the REIT income is taxable might be useful. Grabiner 23:39, 3 June 2008 (EDT)


 * The table is gone now, but I would still suggest deleting the return-of-capital section as a separate section, with a wording in the main text such as, "REITs are required to distribute almost all their income, and the income is taxable at the non-qualified dividend rate except for a small portion (historically about 15%) which is non-taxable because it compensates for depreciation of the property." Grabiner 22:19, 4 June 2008 (EDT)

This article needs some introduction for the context. For example if all your accounts are tax deferred accounts, don't even worry about any of these.


 * Done; this also allowed me to point out that the principles are still important even if all your investments are taxable.Grabiner 23:17, 6 June 2008 (EDT)

Bringing the ordering up to date
With the established record of ETFs, I believe we should move non-value ETFs (and Vanguard funds with an ETF class) up to the Efficient category. (Value ETFs should stay in the middle category until it is determined what happens to qualified dividends in 2011; they won't be tax-efficient if their high dividend yields are taxed at your full tax rate.) I would also suggest either deleting or updating the pictorial guide, which was good at the time it was writted but predates ETFs (and thus tax-efficient small-cap index funds).Grabiner 03:01, 28 April 2010 (UTC)


 * From my perspective, the tabular list (Order of Funds by Estimated Tax Efficiency) is too difficult to understand. I suspect this is why the pictorial guide was created in the first place. If you can suggest an updated hierarchy using simplified categories, I can update the guide. I don't have the original image, but I do have PowerPoint. --LadyGeek 02:18, 29 April 2010 (UTC)


 * The pictorial guide is older than the tabular list, and if we update both, then the pictorial guide can match the tabular list.Grabiner 01:40, 30 April 2010 (UTC)