Vanguard Inflation Protected Securities Fund tax distributions
Inflation Protected Securities |
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The Vanguard Inflation Protected Securities Fund is usually recommended for placement in a tax-deferred account, although for some low tax bracket taxpayers living in states with a high tax rate, the fund may be suitable for taxable accounts. The fund is often included in balanced portfolios that include treasury inflation protected bonds, such as the portfolio (see Fig 1.) recommended for individual investors by David Swensen, the manager of Yale University's endowment and author of the popular book, Unconventional Success.
The table below summarizes the fund's relation to a number of tax factors.
Favorable tax factors | Unfavorable tax factors | Fig. 1 David Swensen's lazy portfolio |
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Treasury interest: Yes (average 99%) |
Historical gains distributions : Yes |
The following tables provide long term data on the fund's history of both dividend and capital gains distributions.
Additional tables provide a database of the fund's accounting figures: the annual level of realized and distributed gains; its level of unrealized gains and loss carryforwards; as well as the annual in-kind redemption gains the fund has realized. These figures highlight the level of a fund's tax liabilities.
Because both manager turnover of securities inside the portfolio and investor turnover of fund shares can affect the level of gains realization, an addtional table provides historical turnover ratios.
Distributions
Fund distributions |
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Data sources |
The first table provides the fund's historical dividend and capital gains distributions (expressed as yields) along with a breakdown of the component parts of the distribution (treasury interest, short-term gains, long-term gains, and return of capital), which are subject to differing tax rates.
Year | Dividend Investor shares [1] |
Dividend Admiral shares [1] |
Treasury Interest [2] |
Short-term Capital Gains [3] |
Long-term Capital Gains [3] |
Return of Capital distribution [4] [notes 1][notes 2] |
Total Return |
2018 | 2.96% | 3.06% | 99.50% | 0.00% | 0.00% | 0.0% | -1.49% |
2017 | 2.38% | 2.48% | 99.58% | 0.00% | 0.00% | 0.0% | 2.81% |
2016 | 1.99% | 2.09% | 99.81% | 0.00% | 0.14% | 1.24% | 4.52% |
2015 | 0.72% | 0.82% | 99.68% | 0.00% | 0.88% | 0.00% | -1.83% |
2014 | 2.01% | 2.11% | 99.95% | 0.00% | 2.25% | 0.00% | 3.83% |
2013 | 1.33% | 1.43% | 99.90% | 0.03% | 0.36% | 0.00% | -8.92% |
2012 | 2.55% | 2.65% | 99.96% | 0.18% | 0.99% | 0.00% | 6.78% |
2011 | 4.21% | 4.30% | 99.95% | 0.00% | 0.14% | 0.00% | 13.24% |
2010 | 2.48% | 2.59% | 99.85% | 0.00% | 0.00% | 0.00% | 6.17% |
2009 | 2.00% | 2.13% | 98.81% | 0.00% | 0.00% | 0.00% | 10.80% |
2008 | 5.02% | 5.11% | 99.78% | 0.00% | 0.00% | 0.00% | -2.85% |
2007 | 5.92% | 6.01% | 99.23% | 0.00% | 0.00% | 0.00% | 11.40% |
2007 | 3.87% | 3.96% | 99.23% | 0.00% | 0.00% | 0.16% | 0.43% |
2006 | 4.83% | 4.92% | 97.52% | 0.12% | 0.28% | 0.00% | 2.76% |
2005 | 4.83% | - | 99.56% | 0.05% | 0.53% | 0.00% | 6.96% |
2004 | 3.46% | - | 99.31% | 0.62% | 0.52% | 0.00% | 8.69% |
2003 | 4.55% | - | - | 0.72% | 0.00% | 0.00% | 16.64% |
2002 | 3.92% | - | - | 0.84% | 0.00% | 0.00% | 6.17% |
2001 | 6.38% | - | - | 0.16% | 0.00% | 0.00% | 8.07% |
- FY 2007 - In July 2007, the board of trustees approved a change in the fund’s fiscal year-end from January 31 to December 31. This change was effected through a tax-free reorganization of the fund from a series of Vanguard Fixed Income Securities Funds to a series of Vanguard Bond Index Funds. The change had no effect on the fund’s financial position or results of operations. The change is reflected in the two entries for the year 2007 (from Jan. 31 2006 to Jan 31. 2007) and (Jan. 31 2007 to Dec. 31 2007).
- FY 2006 - Admiral class dividend annualized.
- FY 2001 - Investor class dividend annualized.
Accounting data
The accounting figures and associated ratios (tables below) can help one visualize some of the major determinants of a fund’s tendency to distribute taxable gains. These determining features include:
Turnover: The rate at which a fund manager sells securities within the fund has a major effect on potential gains realization. Bond funds have higher turnover ratios than stock funds, since the bond manager must buy and sell bonds as they mature, and as the manager maintains the maturity and duration structure of the portfolio. The gains or losses on a bond are primarily determined by changes in interest rates, and in some instances, credit quality.
Similarly, fund shareholders' sales flows have major effects on a fund’s distribution tendencies. Net flows into the fund have the following effects:
- Constant inflows allow a fund manager to purchase a wide range of bonds at different prices. The manager can select high basis securities when forced to sell a bond (this may realize a loss). The manager can also select low basis securities when redeeming a bond in-kind (a non-taxable transaction that can remove an unrealized gain out of the portfolio.)
- A large and growing net asset base serves to diffuse any realized capital gains across a large base of shareholders and reduces the per share gain distribution. Large outflows have the opposite effect; any gains realized are spread across a smaller asset base and result in higher per share distributed gains. [5]
The level of unrealized gains and carryover realized losses in a fund: A fund which defers gains realization accumulates unrealized appreciation, which when distributed, will be taxed; thus the unrealized gain/loss figure shows the potential gain (or loss) that would be realized if the portfolio was to be entirely liquidated. Any loss carryovers a fund possesses can be used to offset future realized gains. The third tab on the Table 3. spreadsheet shows the data in percentage of total assets form. Tab four provides annual per share distribution data.
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Turnover
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Tax rates
Mutual fund distributions will be taxed according to the tax laws governing the investment over the holding period of the investment, which are subject to change. The actual tax imposed will depend upon each individual's tax rate and the timing of purchases and sales. The federal tax rates applicable to mutual fund distributions and investor sales of securities for the period 2013 onward are outlined below. Keep in mind that investment income may also be subject to state and local taxation.
- Short-term capital gains distributions are made from realized gains on securities held for one year or less. Short-term gains are taxed at ordinary income tax rates up to 37%. Mutual fund short-term gain distributions are included in a fund's ordinary dividend distribution; therefore, capital losses may not be subtracted from these distributions when computing taxes.
- Long-term capital gains distributions are made from realized gains on securities held for more than one year. Long-term gains are taxed at 0% for taxpayers in the 10% and 12% tax brackets, at 15% for taxpayers in the middle tax brackets, and at 20% in between the 35% and the 37% tax brackets. They are reported on tax Schedule D along with any other capital gains, and can be reduced by capital losses.
- Qualified dividends are the ordinary dividends [notes 3] that are subject to the same tax rate that applies to long-term capital gains. They should be shown in box 1b of the Form 1099-DIV you receive.
- When you sell at a loss you will either offset capital gains which would have otherwise been taxed at your capital gains rate or you will offset income (up to $3,000 maximum per year) which would have otherwise been taxed at your marginal income tax rate, or both. If you offset capital gains that would have otherwise not been taxed at all (because your capital gains tax rate is 0%) then this part of the tax loss harvest may be an outright loss.
- The Affordable Care Act imposes a Medicare surcharge of 3.8% on all net investment income (NII) once the taxpayer's adjusted gross income exceeds $200,000 (single) or $250,000 (married); while this tax is not part of the income tax, it has the same effect on investors as a higher tax rate. The NII tax begins to apply to individuals falling in the 33% tax bracket. Thus the top effective marginal tax rate is 23.8% on qualified dividends and long-term gains, 40.8% on ordinary investment income.
Filing status and annual taxable income - 2024 | Ordinary income tax rate | ||||
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Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household | Trusts and Estates | |
$0-$11,600 | $0-$23,200 | $0-$11,600 | $0-$16,550 | $0-3,100 | 10% |
$11,601-$47,150 | $23,201-$94,300 | $11,601-$47,150 | $16,551-$63,100 | n/a | 12% |
$47,151-$100,525 | $94,301-$201,050 | $47,151-$100,525 | $63,101-$100,500 | n/a | 22% |
$100,526-$191,950 | $201,051-$383,900 | $100,526-$191,950 | $100,501-$191,950 | $3,101-$11,150 | 24% |
$191,951-$243,725 | $383,901-$487,450 | $191,951-$243,725 | $191,951-$243,700 | n/a | 32% |
$243,726-$609,350 | $487,450-$731,200 | $243,726-$365,600 | $243,701-$603,950 | $11,151-$15,200 | 35% |
$609,351+ | $731,201+ | $365,600+ | $603,951+ | $15,201+ | 37% |
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Filing status and annual taxable income - 2024 | Long-term capital gain rate | ||||
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Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household | Trusts and Estates | Qualified dividends and other investments |
$0-$47,025 | $0-$94,050 | $0-$47,025 | $0-$63,000 | $0-$3,100 | 0% |
$47,026-$518,900 | $94,041-$583,750 | $47,026-$291,850 | $63,001-$551,350 | $3,101-$15,450 | 15% |
$518,901+ | $583,751+ | $291,851+ | $551,351+ | $15,451+ | 20% |
Filing status and annual taxable income - 2023 | Ordinary income tax rate | ||||
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Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household | Trusts and Estates | |
$0-$11,000 | $0-$22,000 | $0-$11,000 | $0-$15,700 | $0-$2,900 | 10% |
$11,001-$44,725 | $22,001-$89,450 | $11,001-$44,725 | $15,701-$59,850 | n/a | 12% |
$44,726-$95,375 | $89,451-$190,750 | $44,726-$95,375 | $59,851-$95,350 | n/a | 22% |
$95,376-$182,100 | $190,751-$364,200 | $95,376-$182,100 | $95,351-$182,100 | $2,901-$10,550 | 24% |
$182,101-$231,250 | $364,201-$462,500 | $182,101-$231,250 | $182,101-$231,250 | n/a | 32% |
$231,251-$578,125 | $462,501-$693,750 | $231,251-$346,875 | $231,251-$578,100 | $10,551-$14,450 | 35% |
$578,126+ | $693,751+ | $346,876+ | $578,001+ | $14,451+ | 37% |
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Filing status and annual taxable income - 2023 | Long-term capital gain rate | ||||
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Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household | Trusts and Estates | Qualified dividends and other investments |
$0-$44,625 | $0-$89,250 | $0-$44,625 | $0-$59,750 | $0-$3,000 | 0% |
$44,626-$492,300 | $89,251-$553,850 | $44,626-$276,900 | $59,751-$492,300 | $3,001-$14,650 | 15% |
$492,301+ | $553,851+ | $276,901+ | $492,301+ | $14,651+ | 20% |
Fund analysis
The following table presents the federal tax cost on the fund's historical distributions (see second tab, table 6.) Keep in mind that the coupon and inflation adjusted distributions are not subject to state and local taxation if the fund is held in the taxable account. The third tab provides a breakdown of the yearly division of the fund distribution between coupon yield and inflation adjusted principal for years up to 2014. The averages are based on the results from the 2001-2018 life of the fund. One should note that the coupon yield of the fund is presently lower than the long term average, and that the fund's tax liability will increase or fall depending on the rise or fall of future inflation adjustments.
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Notes
- ↑ From 2007 Annual Report: The fund has adopted a tax year-end of December 31. The quarterly income dividends declared by the fund exceeded the fund’s taxable income for 2006. Accordingly, a portion of the fund’s income dividends was reallocated to return of capital to reflect its tax character.
- ↑
Table. Capital gains and return of capital table
(View Google Spreadsheet in browser, then File --> Download as to download the file.)
Note: If the spreadsheet is blank, select a different sheet, then back to that sheet. The image will be refreshed. - ↑ Fairmark says:
A portion of your ordinary dividend may be nonqualified because it can include items like these:
- Taxable interest. When a mutual fund receives taxable interest, the income gets paid out as a dividend. It's a dividend when it goes out of the mutual fund, but it wasn't a dividend when it came into the mutual fund, so it can't be a qualified dividend.
- Nonqualified dividends. Your mutual fund may receive dividends that are nonqualified. For example, the mutual fund may sell shares just 35 days after buying them, but after receiving a dividend. The mutual fund has to hold the shares at least 61 days to have a qualified dividend. Any amount the mutual fund receives as a nonqualified dividend gets paid to you as a nonqualified dividend.
- Short-term capital gain. When a mutual fund has a short-term capital gain, it pays this amount to the mutual fund shareholders as an ordinary dividend.
- Holding mutual fund shares less than 61 days. You should also be aware that any dividend you receive on mutual fund shares held less than 61 days is a nonqualified dividend, even if the mutual fund reports that amount to you as a qualified dividend. You don't have to buy the shares 61 days before the dividend is paid, but the total amount of time you hold the shares (including time before and after the dividend) has to be at least 61 days.
Almost all of the dividends distributed by Equity REITS come in the form of non-qualified dividends. Non-qualified dividends are taxed at marginal income tax rates.
See also
References
- ↑ 1.0 1.1 Dividend data is derived from the N-CSR filings 2007-forward; N-CSR filings 2003-2006; N-30D reports back to 1994
- ↑ Vanguard Tax Preparation Archive
- ↑ 3.0 3.1 Capital Gains are derived from annual reports, and are calculated by dividing the dollar amount capital gain distribution by the average net assets of the fund, derived from N-CEN;NSAR reports; snd NSAR filings 1994-2006
- ↑ Return of Capital dividends are derived from annual reports, and are calculated by dividing the dollar amount return of capital distribution by the average net assets of the fund, derived from N-CEN; NSAR reports 2007-forward; and NSAR filings 1994-2006.
- ↑ Larry E. Swedroe, What Wall Street Doesn’t Want You To Know, 2001, pp.227-28. ISBN 0312335725
External links
- Current tax attributes and distributions:Vanguard
- State Individual Income Tax Rates, 2019, The Tax Foundation
- US treasury interest:
- Recent data: Tax information funds, and Prior year tax data archive
- 2012 U.S. government obligations information • 2011 U.S. government obligations information • 2010 U.S. government obligations information • 2009 U.S. government obligations information • 2008 U.S. government obligations information • 2007 U.S. government obligations information • 2006 U.S. government obligations information • 2005 U.S. government obligations information • 2004 U.S. government obligations information