Vanguard Total World Stock Index Fund tax distributions
|Vanguard Fund Info|
|Total World Stock Index|
The Vanguard Total World Index Fund is a very suitable candidate for placement in taxable accounts. The fund tracks the FTSE Global All Cap Index, a free-float-adjusted, market-capitalization-weighted index designed to measure the market performance of large-, mid-, and small-capitalization stocks of companies located around the world. The fund is an option as a core holding in a simple two (See Fig 1.) or three-fund portfolio. The table below summarizes the fund's relation to a number of tax factors.
The following tables provide long term data on the fund's history of both dividend and capital gains distributions. The first table also provides an estimate of the foreign tax credit.
The second table provides 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, a third table provides historical turnover ratios.
|The Vanguard Total World Fund has a fiscal year ending in October, so its reported distributions for a year reflect the prior year's December distribution of dividends and capital gains.|
The Vanguard Total World Index Fund has not distributed a capital gains distribution from its inception in 2008. Approximately 88% of the fund's historical dividend distributions have been qualified dividends, which under the current tax regime, are taxed at lower capital gains tax rates.
The fund has changed tracking indexes once in its history, making a minor change to include small cap and micro cap stocks in both US and international markets. The transition year of the benchmark change is marked in red shading.
|Year||Dividend Investor shares
|Dividend ETF shares
|Short-term Capital Gains
|Long-term Capital Gains|| Qualified Dividends
|Foreign tax credit
|(FY) Annual Return - Investor |
- FY 2012 - Elimination of 2% transaction fee on redemptions of shares held < 2 mos. 
- FY 2011, - Fund transitioned from the FTSE All-World Index to the FTSE Global All Cap Index on 12/19/2011.
- FY 2008 - dividend annualized
The accounting figures and associated ratios (tables 3 and 4) 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. Single digit annual fund turnover percentages result in a low rate of realized gains. 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 price lots for shares. The manager can select high basis shares when forced to sell a stock (this may realize a loss). The manager can also select low basis shares when redeeming a stock in-kind (a non-taxable transaction that can remove an unrealized gain out of the portfolio.) This redemption technique is primarily employed with institutional creation and redemption of ETF shares.[notes 2] Net inflows mean that shareholders are not forcing the manager to liquidate assets (and realize gains or losses) in order to meet redemptions. Large outflows can force such liquidation.
- 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. 
The level of unrealized gains and carryover realized losses in a fund: Index funds defer gains realization and often accumulate significant unrealized appreciation, which if distributed, would 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 (carryovers have an eight year expiration period).
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 39.6%. 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 15% tax brackets, at 15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets, and at 20% in the 39,6% tax bracket. 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, 43.4% on ordinary investment income.
|Filing status and annual taxable income - 2018||Ordinary income tax rate||Long-term capital gain rate|
|Single||Married Filing Jointly or Qualified Widow(er)||Married Filing Separately||Head of Household||Trusts and Estates||Collectibles and certain small business stock[* 1]||Unrecaptured Section 1250 gain|
In addition, there is a 3.8% Medicare tax rate on investment income in excess of an adjusted gross income of $200,000 ($250,000 for married filing jointly), and 0.9% on salary and self-employment income in excess of this level. See: ACA net investment income tax
|Filing status and annual taxable income - 2018||Long-term capital gain rate|
|Single||Married Filing Jointly or Qualified Widow(er)||Married Filing Separately||Head of Household||Trusts and Estates||Qualified dividends and other investments|
|$38,601-$425,800||$77,201 - $479,000||$38,601-$239,500||$51,701-$452,400||$2,601-$12,700||15%|
- The foreign tax credit is estimated from annual reports and EDGAR NSAR reports by dividing the foreign tax paid by the average net assets of the fund:
Table 6. Foreign tax credit
(View Google Spreadsheet in browser, then File --> Download as to download the file.)
- When a fund redeems ETF shares, it prepares a basket of securities that it exchanges in-kind to an institutional investor. The basket often includes a modest cash component for exact settlement. An astute ETF manager can use this as an opportunity to raise cash by selling some high basis stock for a realized loss. At fund inception, the fund offered both mutual fund and exchange-traded fund shares. The fund has consistently maintained a sizable percentage of fund assets in exchanged-traded fund shares.
Chart: ETF ratio to total fund assets
google drive spreadsheet
- 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.
- Dividend data is derived from the Complete filings: N-CSR reports back to 2003; N-30D reports back to 1994
- 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.
- Data derived from Vanguard site.
- Data derived from annual reports.
- More Vanguard funds eliminate or reduce fees, Viewed 11/10/2012.
- Larry E. Swedroe, What Wall Street Doesn’t Want You To Know, 2001, pp.227-28. ISBN 0312335725
- Current tax attributes and distributions: Vanguard
- State Individual Income Tax Rates, 2000-2014, The Tax Foundation
- 2014 QDI • QDI 2013 • QDI 2012 • QDI 2011 • QDI 2010 • QDI 2009 • QDI 2008 • QDI 2007 • QDI 2006 • QDI 2004