Author Topic: Best way to change 100% vtsax to 80/20 vtsax/vtiax  (Read 1354 times)

shanaling

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Best way to change 100% vtsax to 80/20 vtsax/vtiax
« on: November 18, 2019, 03:35:30 AM »
Iíve had traditional ira, roth ira, and taxable all in vtsax for years. I want to change to 80/20 with 20% vtiax. Whats the best way?

1. Sell vtsax and buy vtiax?
2. Put all new funds into vtiax? This will take a while to reach 80/20
3. Buy vtiax in tax advantaged accounts preferred over taxable? I live in california so have higher tax rates and i hear of a form that comes with buying vtiax in taxable.

Thanks!

mies

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #1 on: November 18, 2019, 05:12:32 AM »
I would leave the taxable account as is and just make the adjustments in your tax advantaged accounts.
« Last Edit: November 18, 2019, 07:11:39 AM by mies »

terran

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #2 on: November 18, 2019, 07:10:16 AM »
Itís usually better to hold bond funds in tax advantaged accounts since they throw off a lot of distributions that can be taxed. I would leave the taxable account all VTSAX so you donít have to pay taxes on any capital gains. If you have VTSAX in an IRA, you could sell all of that, buy VTIAX, and make next years Roth contribution be all VTIAX. If you have 401k that has access to VTIAX, you could make new contributions to VTIAX until you reach your desired allocation.

TLDR; I would leave the taxable account as is and just make the adjustments in your tax advantaged accounts.

VTIAX is Vanguard's total international stock fund, not a bond fund.

It's usually suggested that you put international stock funds in taxable because the fund pays international taxes either way, and if it's in taxable you get a tax credit. It's pretty close to a wash because, though since international funds tend to pay higher dividends with more of the dividends being unqualified. This disadvantaged makes a bigger difference at higher tax rates.

I wouldn't realize capital gains to change from VTSAX to VTIAX in taxable. I'd probably sell/buy in tax advantaged accounts to get to your desired asset allocation. If you decide you want to start to switch to holding international in your taxable account you can do that with new contributions and switch back to VTSAX in tax advantaged accounts over time to maintain your asset allocation.

mies

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #3 on: November 18, 2019, 07:12:54 AM »
Itís usually better to hold bond funds in tax advantaged accounts since they throw off a lot of distributions that can be taxed. I would leave the taxable account all VTSAX so you donít have to pay taxes on any capital gains. If you have VTSAX in an IRA, you could sell all of that, buy VTIAX, and make next years Roth contribution be all VTIAX. If you have 401k that has access to VTIAX, you could make new contributions to VTIAX until you reach your desired allocation.

TLDR; I would leave the taxable account as is and just make the adjustments in your tax advantaged accounts.

VTIAX is Vanguard's total international stock fund, not a bond fund.

It's usually suggested that you put international stock funds in taxable because the fund pays international taxes either way, and if it's in taxable you get a tax credit. It's pretty close to a wash because, though since international funds tend to pay higher dividends with more of the dividends being unqualified. This disadvantaged makes a bigger difference at higher tax rates.

I wouldn't realize capital gains to change from VTSAX to VTIAX in taxable. I'd probably sell/buy in tax advantaged accounts to get to your desired asset allocation. If you decide you want to start to switch to holding international in your taxable account you can do that with new contributions and switch back to VTSAX in tax advantaged accounts over time to maintain your asset allocation.

I misread the symbol :P derp. Thanks for correcting me!

terran

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #4 on: November 18, 2019, 07:24:37 AM »
Itís usually better to hold bond funds in tax advantaged accounts since they throw off a lot of distributions that can be taxed. I would leave the taxable account all VTSAX so you donít have to pay taxes on any capital gains. If you have VTSAX in an IRA, you could sell all of that, buy VTIAX, and make next years Roth contribution be all VTIAX. If you have 401k that has access to VTIAX, you could make new contributions to VTIAX until you reach your desired allocation.

TLDR; I would leave the taxable account as is and just make the adjustments in your tax advantaged accounts.

VTIAX is Vanguard's total international stock fund, not a bond fund.

It's usually suggested that you put international stock funds in taxable because the fund pays international taxes either way, and if it's in taxable you get a tax credit. It's pretty close to a wash because, though since international funds tend to pay higher dividends with more of the dividends being unqualified. This disadvantaged makes a bigger difference at higher tax rates.

I wouldn't realize capital gains to change from VTSAX to VTIAX in taxable. I'd probably sell/buy in tax advantaged accounts to get to your desired asset allocation. If you decide you want to start to switch to holding international in your taxable account you can do that with new contributions and switch back to VTSAX in tax advantaged accounts over time to maintain your asset allocation.

I misread the symbol :P derp. Thanks for correcting me!

Your advice is still good for those contemplating a change to add a bond fund.

MustacheAndaHalf

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #5 on: November 19, 2019, 01:47:15 AM »
In a way, this is really a tax question.

Someone who has stocks held over a year (366 days) and makes under $39,376 in 2019 should definitely sell from taxable until their income + long-term gains add up to $39,376.  The bottom long-term gains tax bracket is zero.  You pay nothing.

The next bracket, 15%, extends all the way to $434,550.  This call is harder to make.  Will tax rates be above 15% before you pull money out in retirement?  It might make sense to have some "tax diversification" and do both: sell some taxable, convert some in retirement accounts.

terran

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Re: Best way to change 100% vtsax to 80/20 vtsax/vtiax
« Reply #6 on: November 19, 2019, 06:01:41 AM »
In a way, this is really a tax question.

Someone who has stocks held over a year (366 days) and makes under $39,376 in 2019 should definitely sell from taxable until their income + long-term gains add up to $39,376.  The bottom long-term gains tax bracket is zero.  You pay nothing.

The next bracket, 15%, extends all the way to $434,550.  This call is harder to make.  Will tax rates be above 15% before you pull money out in retirement?  It might make sense to have some "tax diversification" and do both: sell some taxable, convert some in retirement accounts.

Agreed.

Do be careful even if capital gains are taxed at 0% as it can still cause you to lose credits (the saver's tax credit, say) by raising AGI..