Author Topic: Tax on Vanguard account  (Read 1790 times)

isembard

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Tax on Vanguard account
« on: March 23, 2014, 09:51:32 AM »
Hello,
I'm 34, my wife and I live overseas and I work for a massive, private engineering firm. A colleague sent me over to MMM, and I'm hooked!
My question is this:
What kind of tax liability is incurred for a vanguard savings account? Say for instance if I bought into the S&P500 mutual fund.
I'm able to put down 50,000 as a principal, and 5000 a month after that, as long as we stay overseas. my 401k is already maxed out, and I already make a 5,500 per year contribution into a Roth IRA.
I've read a bit about capital gains tax, and dividend tax, and I "think," we'd be okay for the first few years, until the number of shares started to really make a difference with the dividends...
Any assistance greatly appreciated!

Joel

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Re: Tax on Vanguard account
« Reply #1 on: March 23, 2014, 09:56:54 AM »
You would receive taxable dividends quarterly (approx 2% of your total account annually). Further, You will be taxed on capital gains when you sell any shares.

Ideally you would hold the investments for at least over a year , making the capital gains long term and the tax rate would probably be 15% on just the gains.

Most of the dividends are qualified, so those will also be 15%. Some will be at your ordinary rate though.

Overall the account is tax advantaged some but the capital gains and qualified dividends rate could go up in the future. Even now at the highest tax bracket, I believe you can be hit with a 20% rate for capital gains.

isembard

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Re: Tax on Vanguard account
« Reply #2 on: March 23, 2014, 01:38:42 PM »
Thanks much. I've done some calculations, and the way I look at it we'll probably be ready to walk in about 10 years. Do you know if you're taxed twice when you start to withdrawal? Once for state and federal income tax and once again for any capital gains within the fund and dividends?

Joel

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Re: Tax on Vanguard account
« Reply #3 on: March 23, 2014, 01:50:38 PM »
The gains are taxed at the federal and state level. They are not something in addition to your normal taxes that you file annually with the irs and your state.