Author Topic: I have a Target Date Fund in my Taxable Account  (Read 2809 times)

drumstache

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I have a Target Date Fund in my Taxable Account
« on: April 05, 2018, 08:34:50 AM »
Dumb mistake, but I have a small % of $ in a Target Date Fund in my taxable Account.

After reading up on this, I realize I should be keepin anything with Bond funds in my Tax Deferred account. (?)

It's only 14K, should I just leave it alone... or move it into VTSAX?

appleshampooid

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Re: I have a Target Date Fund in my Taxable Account
« Reply #1 on: April 05, 2018, 09:25:32 AM »
It depends on what the cost basis is on the shares, and if it would be a short term gain, your marginal tax rate. With the market down, it might be a good time to transfer it as the realized gains could be minimal, but hard to tell without more information.

If you are young, the bonds portion of the fund will be minimal so it's not that tax-inefficient. But will become more so as you age.

drumstache

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Re: I have a Target Date Fund in my Taxable Account
« Reply #2 on: April 05, 2018, 09:49:07 AM »
The shares were all bought within the past 6 months.

appleshampooid

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Re: I have a Target Date Fund in my Taxable Account
« Reply #3 on: April 05, 2018, 10:18:53 AM »
The shares were all bought within the past 6 months.
You almost certainly have a net loss then, given the recent correction. No reason I can think of not to sell them and transfer to VTSAX or whatever else makes sense given your asset allocation and account availability (for me, taxable accounts usually go into VTIAX (VXUS is the ETF equivalent) for maximum tax efficiency, but that's just me).

alanB

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Re: I have a Target Date Fund in my Taxable Account
« Reply #4 on: April 05, 2018, 10:19:37 AM »
Dumb mistake, but I have a small % of $ in a Target Date Fund in my taxable Account.

After reading up on this, I realize I should be keepin anything with Bond funds in my Tax Deferred account. (?)

It's only 14K, should I just leave it alone... or move it into VTSAX?

Unless you hold municipal bonds, those you would want definitely want in taxable account.  Then again, stocks tend to accrue more capital gains over time compared to bonds, so you could end up paying more tax (if you sell) in the future.  Not a problem if you are able to sneak into a low tax bracket, or it is part of an estate or donated to charity. 

What is the expense ratio of the target date fund?  If it is not too high I would just keep it.  Definitely sell if you can take a loss.

drumstache

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Re: I have a Target Date Fund in my Taxable Account
« Reply #5 on: April 05, 2018, 12:10:46 PM »
Unless you hold municipal bonds, those you would want definitely want in taxable account.  Then again, stocks tend to accrue more capital gains over time compared to bonds, so you could end up paying more tax (if you sell) in the future.  Not a problem if you are able to sneak into a low tax bracket, or it is part of an estate or donated to charity. 

What is the expense ratio of the target date fund?  If it is not too high I would just keep it.  Definitely sell if you can take a loss.

It is the VTHRX fund, I only have 14K in, expense ratio is .14%.

Radagast

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Re: I have a Target Date Fund in my Taxable Account
« Reply #6 on: April 05, 2018, 01:45:54 PM »
The small amount of bonds that Target Date Funds hold is not much of an issue at first. The problem is that the bond percentage will after a few decades become excessively large, and at that point you will take a massive tax hit to change that, or else have difficulties allocating around it.

drumstache

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Re: I have a Target Date Fund in my Taxable Account
« Reply #7 on: April 06, 2018, 01:03:36 PM »
Thanks for responses all.  Will transfer to VTSAX, and in the future keep anything with BONDS in the 401k pocket.

MDM

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Re: I have a Target Date Fund in my Taxable Account
« Reply #8 on: April 06, 2018, 05:13:03 PM »
See Tax-efficient fund placement - Bogleheads for a longer discussion, and note that there are differing suggestions within that article.

drumstache

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Re: I have a Target Date Fund in my Taxable Account
« Reply #9 on: April 10, 2018, 08:10:46 AM »
See Tax-efficient fund placement - Bogleheads for a longer discussion, and note that there are differing suggestions within that article.

Thanks for the link and info!