Author Topic: Tax efficiency: Vanguard REIT Fund (VGSLX) vs Dividend Growth (VDIGX)  (Read 6430 times)

pl28

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Hi everyone, just wondering if some one can help me understand the tax benefit or difference between these two funds from Vanguard. I'm opening an account with Vanguard (taxable account) and wanted to know what is best for tax planning wise. I have about 10K to invest and my plan is to re-invest dividends back into the fund for long term investing.
 
I understand that the REIT pays out dividend as does the Dividend Growth, so does that mean that they both going to be tax at my marginal rate in such that I receive a 1099-DIV at the end of the year? So in other words, there are no difference between them for tax purpose other than the individual performance?

Thanks in advance.

Khan

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Re: Tax efficiency: Vanguard REIT Fund (VGSLX) vs Dividend Growth (VDIGX)
« Reply #1 on: October 29, 2013, 02:30:02 AM »
The only link worth reading on the subject of tax efficiency:
http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement

There's no reason not to diversify between the two. That said, I'm more of a fan of dividend growth companies then REIT's. Seeing as it's in a taxable account, doubly so.

pl28

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Re: Tax efficiency: Vanguard REIT Fund (VGSLX) vs Dividend Growth (VDIGX)
« Reply #2 on: October 29, 2013, 10:17:03 AM »
Thanks Khanjar, that article really explains it. Looks like I probably need to have a mixture of these two funds and some other more tax benefit funds such as broad index fund and small caps.

Thanks again

tooqk4u22

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Re: Tax efficiency: Vanguard REIT Fund (VGSLX) vs Dividend Growth (VDIGX)
« Reply #3 on: October 29, 2013, 04:00:40 PM »
The REIT will be taxed at ordinary income rates and the divi fund will be taxed at investment rates.  If you are high earner then REIT funds should be in tax advantaged account.

kyleaaa

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Re: Tax efficiency: Vanguard REIT Fund (VGSLX) vs Dividend Growth (VDIGX)
« Reply #4 on: October 30, 2013, 09:23:58 AM »
REITs should almost always be in tax-advantaged accounts since the dividends don't qualify for the lower 15% dividend tax rate.