Author Topic: Taxable Account - Index Fund vs ETF  (Read 2917 times)

fattest_foot

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Taxable Account - Index Fund vs ETF
« on: November 27, 2017, 11:59:55 AM »
Last week I saw a thread somewhere on these forums (I wish I could find it again) about how index funds will sell mid-year and pass the tax burden of those sales onto the owners of the index funds.

For a taxable account, I've read that using an ETF solves this problem, however, I don't really understand what the difference is.

My wife and I currently have only about $15k in our taxable account, and I want to know if it's worthwhile to move it from VTSAX to VTI. Also, will that somehow alleviate any taxes we might owe for 2017 (my gut would say no, if those sales have already taken place). What limitations does buying an ETF impose over an index fund?

MDM

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Re: Taxable Account - Index Fund vs ETF
« Reply #1 on: November 27, 2017, 12:09:00 PM »
See https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds for discussion about this in general.  In your particular situation (VTSAX vs. VTI), as discussed in that wiki, there should be no difference.

boarder42

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Re: Taxable Account - Index Fund vs ETF
« Reply #2 on: November 27, 2017, 12:09:33 PM »
Vtsax and vti are the same. Vanguard has a patent on this. Someone can correct me if im wrong.

fattest_foot

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Re: Taxable Account - Index Fund vs ETF
« Reply #3 on: November 27, 2017, 01:49:54 PM »
See https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds for discussion about this in general.  In your particular situation (VTSAX vs. VTI), as discussed in that wiki, there should be no difference.

Excellent. So my take away from that and the above post is that if it were anyone but Vanguard, this would be a concern. But it sounds like Vanguard's index funds are structured like an ETF and don't suffer from the tax disadvantage?

boarder42

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Re: Taxable Account - Index Fund vs ETF
« Reply #4 on: November 27, 2017, 01:57:15 PM »
im pretty sure vanguard passes all the tax disadvantages into the ETF which makes is slightly worse than the admiral shares.

rpr

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Re: Taxable Account - Index Fund vs ETF
« Reply #5 on: November 27, 2017, 02:02:10 PM »
To me the biggest advantage of Indexed Mutual Funds vs. ETFs is the easy of ability to do automatic investment programs. This is explained in the document linked to by MDM.

Daisy

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Re: Taxable Account - Index Fund vs ETF
« Reply #6 on: November 27, 2017, 02:25:35 PM »
To me the biggest advantage of Indexed Mutual Funds vs. ETFs is the easy of ability to do automatic investment programs. This is explained in the document linked to by MDM.

Does the same idea work with withdrawals? Can you automate it?

rpr

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Re: Taxable Account - Index Fund vs ETF
« Reply #7 on: November 27, 2017, 02:32:40 PM »
To me the biggest advantage of Indexed Mutual Funds vs. ETFs is the easy of ability to do automatic investment programs. This is explained in the document linked to by MDM.

Does the same idea work with withdrawals? Can you automate it?
I have not tried it but there is an option at Vanguard to automate withdrawals. There are some small nuances to consider with cost basis if using Specific Identification.

seattlecyclone

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Re: Taxable Account - Index Fund vs ETF
« Reply #8 on: November 27, 2017, 02:51:52 PM »
I find the mutual fund shares to be easier to work with. I can just place an order for $x of VTSAX and Vanguard will withdraw that money from my checking account and invest it at the end of the next trading day. For ETFs I would have to initiate a transfer from checking to brokerage, wait for it to go through, log into Vanguard during stock market open hours, calculate how many shares I can buy for $x, place a limit order for approximately the current price, monitor it to make sure it actually goes through, etc. Once you've gone ahead and purchased the shares there's no real difference.