Author Topic: Taxable investment strategy - Tax efficiency  (Read 1475 times)

mbl

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Taxable investment strategy - Tax efficiency
« on: March 10, 2016, 08:10:50 AM »
Just made the transfer from Matson Money DFA proprietary funds (big advisor/custodial fees), to Fidelity.
I have my 401(k) at Fidelity so all will be consolidated.

I've made a good selection of index funds for the IRA (75/25  Stock/Bond) but am not exactly certain how to proceed with my taxable account.
I took a quick look at the MUNI bonds  based on the thought of tax efficiency.

1. What is the best way to go to keep tax costs down yet still follow the Efficient Market method of index fund investing.
2. Have I answered my own question by just following what I'm doing for the IRA?
    NOTE: As there are more/better choices the portfolio I've put together is different from my 401(k).
3. Is there a part of an index fund investment strategy that is more tax efficient and those investments as part of an overall allocation should be held in the taxable account?

TIA



dandarc

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Re: Taxable investment strategy - Tax efficiency
« Reply #1 on: March 10, 2016, 09:33:28 AM »
You might want to read up on asset location:

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

Generally speaking, you'd want to not have bonds in your taxable account, unless they are tax exempt municipals.

Domestic equity in taxable isn't so bad as if you have good funds, the dividends are usually qualified and subject to lower tax rates.

International equity funds are a bit of a mixed bag - can have some unqualified dividends (Vanguard Total International has about 71% qualified dividends, for example) subject to ordinary income rates, but you might also get a tax credit for international taxes paid via the fund.

mbl

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Re: Taxable investment strategy - Tax efficiency
« Reply #2 on: March 10, 2016, 10:08:57 AM »

The Bogleheads description is a great compilation of what I realize I already knew, just organized in a logical discussion.
Very much appreciate your taking the time to respond.  Thanks

johnny847

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Re: Taxable investment strategy - Tax efficiency
« Reply #3 on: March 10, 2016, 10:14:26 AM »
International equity funds are a bit of a mixed bag - can have some unqualified dividends (Vanguard Total International has about 71% qualified dividends, for example) subject to ordinary income rates, but you might also get a tax credit for international taxes paid via the fund.

I've got a post where I walk through examples of the balancing act between the higher tax rates and the foreign tax credit. http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/msg721598/#msg721598

mbl

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Re: Taxable investment strategy - Tax efficiency
« Reply #4 on: March 10, 2016, 10:36:19 AM »
thanks Johnny....I can see as you've said that it's not always so straight forward.
I'm leaning towards index investing.
Creating a balanced index asset allocation across my retirement and non-retirement accounts.