Author Topic: Thoughts on Tax-Managed Funds  (Read 1897 times)

Seņora Savings

  • Stubble
  • **
  • Posts: 179
  • Age: 31
Thoughts on Tax-Managed Funds
« on: July 22, 2014, 02:36:36 PM »
I've been looking over my investment plan and have been considering investing in Tax-Managed Funds.

The two I'm looking at are VTCLX, ER = 0.12%, largest holdings: Apple, Exxon, Google
https://personal.vanguard.com/us/funds/snapshot?FundId=5102&FundIntExt=INT

and VTMSX, ER = 0.12%, Small Cap
https://personal.vanguard.com/us/funds/snapshot?FundId=0116&FundIntExt=INT

I'm currently in the 15% tax bracket and expect to stay there, but it would be easier to stay there is my funds didn't keep shooting off dividends and capital gains.

What do Mustachians think of tax managed funds?

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Thoughts on Tax-Managed Funds
« Reply #1 on: July 22, 2014, 03:01:14 PM »
Well as long as you  are in the 15% bracket you want divs and capital gains every year. Saves you the effort of tax gain harvesting.

Tax managed funds make no sense for you. Paying an extra .07% in ER  eats up the tax savings versus buying total market even if you got up into the 25% bracket. . Have tax rate on divs of 30%+ instead of 0%, and they make a ton more sense.

kyleaaa

  • Bristles
  • ***
  • Posts: 327
    • Kyle Bumpus
Re: Thoughts on Tax-Managed Funds
« Reply #2 on: July 22, 2014, 03:51:59 PM »
Tax managed funds don't really make sense for most people and definitely not for somebody in the 15% bracket. Plain-old index funds are just as tax-efficient for most. Don't worry so much about staying in the 15% tax bracket. You'll only be taxed at the higher amount on the marginal amount over the threshold and your index funds aren't going to be throwing off significant capital gains anyway.

Seņora Savings

  • Stubble
  • **
  • Posts: 179
  • Age: 31
Re: Thoughts on Tax-Managed Funds
« Reply #3 on: July 22, 2014, 04:40:56 PM »
Thanks for the feedback.

Don't worry so much about staying in the 15% tax bracket. You'll only be taxed at the higher amount on the marginal amount over the threshold and your index funds aren't going to be throwing off significant capital gains anyway

Does this apply even to capital gains taxes?  My impression was that once I hit the 25% bracket all of my qualified dividends and capital gains would be taxed at 15% instead of 0%.

foobar

  • Pencil Stache
  • ****
  • Posts: 731
Re: Thoughts on Tax-Managed Funds
« Reply #4 on: July 23, 2014, 02:54:03 PM »
Thanks for the feedback.

Don't worry so much about staying in the 15% tax bracket. You'll only be taxed at the higher amount on the marginal amount over the threshold and your index funds aren't going to be throwing off significant capital gains anyway

Does this apply even to capital gains taxes?  My impression was that once I hit the 25% bracket all of my qualified dividends and capital gains would be taxed at 15% instead of 0%.

http://www.bogleheads.org/wiki/Tax-managed_fund_comparison#Tax-managed_funds_versus_Total_Stock_Market . Your better off in a lower cost index fund. Now sometimes there are other random reasons (you lose out on some tax credit) that favor reducing income. At the end of the day it probably doesn't matter. You are looking at very small differences in taxes and returns between the two.