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Learning, Sharing, and Teaching => Investor Alley => Topic started by: SimpleLifer on August 31, 2019, 08:52:35 AM

Title: windfall investment to VTSAX
Post by: SimpleLifer on August 31, 2019, 08:52:35 AM
I'm getting ready to move a windfall to VTSAX. I am NOT interested in sitting on cash and timing a dip. However, Vanguard does suggest avoiding "tax surprises" by being aware of dividend distribution dates:

Quote
To avoid buying the dividend and getting a tax surprise, you should check the capital gains and dividend distribution dates before buying mutual funds.

source: https://investor.vanguard.com/investing/online-trading/how-to-buy-shares

So my question is. What is the ideal time to invest in VTSAX based on this criteria?

tia!
Title: Re: windfall investment to VTSAX
Post by: JGS1980 on August 31, 2019, 09:22:55 AM
Ideal Time? --> ASAP

Just do the math.

If dividend distributions on VTSAX are are about 2%, and you catch 2 (max) quarterly distributions in the next 4 months, then you will owe taxes on the 1% dividends that you received.

Also known as [your current top marginal tax rate x 1%].

So if you are in the 22% tax bracket and invested 100K, you would owe an extra 220$. Considering Mr. Market can rise much more than 1/5 of 1% on any given day, much less any given 1-2 month period, I would consider the above pocket change.

I'd also note that if you lose (say 3%, in the next couple months), you can tax lost harvest and then get 3K x .22 = $660 in tax benefits next time you file in April 2020.

Check my math,

All the best,

JGS
Title: Re: windfall investment to VTSAX
Post by: RWD on August 31, 2019, 12:15:47 PM
The next dividend for VTSAX should be mid-late September. Probably not worth waiting just to miss one dividend distribution.
Title: Re: windfall investment to VTSAX
Post by: SimpleLifer on August 31, 2019, 01:30:06 PM
Thank you for your responses @RWD and @JGS1980.  This was very helpful!