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Is VGTSX appropriate for a ROTH IRA
Old 12-15-2015, 04:24 PM   #1
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Is VGTSX appropriate for a ROTH IRA

DH & I are over income limits to contribute to a Roth. However, based on what I have learned here and on BH, DH funded $6500 in a traditional IRA (MMA)and then converted it to a ROTH IRA (VGTSX) in 2013. DH did not have an existing IRA. The value is currently $6,079.
We did not fund the Roth in 2014, but are in the process of repeating the process for funding a 2015 Roth. My question is, is VGTSX a suitable choice for a ROTH. Our intent was to fund the IRA with an investment which had potential for growth and could grow tax free. I know there are no guarantees with investments, but is there a better investment choice within Vanguard for a Roth?
This is a very small portion of our overall investments. Stock 70, Bond 30
DH 401k $1.247 mil, Roth 6k
Me 401k $396k & IRA $232
CD 25k
Cash 75k
HSA 4k
Total 1.985 mil

As you can see, majority is in tax deferred, and I am trying to build svgs outside of tax deferred. So just want to get opinions if there are better options - or just continue with VGTSX. Thanks for your help.
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Old 12-15-2015, 04:45 PM   #2
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I guess VGTSX would be ok for a Roth... the only thing is that if you hold international equity funds in a taxable tax-deferred account then any foreign taxes paid goes to waste... if you hold international equity funds in a taxable account then you can get a credit for foreign taxes paid.

You might want to take a look at your tax placement in general. See http://www.bogleheads.org/wiki/Princ...fund_placement
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Old 12-15-2015, 05:13 PM   #3
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I agree with pb4uski.

Don't feel bad that fund is down over past 2 years. VGTSX or VXUS in ETF format is a good Core International Index Fund.
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Old 12-15-2015, 05:29 PM   #4
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Quote:
Originally Posted by pb4uski View Post
I guess VGTSX would be ok for a Roth... the only thing is that if you hold international equity funds in a taxable account then any foreign taxes paid goes to waste... if you hold international equity funds in a taxable account then you can get a credit for foreign taxes paid.

You might want to take a look at your tax placement in general. See http://www.bogleheads.org/wiki/Princ...fund_placement
Did you mean to say "tax deferred" rather than "taxable" when referring to foreign taxes being paid going to waste in a Roth?
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Old 12-15-2015, 05:37 PM   #5
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Did you mean to say "tax deferred" rather than "taxable" when referring to foreign taxes being paid going to waste in a Roth?
I think he did mean taxable (at least for the 2nd use). The first one is likely tax advantaged.

As far as I'm aware, if you hold VGTSX in a tax advantaged account (be it tax deferred or Roth), you won't be able to claim the foreign tax credit.
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Old 12-15-2015, 05:41 PM   #6
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Did you mean to say "tax deferred" rather than "taxable" when referring to foreign taxes being paid going to waste in a Roth?
Yes, I meant tax-deferred and edited the post to correct it. Thanks for noting that.
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Old 12-15-2015, 06:13 PM   #7
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The foreign tax credit is not such a big deal. VGTSX is perfectly suited for any account type: Taxable, traditional IRA, Roth IRA, 401(k), 403(b), etc.

Note that in a taxable account sure you would get the foreign tax credit (if you pay income taxes), but you will also pay taxes on the non-qualified portion of the dividend at your marginal income tax rate. In a Roth, you would not pay that higher tax rate. As it works out, you will pay less taxes if VGTSX is held in your Roth IRA even accounting for the FTC if you are in the 25% marginal income tax bracket.
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Old 12-15-2015, 07:19 PM   #8
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Here is how VFWAX (Vanguard FTSE All-World ex-US Index Fund) played out in my taxable account last year:

I received $100 of dividends. $28 was non-qualified dividends and I owed $4 in tax (15% marginal tax rate). I received a $5 tax credit. Net, I received $101.

Better than if I had held it in my Roth, but admittedly by only 1%.
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Old 12-16-2015, 08:42 AM   #9
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Great - Thank you for all your comments. I had not thought about the FTC, so that is a good point.
Alan - I will look at the link for tax placement in general. Good info from all.
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