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Vanguard After Tax funds
Old 05-10-2019, 04:00 PM   #1
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Vanguard After Tax funds

Our after tax fund Wellesley threw off a lot of CG & dividends last year and expect our after tax fund to grow over the years so I am thinking of changing to something more tax efficient for the long term.

Plan on doing roth conversions the next few years followed by RMD's so would like to keep our taxes as low as possible.

Our spending is low so only expect to make withdrawals if we are making a major purchase. I realize if we go with an all equities fund we will have to balance that with changes in our ira to keep the same overall percent of equities vs bonds.

What are others using for your after tax funds and how is it working out for you?
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Old 05-10-2019, 04:26 PM   #2
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VTSAX. Works very well for me. I take and spend the quarterly dividends. Beyond that I realize some capital gains to meet spending needs and then do some Roth conversions up to my chosen AGI.
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Old 05-10-2019, 04:26 PM   #3
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To optimize your tax efficiency, it's recommended to be all stocks in taxable accounts and keep interest bearing and high turnover funds in IRA/401K/ROTH.

I'm trying to do this, selling stock and buying interest things in IRA , while keeping stocks in taxable accounts.
As for the taxable accounts, I tend toward ETF's as they don't throw off as much in surprise capital gains.
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Old 05-10-2019, 05:42 PM   #4
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+1 on Sunset's approach. I don't arrange assets 100% in that manner but do lean that direction.
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Old 05-10-2019, 09:06 PM   #5
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I prefer international equities and domestic equities in my taxable accounts.

For the international equities most dividends are qualified dividends and I get the foreign tax credit that more than offset the ordinary income tax on any non-qualified dividends.

For domestic equities all dividends are qualified.

Since I manage our income to be in the 0% qualified income/LTCG bracket all of our taxable account income has a 1% effective tax rate.
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Old 05-11-2019, 05:43 AM   #6
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Take a look at Vanguard Tax Managed Balanced (VTMFX). ~50% VG Tax-Managed Capital Appreciation and ~50% VG Interm-Term Tax Exempt fund. .09 ER and managed to minimize taxable distributions. Has not paid a taxable cap gain since inception. FANTASTIC performance (top 10%) in it's category over every period..see attached.

If you run a performance comparison chart for Wellesley and VTMFX on M* or elsewhere, you can see that it tracks Wellesley very closely. Beats Wellesley in the 3, 5 and 10 year periods which is not unexpected given the slightly higher exposure to equities (50% to VWIAX's 30'ish%). Wellesley does slightly edge out VTMFX over the 15 year period, but only by a quarter percent or so.

I'd never hold Wellesley in a taxable account, but in my experience VTMFX is as "Wellesley-like" as you can find for a fund that fits well in taxable.
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Old 05-11-2019, 10:54 AM   #7
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Take a look at Vanguard Tax Managed Balanced (VTMFX). ~50% VG Tax-Managed Capital Appreciation and ~50% VG Interm-Term Tax Exempt fund. .09 ER and managed to minimize taxable distributions. Has not paid a taxable cap gain since inception. FANTASTIC performance (top 10%) in it's category over every period..see attached.

If you run a performance comparison chart for Wellesley and VTMFX on M* or elsewhere, you can see that it tracks Wellesley very closely. Beats Wellesley in the 3, 5 and 10 year periods which is not unexpected given the slightly higher exposure to equities (50% to VWIAX's 30'ish%). Wellesley does slightly edge out VTMFX over the 15 year period, but only by a quarter percent or so.

I'd never hold Wellesley in a taxable account, but in my experience VTMFX is as "Wellesley-like" as you can find for a fund that fits well in taxable.
Thanks missed that one, that looks promising and wouldn't throw my portfolio way out of balance.
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Old 05-12-2019, 09:29 AM   #8
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Take a look at Vanguard Tax Managed Balanced (VTMFX). ~50% VG Tax-Managed Capital Appreciation and ~50% VG Interm-Term Tax Exempt fund. .09 ER and managed to minimize taxable distributions. Has not paid a taxable cap gain since inception. FANTASTIC performance (top 10%) in it's category over every period..see attached.

If you run a performance comparison chart for Wellesley and VTMFX on M* or elsewhere, you can see that it tracks Wellesley very closely. Beats Wellesley in the 3, 5 and 10 year periods which is not unexpected given the slightly higher exposure to equities (50% to VWIAX's 30'ish%). Wellesley does slightly edge out VTMFX over the 15 year period, but only by a quarter percent or so.

I'd never hold Wellesley in a taxable account, but in my experience VTMFX is as "Wellesley-like" as you can find for a fund that fits well in taxable.
+1 VTMFX performance is in the ballpark with WELS. I read Wellesley and Wellington threw off an unusually high amount of CGs do to a tweaking of strategy this year. As I understand it, municipal bond DIVs are not taxed Federally (for your future RMDs), but added back to ones income for determining Federal tax on Social Security. VTMFX DIVs are taxed in my state as ordinary income - only specific state muni bonds are tax exempt. Vanguard Tax Managed Capital Appreciation (VTCLX) performs well, as does their Total Stock and S&P 500 indexes for minimizing taxes.
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Old 05-12-2019, 03:11 PM   #9
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Ran the numbers for last year and Vanguard Tax Managed Balanced (VTMFX) would have saved us about $600 in federal taxes and probably a little in state too. Leaning towards moving funds to VTMFX. Wondering what magic Wellesley does to get almost the same returns with 30% equities vs 50% for VTMFX. I guess this makes VTMFX riskier during bad years.
Thanks for all the replies
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Old 05-12-2019, 03:53 PM   #10
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Ran the numbers for last year and Vanguard Tax Managed Balanced (VTMFX) would have saved us about $600 in federal taxes and probably a little in state too. Leaning towards moving funds to VTMFX. Wondering what magic Wellesley does to get almost the same returns with 30% equities vs 50% for VTMFX. I guess this makes VTMFX riskier during bad years.
Thanks for all the replies

Compare VTMFX to Wellington's performance as well...
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Old 05-12-2019, 04:45 PM   #11
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Compare VTMFX to Wellington's performance as well...
Wellington put out even more CG and dividends than Wellesley did.
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Old 05-12-2019, 06:06 PM   #12
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Ran the numbers for last year and Vanguard Tax Managed Balanced (VTMFX) would have saved us about $600 in federal taxes and probably a little in state too. Leaning towards moving funds to VTMFX. Wondering what magic Wellesley does to get almost the same returns with 30% equities vs 50% for VTMFX. I guess this makes VTMFX riskier during bad years.
Thanks for all the replies
If you "move funds" you will trigger a capital gain/loss. Before doing so, you should calculate what that is.
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Old 05-12-2019, 06:47 PM   #13
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If you "move funds" you will trigger a capital gain/loss. Before doing so, you should calculate what that is.
Yeah that could get complicated as I've had it for a long time and have added to it over the years plus it has done very well during that time. Is there an easy way to do this?

After looking, Thankfully Vanguard says about $2400 in unrealized gains.
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Old 05-13-2019, 10:47 AM   #14
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Ran the numbers for last year and Vanguard Tax Managed Balanced (VTMFX) would have saved us about $600 in federal taxes and probably a little in state too. Leaning towards moving funds to VTMFX. Wondering what magic Wellesley does to get almost the same returns with 30% equities vs 50% for VTMFX. I guess this makes VTMFX riskier during bad years.
Thanks for all the replies
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Compare VTMFX to Wellington's performance as well...
Quote:
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Wellington put out even more CG and dividends than Wellesley did.
I wasn't suggesting you move from Wellesley to Wellington, I was suggesting you compare Wellington's performance to VTMFX, based on your comparison post (included above) about Wellesley and VTMFX. VTMFX performance is in the ballpark with Wellesley as well as Wellington, but VTMFX is tax efficient for a balanced fund.

It's possible to move the funds from Wellesley to VTMFX and avoid capital gains taxes if you stay slightly under the 12% tax bracket (under $39375 single and $78,750 married filing jointly). I'm moving money like this now in our taxable accounts in anticipation of RMDs in two years.

https://thecollegeinvestor.com/23577...-tax-brackets/
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Old 05-13-2019, 11:02 AM   #15
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While it's generally good to keep funds that generate "taxable events" in an IRA, one thing to be careful of is that if you have funds that generate a lot of long term cap gains and dividends is that when they are in an IRA, those gains will effectively be taxed at ordinary income tax rates instead of at preferential rates when withdrawn. Funds generating a lot of short term gains and taxable interest income, of course, are best in an IRA.
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Old 05-13-2019, 04:31 PM   #16
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Generally we pay very low taxes and since the market hit today the unrealized gains dropped to $1770 so I will go ahead and sell and buy VTMFX. The gains will not cause us to pay taxes but will cut the amount we can convert to roth tax free.
The last 10 years my funds have averaged 9.3%. About 50% equities.
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Old 05-13-2019, 04:49 PM   #17
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While it's generally good to keep funds that generate "taxable events" in an IRA, one thing to be careful of is that if you have funds that generate a lot of long term cap gains and dividends is that when they are in an IRA, those gains will effectively be taxed at ordinary income tax rates instead of at preferential rates when withdrawn. Funds generating a lot of short term gains and taxable interest income, of course, are best in an IRA.
Ziggy how do you avoid long term cap gains and dividends within an IRA? I don't buy individual stocks only MF's.
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Old 05-13-2019, 05:44 PM   #18
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Ziggy how do you avoid long term cap gains and dividends within an IRA? I don't buy individual stocks only MF's.
There is no tax on any gains within a tIRA. Whatever you take out gets taxed at your regular income, whether it was a contribution , LTCG, dividend, or STCG. Since LTCGs are usually at a more favorable tax rate than regular income, you'd want to put anything heavy on LTCGs outside the tIRA if possible, and investments that generate more non-qualified dividends and STCGs that would be taxed at regular income rates anyway in a tIRA.

Mutual funds can generate capital gains through distributions, and when you sell a mutual fund any increase over the basis is taxed as a capital gain.
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Old 05-13-2019, 07:52 PM   #19
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That is what I thought, I must have misunderstood what he was saying.
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Old 05-13-2019, 09:46 PM   #20
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I wasn't suggesting you move from Wellesley to Wellington, I was suggesting you compare Wellington's performance to VTMFX, based on your comparison post (included above) about Wellesley and VTMFX. VTMFX performance is in the ballpark with Wellesley as well as Wellington, but VTMFX is tax efficient for a balanced fund.

It's possible to move the funds from Wellesley to VTMFX and avoid capital gains taxes if you stay slightly under the 12% tax bracket (under $39375 single and $78,750 married filing jointly). I'm moving money like this now in our taxable accounts in anticipation of RMDs in two years.

https://thecollegeinvestor.com/23577...-tax-brackets/
I should have said stay within the 12% tax bracket (for the zero capital gains tax bracket), but the amounts I stated sort of corrected my comment. My RMD actually starts in the year I turn 71, as I don't turn 70.5 until after January of the following year (gives me three more years to move money around).

We have been using taxable accounts, social security, and a little Roth (when needed) for living expenses the last ten years since we retired early. We've been manipulating income for ACA and taxes. I look to minimize any taxable account income once my RMD starts (wife's start 2 years later). I will pull RMD and then look to do additional withdrawals in the form of Roth conversions up to the 22% tax bracket. Our investments are spread out over TIRA, Taxable Accounts, and Roths (in that order of amounts). No pensions

Wanted to let you know, as I am somewhat walking in your shoes, and implementing pretty much what your asking about here. When our RMDs start - have no need to utilize taxable accounts for income (but maybe emergencies as they will inevitably come up). Our goal is to hopefully pass the taxable accounts on to our daughters - who will inherit them with a stepped up basis (no tax). Really worried about the ever changing Federal Govt. and their money grab attempt with them looking to eliminate the Legacy IRA (stretch IRA). If that scenario should ever come to pass - going to be a real big headache for us (and others in our situation).
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