Need help in understanding qualified dividends

[Mikec]

This is my first post and am looking forward to hearing back.

I am thinking of investing in a taxable account an international mutual fund and want to make sure I am making the right choices. I was thinking of VTIAX (Vanguard Total International Stock index) since it has large, mid,small cap and emerging markets in one fund. The only concern I have is that only 70% of dividends are qualified.

Since this is for a taxable account, should I be looking at funds that have 90-100% qualified dividends? I want to have foreign exposure to large, mid, small and emerging markets, but am not sure if I have to look at multiple funds to do this as long as the qualified dividends are at the higher range.

Would appreciate any help in trying to gain a better understanding and if anyone has any fund choices that might be appropriate.

Thank you.

Mike

 

[pb4uski]

You want to have your international equity holdings in your taxable accounts since you can then get the benefit of the foreign income tax credit and you would lose the beneift of the credit if your international investments were in your tax-deferred or tax-free accounts. I also own VTIAX and have been pleased with it.

Also see http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement Step 3.

 

[Mikec]

Thanks PB for the response. This made it easier regarding my decision.

 

[LOL!]

There is some debate on bogleheads whether the foreign tax credit is worth it or offsets the 30% non-qualified dividends of Vanguard Total International Index fund. ETF ticker: VXUS

Another Vanguard fund, name Vanguard Tax-Managed Int'l fund pays 100% qualified dividends, but it follows the EAFE index and thus does not have any small-caps, emerging markets, nor Canadian stocks. ETF ticker: VEA.

And yet another way to do this is to own the Vanguard FTSE all-world ex-US funds: VEU and VSS.

If one was really into tax-management, one could synthesize VXUS with other funds (VEU + VSS or VEA + VSS + EWC + VWO) and place the most tax-efficient in taxable and those less-tax efficient in tax-advantaged. This might be worth it for folks taxed at 40+% on dividends such as high-income folks in California.