Vanguard Wellington CG distribution ..... ouch.

These sorts of funds really need to be in an IRA. I had my daughter choose a target fund as an investment, but that thing kicked off some crazy high distributions, creating a big tax bill for her. Seemed like a good idea at the time!

So ETFs are the way to go for me in taxable accounts.
 
ERD50 said:
These sorts of funds really need to be in an IRA. I had my daughter choose a target fund as an investment, but that thing kicked off some crazy high distributions, creating a big tax bill for her. Seemed like a good idea at the time!

So ETFs are the way to go for me in taxable accounts.
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Totally agree. Unfortunately my Wellington is in an after tax brokerage account that I setup almost 15 years ago (in addition to my 401k and IRA). On the plus side even though it's been my sole source of income that account is still thriving and I've yet to have to draw from my tax advantaged accounts, so I treat these distributions like annual draws that don't reduce my share count.
 
Yea, once you have built up some cap gains its tough to get out to any advantage. It's more of a forward looking thing. ETFs from now on.
 
Lucky for 94 yo DM that Wellesley is less than 2% currently. Since she's had it forever, it's now just a pay as you go item. I categorize it with the Ascending Annuity the nice man at the bank sold her years ago.
 
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I’ve whittled down my actively managed funds considerably, but still have some funds with very high unrealized cap gains so not easy to sell. These sometimes pay out a very large chunk in cap gains distributions.

I suppose the Vanguard Wellington fund is a bit of a warning for 2024. I’ve been a bit worried about that. That plus my interest income YTD is quite a bit more than last years.

Oh well, it could kick us up to a higher IRMAA level for 2026.

I won’t really know until estimates which usually come out in Nov. but two funds which have paid LTCG distributions so far this year, they are 3x what they were this time last year.
 
audreyh1 said:
I’ve whittled down my actively managed funds considerably, but still have some funds with very high unrealized cap gains so not easy to sell. These sometimes pay out a very large chunk in cap gains distributions.

I suppose the Vanguard Wellington fund is a bit of a warning for 2024. I’ve been a bit worried about that. That plus my interest income YTD is quite a bit more than last years.

Oh well, it could kick us up to a higher IRMAA level for 2026.

I won’t really know until estimates which usually come out in Nov. but two funds which have paid LTCG distributions so far this year, they are 3x what they were this time last year.
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We also have one actively managed fund with a large balance that is difficult to sell. Actually, it’s not difficult, just painful.

Last year we had a very large capital gain from one stock. Paying the tax isn’t fun, but at the same time it is a profit, and I’d rather pay taxes on a gain than harvest a tax loss.
 
I ditched almost all my active funds in the great 2008-09 clean-up cycle. I had a couple of smallish international funds that somehow I missed then and had the chance to ditch them at the bottom of the pandemic downtick. I have some modest carryover losses from bond tax loss harvesting recently but I'll bleed those off against ordinary income. I'm done taking capital gains - distributions or trading.
 
Also glad my Wellington is in IRAs. I ditched a few mutual funds over the last few years - after getting stung.

Sometimes even a blind squirrel finds a nut. :blush:
 
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I have a small position in a taxable account. Not worth bothering about. There are admiral shares in a rollover IRA. Dodged a bullet!
 
MichaelB said:
We also have one actively managed fund with a large balance that is difficult to sell. Actually, it’s not difficult, just painful.

Last year we had a very large capital gain from one stock. Paying the tax isn’t fun, but at the same time it is a profit, and I’d rather pay taxes on a gain than harvest a tax loss.
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Yes I meant painful. At this point, barring another major market sell off which I do take advantage of for tax management, I just have to wait on these funds to pay out enough in distributions to reduce my unrealized capital gains to a small enough amount.

I don’t think I have room against the IRMAA thresholds to do anything extra this year due to high interest income.
 
Someone should have told me this when I was younger. Excessive income when you're 65+ can be problematic. High interest income and a few modest jackpot winners at the casino has put me dangerous close to the next IRMAA level. Lucky for me I only have ETFs but even they can announce a capital gain distribution.
 
dmpi said:
Someone should have told me this when I was younger. Excessive income when you're 65+ can be problematic. High interest income and a few modest jackpot winners at the casino has put me dangerous close to the next IRMAA level. Lucky for me I only have ETFs but even they can announce a capital gain distribution.
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Fortunately they tend to be very small.

The index funds I own: Total Market Index total distributions tend to be no more than 2%. The other index funds tend to be under 3% total. For me anything under 5% is OK - I have to rebalance from somewhere.
 
Fortunately mine is in my IRA. I have the dividends put into a MM account to use for Vanguard's automatic RMD. That is the best I can do to keep things simple.
 
If the CG is too painful you could always donate the shares before the distribution and let the lucky recipient take the tax hit. ;)
 
I want to make sure I'm clear on why VWENX is best for a tax-deferred and tax-free account.

In the tax-deferred account, the capital gain distribution is reinvested, and original income taxes are paid when there is a distribution from the account.

In a tax-free account, the capital gain distribution is tax-free where there is a distribution from the account.

In a taxable account, the capital gain distribution is taxed at short term capital gain rate (ordinary income taxes) for the 2024 tax year whether you withdraw the distribution or not.

Are my statements above, correct?

So what funds are great to hold in a taxable account? Currently I have a MM fund (FZDXX) in my taxable account, and it generates monthly interest/dividends that I believe will be taxed as ordinary income tax rate and taxes are taxes are due for the 2024 tax year.
 
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G-Man said:
I want to make sure I'm clear on why VWENX is best for a tax-deferred and tax-free account.

In the tax-deferred account, the capital gain distribution is reinvested, and original income taxes are paid when there is a distribution from the account.

In a tax-free account, the capital gain distribution is tax-free where there is a distribution from the account.

In a taxable account, the capital gain distribution is taxed at short term capital gain rate (ordinary income taxes) for the 2024 tax year whether you withdraw the distribution or not.

Are my statements above, correct?

So what funds are great to hold in a taxable account? Currently I have a MM fund (FZDXX) in my taxable account, and it generates monthly interest/dividends that I believe will be taxed as ordinary income tax rate and taxes are taxes are due for the 2024 tax year.
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Individual stocks and ETFs are better for a taxable account, because you can control the timing of any capital gains you realize. Also, you can get qualified dividends taxed at LTCG rates.

I also keep a chunk of cash in my taxable account just for emergencies. I have it in VUSXX, because while I do get federally taxed on the earnings, it is exempt from state tax (the hurdle in CT, NY, and CA is higher than elsewhere for state tax exemption of federal source income).
 
I agree stocks and ETFs are better placed in taxable, but would add that selecting assets for taxable and tax deferred accounts also depends on how much of the total portfolio is tax deferred.

It is preferable to put higher income generating assets in tax deferred. However, if there is no room, a taxable asset such as a high earning bond or money market (or Wellington fund) can still have an acceptable after tax return.

It is important to know one’s marginal tax rate and also the impact of IRMAA.
 
G-Man said:
I want to make sure I'm clear on why VWENX is best for a tax-deferred and tax-free account.

In the tax-deferred account, the capital gain distribution is reinvested, and original income taxes are paid when there is a distribution from the account.

In a tax-free account, the capital gain distribution is tax-free where there is a distribution from the account.

In a taxable account, the capital gain distribution is taxed at short term capital gain rate (ordinary income taxes) for the 2024 tax year whether you withdraw the distribution or not.

Are my statements above, correct?

So what funds are great to hold in a taxable account? Currently I have a MM fund (FZDXX) in my taxable account, and it generates monthly interest/dividends that I believe will be taxed as ordinary income tax rate and taxes are taxes are due for the 2024 tax year.
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You would consider the tax rates you'll encounter along the way, and what income/capgains are paid to you.

If your income is low enough, you escape some tax pain.

Some funds pay lower amounts of income, and cap gains are rare. Funds like Wellesley and Wellington are forcing income on you. When that happens in a taxable account, you have to manage or mitigate the tax outcome. In general, like what was said previously, you can decide when to realize capital gains with certain investments. If you could find a reliable dividend, that may work for you.

WIth a MMF you get the income, and the NAV will likely not drop. Compare that with what happens with a stock or equity fund.
 
audreyh1 said:
Fortunately they tend to be very small.

The index funds I own: Total Market Index total distributions tend to be no more than 2%. The other index funds tend to be under 3% total. For me anything under 5% is OK - I have to rebalance from somewhere.
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I think you're talking about DIVIDENDS, not CGDs...
 
G-Man said:
I want to make sure I'm clear on why VWENX is best for a tax-deferred and tax-free account.

In the tax-deferred account, the capital gain distribution is reinvested, and original income taxes are paid when there is a distribution from the account.

In a tax-free account, the capital gain distribution is tax-free where there is a distribution from the account.

In a taxable account, the capital gain distribution is taxed at short term capital gain rate (ordinary income taxes) for the 2024 tax year whether you withdraw the distribution or not.

Are my statements above, correct?

So what funds are great to hold in a taxable account? Currently I have a MM fund (FZDXX) in my taxable account, and it generates monthly interest/dividends that I believe will be taxed as ordinary income tax rate and taxes are taxes are due for the 2024 tax year.
Click to expand...
This is approximately correct.
In any type of account, distributions from funds can either be reinvested back into the same fund that generated them or collected in your settlement fund and dealt with however you choose.

In a taxable account, CGDs can be either Short-term or Long-term and taxed accordingly.

As mentioned previously, best funds to hold in your taxable account are stock index funds. Either Mutual Funds or ETFs are fine...
 
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