Tax-saving investments | Vanguard (2024)

FAQs

Is VTMFX good for a taxable account? ›

Investors in search of a balanced holding in their taxable accounts might consider Vanguard Tax-Managed Balanced VTMFX, which is low-cost and has managed to be exceedingly tax-efficient. Its 10-year tax-cost ratio of 0.47% is just 6% of its 7.27% 10-year annualized return.

Thanks to the tax treatment of in-kind redemptions, ETFs typically record no gains at all. That means the tax hit from winning stock bets is postponed until the investor sells the ETF, a perk holders of mutual funds, hedge funds and individual brokerage accounts don't typically enjoy.

Municipal bonds are generally free of federal tax because the interest from bonds issued by a state, municipality, or other local entity is exempt from federal taxation. As an added benefit, most states will allow a state tax exemption if the owner of the bond resides in the state of issue.

The fund's expense ratio is an ultra-low 0.11 percent, with the Admiral share class requiring a $10,000 minimum investment.

Q: How does the wash sale rule work? If you sell a security at a loss and buy the same or a substantially identical security within 30 calendar days before or after the sale, you won't be able to take a loss for that security on your current-year tax return.

As a result, both ETFs have a very low expense ratio of 0.03% and a minimum investment of $1.00. Since VTI and VOO are both ETFs, they have the same trading and liquidity, tax efficiency, and tax-loss harvesting rules.

VOO typically provides a higher dividend yield compared to SPY. This aspect is particularly attractive to investors who prioritize income generation from their investments.

Are REITs good for taxable accounts? ›

Tax benefits of REITs

Current federal tax provisions allow for a 20% deduction on pass-through income through the end of 2025. Individual REIT shareholders can deduct 20% of the taxable REIT dividend income they receive (but not for dividends that qualify for the capital gains rates).

VTMFX holds a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance. VTMFX is one of many Zacks' Allocation Balanced mutual funds to pick from.

ETFs can be more tax efficient compared to traditional mutual funds. Generally, holding an ETF in a taxable account will generate less tax liabilities than if you held a similarly structured mutual fund in the same account. From the perspective of the IRS, the tax treatment of ETFs and mutual funds are the same.

Stocks and Funds That Pay Dividends

Dividends are not a bad thing, but they are considered taxable income in the year you receive them. If you're invested in stocks or funds that generate a lot of dividend income, your current-year tax bills may be high.