Park home sale proceeds 60% VWIUX/40% VTSAX?

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Topic Author
gponto18
Posts: 9
Joined: Fri Mar 26, 2021 10:54 pm

Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by gponto18 »

Looking to park home sale proceeds of $300K in a taxable account for 5+ years. We're in a 24% tax bracket so tax efficiency is a key consideration.

I'm considering:

60% VWIUX (Intermediate Tax-Exempt Bond Fund)
40% VTSAX (Total Stock Market Index)

Questions:

1. Will this deliver highly tax efficient dividends?
2. Will reinvesting dividends reduce tax burden?
3. VWIUX looks like an actively managed non-index fund. Is there an analogous passive index that delivers the same tax efficiencies?
4. By comparison I looked 100% VWIAX (Wellesley Income Fund), but was concerned about tax inefficiency; thoughts on this as an alternative?
Last edited by gponto18 on Sat Mar 27, 2021 6:30 am, edited 1 time in total.
strafe
Posts: 1071
Joined: Sat Mar 03, 2007 11:49 am

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by strafe »

Tip: You’ll get better replies if you post the fund names. Few people have ticker symbols memorized. I know one of the funds is total stock index. I don’t recognize the other.
sycamore
Posts: 6360
Joined: Tue May 08, 2018 12:06 pm

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by sycamore »

gponto18 wrote: Sat Mar 27, 2021 12:12 am ...
Questions:
1. Will this deliver highly tax efficient dividends?
2. Will reinvesting dividends reduce tax burden?
3. VWIUX looks like an actively managed non-index fund. Is there an analogous passive index that delivers the same tax efficiencies?
4. By comparison I looked 100% VWIAX (Wellesley Income Fund), but was concerned about tax inefficiency; thoughts on this as an alternative?
1. VTSAX doesn't distribute capital gains, and its dividends are 95% or more qualified. Some other funds like S&P 500 are 100%. I think VTSAX is good enough in terms of tax efficiency. VWIUX is good at minimizing the federal tax bite. Suggest you run the numbers on whether it'll deliver a better after-tax return compared to a taxable "total bond market" fund. At the 24% bracket my guess is that it's about even odds. Some months it'll be better, other months not.

2. No. You're taxed on distributions (divs & CGs) regardless of whether you reinvest them.

3. Yes, Vanguard Tax-Exempt Bond ETF. I consider VWIUX and VTEB both very good choices for muni bond investing. They're both very low cost which is the main thing.

4. I'd go with separate funds. Wellesley is fine in a tax-advantaged account but I don't know what its capital gains distributions are like.
Topic Author
gponto18
Posts: 9
Joined: Fri Mar 26, 2021 10:54 pm

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by gponto18 »

sycamore wrote: Sat Mar 27, 2021 7:29 am
gponto18 wrote: Sat Mar 27, 2021 12:12 am ...
Questions:
1. Will this deliver highly tax efficient dividends?
2. Will reinvesting dividends reduce tax burden?
3. VWIUX looks like an actively managed non-index fund. Is there an analogous passive index that delivers the same tax efficiencies?
4. By comparison I looked 100% VWIAX (Wellesley Income Fund), but was concerned about tax inefficiency; thoughts on this as an alternative?
1. VTSAX doesn't distribute capital gains, and its dividends are 95% or more qualified. Some other funds like S&P 500 are 100%. I think VTSAX is good enough in terms of tax efficiency. VWIUX is good at minimizing the federal tax bite. Suggest you run the numbers on whether it'll deliver a better after-tax return compared to a taxable "total bond market" fund. At the 24% bracket my guess is that it's about even odds. Some months it'll be better, other months not.

2. No. You're taxed on distributions (divs & CGs) regardless of whether you reinvest them.

3. Yes, Vanguard Tax-Exempt Bond ETF. I consider VWIUX and VTEB both very good choices for muni bond investing. They're both very low cost which is the main thing.

4. I'd go with separate funds. Wellesley is fine in a tax-advantaged account but I don't know what its capital gains distributions are like.
Following up from @sycamore's advice (thank you again) and other excellent guidance on this board to which I am grateful, I read: The Three Fund Portfolio. Applying its guidance, I am seriously looking at holding the following in taxable:

- 60% Vanguard Intermediate-Term Tax-Exempt Bond Fund
- 30% Vanguard Total Stock Market Index
- 10% Vanguard Total International Stock Market Index

vs

- 60% Vanguard High-Yield Tax-Exempt Bond Fund
- 30% Vanguard Total Stock Market Index
- 10% Vanguard Total International Stock Market Index

Thoughts?
sycamore
Posts: 6360
Joined: Tue May 08, 2018 12:06 pm

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by sycamore »

Those two portfolios are roughly equivalent. They're good choices for someone whose overall portfolio calls for 40/60 in taxable and who is wants tax-exempt bonds in the 24% bracket.

High-Yield Tax-Exempt Bond Fund had slightly larger drops in crises (like 2007-2009 and March 2020) and slightly larger gains otherwise. It gave a bit more reward for a bit more risk - looking at them in portfoliovisualizer.com, the Sharpe ratio for both was about the same.

Back when I held tax-exempt bonds, I chose the Intermediate-Term Tax-Exempt Bond Fund because of its higher credit quality.
Topic Author
gponto18
Posts: 9
Joined: Fri Mar 26, 2021 10:54 pm

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by gponto18 »

Thank you :sharebeer
Coopsdaddy
Posts: 49
Joined: Thu Mar 16, 2017 9:24 am

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by Coopsdaddy »

What are you hoping for in returns and what’s your plan at the 5 year mark?
Topic Author
gponto18
Posts: 9
Joined: Fri Mar 26, 2021 10:54 pm

Re: Park home sale proceeds 60% VWIUX/40% VTSAX?

Post by gponto18 »

Coopsdaddy wrote: Sun Apr 18, 2021 7:55 am What are you hoping for in returns and what’s your plan at the 5 year mark?
Quite honestly I am looking for an indefinite, tax efficient, passive income stream that rivals Wellesley (VWIAX). I could easily see myself staying this course for life.
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