VTMFX versus VTI plus VWITX

[Sid1975]

quick q pls

I looked at the 3 year tax cost ratio of VTMFX which is vanguard tax managed balanced index fund and it is 0.56 almost same as VTI

If I hold VTI-60% and VTMFX-40% that's almost same as VTI 80% and Vanguard intermediate term bonds-20% ( VTMFX is 50% large cap and 50% intermediate term muncipal bonds)

I plan to do this to save on state taxes, i live in Louisiana.

Any possible downside in doing this ?
I am doing it in my taxable account.

i know most people hold bonds in tax free accounts and I do too but i also want to hold some in taxable too
thanks

[sycamore]

quick q pls

I looked at the 3 year tax cost ratio of VTMFX which is vanguard tax managed balanced index fund and it is 0.56 almost same as VTI

If I hold VTI-60% and VTMFX-40% that's almost same as VTI 80% and Vanguard intermediate term bonds-20% ( VTMFX is 50% large cap and 50% intermediate term muncipal bonds)

I plan to do this to save on state taxes, i live in Louisiana.

Any possible downside in doing this ?
I am doing it in my taxable account.

i know most people hold bonds in tax free accounts and I do too but i also want to hold some in taxable too
thanks

One downside is there may come a time when you don't want the bond part of the balanced fund, but there's no way to get rid of just the bond part without selling the whole fund. You could incur large cap gains that way unnecessarily.

If you're keeping separate funds anyway, why not go with 80% VTI and 20% muni bonds? Why use a balanced fund at all?

[Sid1975]

Thanks

Is there any additional tax advantage in holding
VTMFX in taxable accounts when compared with similar combination of VTI plus intermediate term municipal bonds

[sycamore]

Thanks

Is there any additional tax advantage in holding
VTMFX in taxable accounts when compared with similar combination of VTI plus intermediate term municipal bonds

I think it's unlikely.

VTMFX may hold slightly fewer dividend paying stocks than VTI (and thus slightly lower impact on taxes) but the difference is likely small, like in the single basis point range. Probably offset by the lower ER of VTI 0.03% and VTEB 0.05% versus VTMFX at 0.09%.

[muffins14]

I agree this doesn’t seem like a great idea. If you “want” bonds in taxable, you don’t really have them. You have a balanced fund. So when you want to sell your bonds you can’t just sell bonds, you have to sell 2.5x the desired amount of the balanced fund, which could mean you’re pursuing taxes on the gains that arise due to appreciation of the stock portion.

It’s likely better to keep all bonds in tax-deferred, or if your marginal tax rates are high, have some municipal bonds in taxable

[Sid1975]

Thanks

Is there any additional tax advantage in holding
VTMFX in taxable accounts when compared with similar combination of VTI plus intermediate term municipal bonds

I think it's unlikely.

VTMFX may hold slightly fewer dividend paying stocks than VTI (and thus slightly lower impact on taxes) but the difference is likely small, like in the single basis point range. Probably offset by the lower ER of VTI 0.03% and VTEB 0.05% versus VTMFX at 0.09%.

Ok thanks

[Sid1975]

If I hold VWITX- intermediate term tax exempt in taxable account, compared with holding BIV in tax sheltered is there a significant tax difference

I am in high tax bracket .
I want to hold VWITX for diversification purposes

My retirement account is tied to total market funds
I don’t want to make changes there now but
The new money can go into BIV

So the question is holding vwitx in taxable puts me at
Disadvantage compared to holding BIV in tax free accounts?
If yes roughly how much?
Thanks 4 help

[Sid1975]

I agree this doesn’t seem like a great idea. If you “want” bonds in taxable, you don’t really have them. You have a balanced fund. So when you want to sell your bonds you can’t just sell bonds, you have to sell 2.5x the desired amount of the balanced fund, which could mean you’re pursuing taxes on the gains that arise due to appreciation of the stock portion.

It’s likely better to keep all bonds in tax-deferred, or if your marginal tax rates are high, have some municipal bonds in taxable

I agree I plan to but VWITX into taxable
Have a quick question

is holding vwitx in taxable puts me at
Disadvantage compared to holding BIV in tax free accounts?
If yes roughly how much?

[skeptical]

Thanks

Is there any additional tax advantage in holding
VTMFX in taxable accounts when compared with similar combination of VTI plus intermediate term municipal bonds

There are a number of tax differences between VTMFX and VTI/VWITX

FWIW, I use 50/50 VTI and VTEAX (recently changed VWIUX to VTEAX so I can go into VTEB for portability). I like the flexibility, and in any case, I will not take the tax hit on converting my VTI to VTMFX at this point.

- With VTMFX, you get rebalancing for free from inflow and outflows by others. Rebalancing can cost you about .1% to .2% per year, depending on tax bracket and basis. For example, if on an average year, VTI grows 6% more than VWITX (after VTI dividends) and you are at 50% basis, you need to sell 3% of your VWITX to rebalance, of which 1.5% are gains, and at a 20% cap gains (fed + state), you pay .15% of your portfolio per year. If there is a big year, say 25% gain in VTI, the tax hit could be considerable (maybe 1% or more of the portfolio) unless you let it ride.

- Keeping them separate allows you to tax loss harvest during volatile years. This worked out well (from a TLH perspective) this past year for VWIUX). Over the long run, TLH from VTI eventually diminishes, but the bond side has produced several opportunities for TLH over recent years.

Keeping them separate allows more flexibility in general. Some of these, related to taxes include:
- Ability to use the bond portion to raise capital instead of a loan, say, for a house purchase, incurring little tax obligation. This could be important if you are buying a house and will then sell your house
- As interest rates rise and dividends increase, it gives the option of moving part of VWIUX into state specific muni funds. When the dividends were 1.5%, the state tax on dividends was not large, but I am considering moving into state (MA) funds as the dividends from the muni side increase.

So, there are various tradeoff's involved.

[Sid1975]

Thanks

Is there any additional tax advantage in holding
VTMFX in taxable accounts when compared with similar combination of VTI plus intermediate term municipal bonds

There are a number of tax differences between VTMFX and VTI/VWITX

FWIW, I use 50/50 VTI and VTEAX (recently changed VWIUX to VTEAX so I can go into VTEB for portability). I like the flexibility, and in any case, I will not take the tax hit on converting my VTI to VTMFX at this point.

- With VTMFX, you get rebalancing for free from inflow and outflows by others. Rebalancing can cost you about .1% to .2% per year, depending on tax bracket and basis. For example, if on an average year, VTI grows 6% more than VWITX (after VTI dividends) and you are at 50% basis, you need to sell 3% of your VWITX to rebalance, of which 1.5% are gains, and at a 20% cap gains (fed + state), you pay .15% of your portfolio per year. If there is a big year, say 25% gain in VTI, the tax hit could be considerable (maybe 1% or more of the portfolio) unless you let it ride.

- Keeping them separate allows you to tax loss harvest during volatile years. This worked out well (from a TLH perspective) this past year for VWIUX). Over the long run, TLH from VTI eventually diminishes, but the bond side has produced several opportunities for TLH over recent years.

Keeping them separate allows more flexibility in general. Some of these, related to taxes include:
- Ability to use the bond portion to raise capital instead of a loan, say, for a house purchase, incurring little tax obligation. This could be important if you are buying a house and will then sell your house
- As interest rates rise and dividends increase, it gives the option of moving part of VWIUX into state specific muni funds. When the dividends were 1.5%, the state tax on dividends was not large, but I am considering moving into state (MA) funds as the dividends from the muni side increase.

So, there are various tradeoff's involved.

Thanks for the detailed explanation

I am leaning towards holding them separate like Vti/vanguard intermediate term municipal
Regarding rebalancing May be I will adjust by using new
Money

The follow up question then is

Does holding vwitx in taxable account add more taxes when compared to holding BIV in tax free accounts?
If yes roughly how much?

[skeptical]

The follow up question then is

Does holding vwitx in taxable account add more taxes when compared to holding BIV in tax free accounts?
If yes roughly how much?

I am not sure what you are asking. VWITX and BIV are different types of bond funds. Dividends on BIV will either be tax deferred or tax free depending on the tax deferred account, while VWITX will incur state taxes.

[dratkinson]

...

I am leaning towards holding them separate like Vti/vanguard intermediate term municipal (Preferred course.)
Regarding rebalancing May be I will adjust by using new
Money (Acceptable.)

The follow up question then is

Does holding vwitx in taxable account add more taxes when compared to holding BIV in tax free accounts? (No, probably less tax.*)
If yes roughly how much?

It's preferably to hold discrete (not blended nor all-in-one) funds in taxable. Why? This makes it easier to TLH (tax-loss-harvest), which can lower your taxes.
See: https://www.bogleheads.org/wiki/Tax_loss_harvesting

By skewing your taxable account to bonds, this frees space in your tax-free accounts for more stocks which historically are expected to grow more. Your older retired self and beneficiaries will thank you.

VWITX is a national muni fund, meaning it's fed tax exempt, but state taxable.

* If you put all bonds in tax-free (a waste of tax-free space) and all stocks in taxable, even tax-efficient stock funds are taxed at both fed+state levels. But national muni funds are fed tax exempt, so taxes should be less by putting muni bonds in taxable. But if you can benefit from a single-state muni fund, then they are triple tax exempt: fed, state, city.


Bottom line.
--Being more easily able to TLH should reduce your taxes.
--Using tax-efficient stocks + munis in taxable should reduce your total (fed+state) tax---because national munis are fed tax exempt.
--Using all stocks in tax-free should increase expected long-term growth---because stocks are expected to grow more than bonds.

But for a more targeted response, you'll need to request a forum review of your investments.
--Copy/paste sticky "Asking Portfolio Questions" to your PC as a Word document: viewtopic.php?t=6212
--Edit/overwrite sticky/Word document with ALL of your information.
--When done, post it into a new topic.
--And we'll resume from there.



A belated "Welcome."

[Sid1975]

Appreciate you taking time and answering each question
Separately .

I am going to streamline my portfolio across all accounts
And going to post it soon .

Great forum with cool people

[Northern Flicker]

I believe VTMFX is essentially:

48% VTCLX
52% VWITX

If your goal is to save on state taxes, treasuries are exempt from state taxes. VSIGX/VGIT would be an intermediate option. Based on your federal and state brackets, you can calculate the after-tax yield for both. Also keep in mind that treasuries are a bit lower risk.

VTMFX is ok, but you give up control over the separate asset classes.