Talk:Tax-efficient fund placement

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Reader feedback: It would be good if examples... posted this comment on 1 June 2014 (view all feedback).

It would be good if examples of tax efficient funds (non-retirement) were provided or ways to find/look for them. But great info

Take a look in Tax-managed fund comparison. LadyGeek 21:17, 1 June 2014 (CDT)

Reader feedback: Very poor graphics to show p... posted this comment on 22 September 2014 (view all feedback).

Very poor graphics to show placement. Also poor coverage of reits and mlps

Any thoughts?

Blbarnitz 14:38, 22 September 2014 (CDT)

MLPs are overly complex investments held by a minority of investors and are not appropriate for the introductory level of coverage intended here. REITs are discussed under equities, but not in any great level of detail - it's sufficient for the intended audience.

As for graphics, I don't see how the presentation can be improved. The ranking was discussed in the forum and wiki, which represents a consensus. I don't think anything needs to be changed. --LadyGeek 20:27, 23 September 2014 (CDT)

Reader feedback: No, but how can I e-mail this to a friend? posted this comment on 1 January 2015 (view all feedback).

No, but how can I e-mail this to a friend?

The bottom left-side menu of every wiki page has an entry "Print/export". Select "Download as PDF" then email it to your friend. LadyGeek 15:40, 1 January 2015 (CST)

Reader feedback: Please explain pretax cost i... posted this comment on 27 March 2015 (view all feedback).

Please explain pretax cost is this increase in mutual fund price only or does it include distributions as well as how are total tax liabilities determined and what formula did you use to annualize them Do an an example for one mutual fund. I have spent a few hours and I can't figure it out. Other than that problem well done article but lack of explanation of tax liabilities at sale is a major shortcoming.

Any thoughts?

LadyGeek 19:51, 27 March 2015 (CDT)

Reader feedback: The article neglects the eff... posted this comment on 28 August 2015 (view all feedback).

The article neglects the effect of state taxes when discussing placement of international funds in taxable accounts. It is true that there is a potential tax advantage because you can take advantage of the foreign tax credit on your federal income taxes. However, this is not possible for many if not most state income taxes. Also the advantage of deducting the foreign tax credit is often offset by other tax inefficiencies of international funds. For example, Vanguard Total International Stock typically has some amount of non-qualified dividend distribution. Morningstar does not give this fund a very good tax efficiency score.

State taxes are usually neutral for US versus international funds. Since no state distinguishes qualified dividends, and only a few states allow a foreign tax credit, most states will impose equal tax on US and foreign funds with equal yields. The fact that foreign funds have more non-qualified dividends is already discussed here (for example, in the table); combining the non-qualified dividends and the foreign tax credit usually gives a lower effective tax rate.

There is an ongoing issue with recent higher yields in international funds, which makes them less tax-efficient as long as dividend yields remain higher; again, the page already mentions this.Grabiner 21:12, 28 August 2015 (CDT)


Is there a reason this page isn't called simply Tax-efficient fund placement? Cwenger 11:03, 21 January 2016 (EST)

Since there were no comments in a few weeks, I went ahead and made this move. Cwenger 11:41, 5 February 2016 (EST)

Tax-deferred versus tax-free

I think we need to clarify in this article when we mean tax-deferred, tax-free, or tax-advantaged (i.e. either). For purposes of tax efficiency, I believe tax-deferred and tax-free are equivalent, so we should simply say tax-advantaged. However, among the funds in your tax-advantaged accounts, I believe you want to prefer holding ones with higher long-term return in your tax-free accounts. No evidence to back this up, just intuition. Cwenger 09:34, 3 August 2016 (EDT)

See Tax-adjusted asset allocation; it doesn't actually make much difference whether you hold higher-returning funds in tax-deferred or tax-free, once you adjust for the fact that the IRS owns part of your tax-deferred account.Grabiner 19:44, 3 August 2016 (EDT)

Thanks. I don't fully understand but I assume you are correct. But if this is the case shouldn't this article reflect that tax-deferred and tax-free accounts are equivalent? Currently it implies that tax-deferred is preferable for the most tax-inefficient investments. On the other hand, the article you linked does say "If all else is equal (and it often isn't because of limited 401(k) options), it is slightly better to put assets with higher expected returns in the Roth." In either case, I think it would be beneficial to clarify. Cwenger 12:22, 8 August 2016 (EDT)

Reader feedback: Table of tax costs should be... posted this comment on 21 April 2019 (view all feedback).

Table of tax costs should be updated to include the 2019 Sec 199a 20% pass-through tax credit for some REIT dividends. REITs should be held in tax-deferred or tax-free accounts, but still, the 199a dividends can be a significant portion of the total - in my case about 40%).

Any thoughts?

LadyGeek 00:44, 23 April 2019 (UTC)

I updated the table for the 2018 tax law. (The table still needs more changes, as ETFs and tax-managed funds have been able to avoid all capital gains, which makes some difference in relative tax efficiency.) Grabiner 13:32, 23 April 2019 (UTC)

Illogical objective: less taxes (instead of higher lifelong after-tax available income)

I've explained in Bogleheads® forum post: Time to update asset location rules of thumb? [1 of 2] and Bogleheads® forum post: Time to update asset location rules of thumb? [2 of 2] that aiming for lower taxes using single-year calculations is illogical. In a few words, poorer people pay less taxes. I argue that the objective should be to aim for higher lifelong after-tax available income (or cash flows, after savings). I've also explained that there's a lot of uncertainty about future outcomes and suggested that a mirror asset location strategy might be good enough, especially when using an all-in-one investment such a LifeStrategy or Target Retirement fund. I definitely suggest to make the page less biased towards bonds in tax-advantaged accounts and to put a lot more emphasis on the significant uncertainty of future outcomes.

--longinvest 13:54, 5 July 2020 (UTC)