Index funds and taxable accounts

jerry

I almost posted this in the thread that noted that even active funds that are outperforming are losing assets to index funds but I decided it might generate more discussion as a separate thread .scussion as a separate thread

Speaking for myself I am truly sorry that since 2013 I did not have most of the assets in my taxable accounts in index funds(until that year distributions were not that large). Outperformance by up to 3% does not compensate for 10% or more capital gain distributions which throw me into a higher bracket and make me exposed to other penalties Even worse any underperformance can result in large withdrawals by others resulting in even larger distributions. Selling the funds is no solution as that results in a bigger tax bill.Obviously if I had to do it all over again I would do it differently . Any ideas would be appreciated as my current strategy of avoiding taxes is to die and that strategy has flaws

VintageFreak

Hmmm...actually I have no index funds in my taxable accounts. I have index funds in my retirement accounts. I consider distributions as income and/or taking money of the table.

bee

Index funds are usually more tax efficient. Tax managed funds are another option.

I feel this is one area most of us have less experience with. As I noted in another thread:

Many of us are not well versed in managing tax efficient accounts since most of our excess cash usually goes into tax deferred accounts during the accumulation stage of our lives. Now, after age 70.5, we can't contribute and must begin distributions from these types of investments (tax deferred accounts).

Managing investment in taxable accounts require an understanding of how these investments are impacted by taxes.

Fidelity's take on managing taxes and investements:
https://fidelity.com/viewpoints/investing-ideas/tax-strategy

US News:
money.usnews.com/money/personal-finance/mutual-funds/articles/2015/02/09/your-guide-to-tax-efficient-investing

Kitces:
https://kitces.com/blog/tax-managed-mutual-funds-avoid-tax-drag-but-cause-higher-tax-rates/