Many retirees are in 15% tax bracket because they do not have taxable earned income and this rule applies:
"0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets"
To me this means, as long as I can remain in 15%, I can invest for total return, including qualified dividends.Any suggestions of funds(conservative to moderate) might be a good holding in a taxable account. No need to necessarily be tax efficient. After deductions, I expect to be able to have about $50,000 I can earn and remain in 15% bracket.
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Lets pretend that the 15% tax rate stops at 40,000
Your income from work is 30,000
Your investment income (long-term gains and dividend income) is 15,000
In this situation your "qualified" investment income has pushed you above the 15% rate. It is my understanding that any "qualified" money above that rate will be taxed at the higher level. Also, any bond/money market ( not municipal tax friendly types ) are taxed as ordinary income.
Please keep in mind that all tax friendly investments are on the chopping block.....and i'm no enrolled agent.
Edit: Before i invest in any dividend producing fund ( inside my taxable account ) I always call the fund company. I ask questions like: Last year what percentage of the funds income was qualified/ what percantage was income from other sources. You might be very surprised.
"Normally" (I use that term very cautiously)
If one has $72,400 of "ordinary income", and $10,000 of cap gains/qualified dividends, then one is still in the 15% tax bracket by this common parlance. Yet nearly all of the cap gains are taxed at 15%, not 0%, because they push the total taxable income over $72,500.
These calculations have the bizarre effect of creating a 30% tax bracket. Say you have $70K in ordinary income, and $2500 in cap gains. The cap gains are taxed at 0%. Now add $1 to your ordinary income. That $1 is taxed at 15%, but you've also pushed $1 of cap gains over the $72,500 line, so that $1 in cap gains is now taxed at 15% also. So for that extra $1 in income, you're paying 30c extra in taxes. That's a 30% marginal rate!
On the other hand, if your total taxable income comes in under $72,500, you should think about doing a Roth conversion that brings your total income just up to the $72,500 limit. You cap gains/qualified divs will still get taxed at 0%, your conversion will get taxed at 15%, and you'll have reduced future RMDs (giving you the ability to generate more qualified divs at 0% tax rate).
Specifically, you wrote that you have about $50K buffer. If you only generate $35K in qualified divs and cap gains, then you might want to convert $15K of IRAs. Alternatively, you could sell (and immediately repurchase) securities to generate a $15K cap gain. That would get taxed at 0%, and reset your basis so that in the future, you'd see $15K less gain when you "really" sold your securities.
A fund that comes immediately to mind is Vanguard Dividend Appreciation (VDAIX, VIG). Using this as a template, I did a quick search for domestic equity fund with tax cost ratio under 0.9% and yield over 2%, and below average risk. M* shows only 43 distinct funds.
Ignoring the load funds, the ones that mortals can't get (e.g. GMO), a few pop out:
American Century Equity Income (TWEIX)
Cullen High Dividend Equity (CHDEX)
JPMorgan Equity Income A (OIEIX) - NL via Schwab
Oseterweis (OSTFX) - a mid cap blend fund
Parnassus Equity Income (PRBLX)
Vanguard Dividend Growth (VDIGX)
Vanguard Equity Income (VEIPX, VEIRX)
Though it doesn't quite pass this screen, I'd add T. Rowe Price Equity Income (PRFDX). It's an average risk fund.
In addition to msf's points, muni bond funds can be generating very healthy returns. Everyone's situation is different.
Bravo, msf. And this can be done by folk who don't employ accountants or tax advisors.