Announcement

Collapse
No announcement yet.

Discuss Latest WCI Blog Post: 4 Lessons to Learn from the Vanguard Target Retirement LTCG Distribution Disaster

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • #31
    Thank you so
    much for the info!

    Comment


    • #32
      I was wondering how the heck we got a surprise 20k thingy from our vanguard account but I'm still a little confused. We pay a ltcg rate on the 20k but we didn't sell anything. Like I don't have 20k in my pocket now. But that's how it works- you are taxed on unrealized gains? Should we expect this yearly from here on out? I don't think this happened in 2020 . . . If we try and sell the target fund into??? Then we'd have a much bigger tax bill right? I'm not even sure what to do moving forward with the current funds.

      Comment


      • #33
        I had less than 10 K in target in taxable , sold it as soon as I understood what happened . This is just not fair !

        Comment


        • #34
          Originally posted by wideopenspaces View Post
          I was wondering how the heck we got a surprise 20k thingy from our vanguard account but I'm still a little confused. We pay a ltcg rate on the 20k but we didn't sell anything. Like I don't have 20k in my pocket now. But that's how it works- you are taxed on unrealized gains? Should we expect this yearly from here on out? I don't think this happened in 2020 . . . If we try and sell the target fund into??? Then we'd have a much bigger tax bill right? I'm not even sure what to do moving forward with the current funds.
          Ok, first, yes with mutual funds the capital gains are nominally passed through to investors even if unrealized by the investor. However, with Vanguard this does not happen with their mutual funds in general because of their patented system to use equivalent ETFs to absorb the gains. One issue here is that the TDFs do not have such an equivalent ETF. Second, it is not and will not be a common future occurrence because it was caused by a one time structural change that caused all the institutional investors to offload a particular TDF class to buy another cheaper one. This drove internal losses as the TDF sold underlying funds to pay redemptions. If you held the same TDF in taxable you got a “phantom” capital gain that is taxable. Still, third, you really should not hold TDFs in taxable because Vanguard does not protect you from this situation when it does (rarely) occur.

          If you decide to sell the TDF in taxable (just my personal recommendation) buy the total stock market index and the intermediate term tax exempt index, both in Admiral shares. Ok to add the international index if you want it, but I’d definitely skip the international bonds.

          Comment


          • #35
            One confusing thing - did peoples basis get raised or something? i realize people didnt want to pay taxes right now but these taxes were going to be paid eventually right?

            Comment


            • #36
              Originally posted by uksho View Post
              I had less than 10 K in target in taxable , sold it as soon as I understood what happened . This is just not fair !
              This is the risk of actively managed funds. Realized gains are distributed across all shareholders regardless of the reason for selling. This has been the law of the land for as long as I can remember. This is why I got out of actively managed MFs back in the 1990s, down markets caused selling by those heading for the doors. Buy and hold investors were left with the CG distribution. I didn’t enjoy paying CG tax on a MF that lost value. Market volatility happens, but paying CG tax when not selling justed added insult to injury..

              Comment


              • #37
                Originally posted by Tim View Post

                Again, my ignorance. Do MF's get to carry forward losses as individual investors? Again my ignorance, any portfolio manager is paid for "winners". Window dressing and poor investments at problematic. I can see unrealized losses or realized losses only in the index portfolio's. In this case of the VG fund liquidation. If the fund target was index, would that be different for an individual? I would think not, the investment target was the same.
                Not an argument or debate. Simply a question, is it really different?
                Yes, they're carried forward. Good point. Maybe it's not as different as l was saying. But there's still the possibility that someone that isn't a long term investor gets hosed when they buy into a fund with a bunch of gains they never enjoyed.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

                Comment


                • #38
                  Originally posted by Turf Doc View Post
                  One confusing thing - did peoples basis get raised or something? i realize people didnt want to pay taxes right now but these taxes were going to be paid eventually right?
                  Not if you donate to charity or leave to heirs.
                  Helping those who wear the white coat get a fair shake on Wall Street since 2011

                  Comment


                  • #39
                    Originally posted by uksho View Post
                    I had less than 10 K in target in taxable , sold it as soon as I understood what happened . This is just not fair !
                    i also have 20K in target in taxable from when I first started investing and didn’t know better. But I’m assuming that it’ll be a small amount of CG on 20k (maybe a few thousand at most) and it can be offset with TLH losses?

                    Comment


                    • #40
                      TDF in Vanguard are typically made up of other VG components. Each component seems like they could have been exchanged for the ETF shares and the shares the exchanged back at the higher basis. When the shares were liquidated, , higher basis, flushed through lag blah. But that would have been too much work maybe.

                      Comment


                      • #41
                        Originally posted by Dusn View Post

                        i also have 20K in target in taxable from when I first started investing and didn’t know better. But I’m assuming that it’ll be a small amount of CG on 20k (maybe a few thousand at most) and it can be offset with TLH losses?
                        Yes

                        Comment


                        • #42
                          Originally posted by Larry Ragman View Post

                          Ok, first, yes with mutual funds the capital gains are nominally passed through to investors even if unrealized by the investor. However, with Vanguard this does not happen with their mutual funds in general because of their patented system to use equivalent ETFs to absorb the gains. One issue here is that the TDFs do not have such an equivalent ETF. Second, it is not and will not be a common future occurrence because it was caused by a one time structural change that caused all the institutional investors to offload a particular TDF class to buy another cheaper one. This drove internal losses as the TDF sold underlying funds to pay redemptions. If you held the same TDF in taxable you got a “phantom” capital gain that is taxable. Still, third, you really should not hold TDFs in taxable because Vanguard does not protect you from this situation when it does (rarely) occur.

                          If you decide to sell the TDF in taxable (just my personal recommendation) buy the total stock market index and the intermediate term tax exempt index, both in Admiral shares. Ok to add the international index if you want it, but I’d definitely skip the international bonds.
                          Ok so index funds are still fine, just not in a TDF. I'm so annoyed with myself, I have a 3 fund portfolio in my retirement accounts but my husband set the taxable up and he always does a TDF in his retirement accounts and I just wasn't paying attention. Lesson learned!!

                          Comment


                          • #43
                            Originally posted by wideopenspaces View Post

                            Ok so index funds are still fine, just not in a TDF. I'm so annoyed with myself, I have a 3 fund portfolio in my retirement accounts but my husband set the taxable up and he always does a TDF in his retirement accounts and I just wasn't paying attention. Lesson learned!!
                            Don’t be too frustrated. Vanguard does not go out of their way to make clear that this whole scenario could occur. It would have been nice too if they had been more forthcoming in letting individuals know the ramifications in advance so they could exit before the big institutional moves. (As I recall they did tell retirement fund investors.) Pretty big public relations black eye even though it was technically a good move for their big institutional investors.

                            Comment


                            • #44
                              Originally posted by Dusn View Post

                              i also have 20K in target in taxable from when I first started investing and didn’t know better. But I’m assuming that it’ll be a small amount of CG on 20k (maybe a few thousand at most) and it can be offset with TLH losses?
                              Somehow , mine showed loss , it was only there for last 2-3 years

                              Comment


                              • #45
                                So I was one of the idiots that had a Vanguard Target Retirement Fund in a taxable account. With the recent market drops and drop in share value from the cap gains distribution, many of the shares I had now show a loss. I went ahead and sold a bunch for tax loss harvesting - You can specify which shares you are selling. I'll then put the money into index funds or maybe ETF's.

                                If you haven't already done so now might be a good time.

                                Comment

                                Working...
                                X