This is my understanding, please correct me if wrong:
Though it depends partially on tax bracket, contributing an equal amount to a total international fund in a tax-advantaged account and a total US fund in a taxable account, assuming otherwise equal returns, will, over the long term, very slightly outperform the alternative (international in taxable, total US in tax-advantaged).
VIIIX pays 1.4% in dividends at 95.9% qualified, so at 38.8% marginal tax bracket total return is reduced 0.275%.
VTSNX pays 3.07% in dividends at 80.4% qualified, and pays 8.52% foreign tax (as of 2022, estimating based on Vanguard's literature here). So at the same tax bracket, return is reduced 0.698%; given that you pay 0.26% as foreign tax (assuming this is on the dividend as a whole), and get that credited, return is actually reduced 0.437%.
Putting VIIIX in tax-advantaged thus improves yield by 0.275%. Putting VTSNX in tax-advantaged removes the US portion of the tax on dividends only (increasing return by 0.437%) but removes the foreign tax credit (0.26%), so return is increased by 0.698%-0.26% = 0.438%.
Because the absolute return is increased more for VTSNX vs VIIIX, assuming otherwise similar returns, this favors international in tax-advantaged.
Granted, over a 30-year period the difference in returns between the two options is <1%, and in the future returns may vary, as may dividend situations, so I personally am planning on keeping a minority proportion of international holdings in taxable.
Though it depends partially on tax bracket, contributing an equal amount to a total international fund in a tax-advantaged account and a total US fund in a taxable account, assuming otherwise equal returns, will, over the long term, very slightly outperform the alternative (international in taxable, total US in tax-advantaged).
VIIIX pays 1.4% in dividends at 95.9% qualified, so at 38.8% marginal tax bracket total return is reduced 0.275%.
VTSNX pays 3.07% in dividends at 80.4% qualified, and pays 8.52% foreign tax (as of 2022, estimating based on Vanguard's literature here). So at the same tax bracket, return is reduced 0.698%; given that you pay 0.26% as foreign tax (assuming this is on the dividend as a whole), and get that credited, return is actually reduced 0.437%.
Putting VIIIX in tax-advantaged thus improves yield by 0.275%. Putting VTSNX in tax-advantaged removes the US portion of the tax on dividends only (increasing return by 0.437%) but removes the foreign tax credit (0.26%), so return is increased by 0.698%-0.26% = 0.438%.
Because the absolute return is increased more for VTSNX vs VIIIX, assuming otherwise similar returns, this favors international in tax-advantaged.
Granted, over a 30-year period the difference in returns between the two options is <1%, and in the future returns may vary, as may dividend situations, so I personally am planning on keeping a minority proportion of international holdings in taxable.
Statistics: Posted by breakfastinbed — Sat Jul 20, 2024 12:26 am