Managing accounts to lower taxes | Vanguard (2024)

FAQs

Managing accounts to lower taxes | Vanguard? ›

By not selling any investments, you don't face any tax consequences. This strategy is called cash flow rebalancing. You can use this strategy on your own to save money, too, but it's only helpful within taxable accounts, not within retirement accounts such as IRAs and 401(k)s.

By not selling any investments, you don't face any tax consequences. This strategy is called cash flow rebalancing. You can use this strategy on your own to save money, too, but it's only helpful within taxable accounts, not within retirement accounts such as IRAs and 401(k)s.

Want to build tax-smart strategies into your plan? Working with Vanguard Personal Advisor® gives you anytime access to advisors who are fiduciaries—always acting in your best interests. You'll also receive a custom financial plan with built-in strategies to help minimize your tax burden.

Hold Funds in a Retirement Account

This means you can sell shares of your mutual fund or collect a capital gains distribution without paying the relevant taxes so long as you keep the money in that retirement account.

Ways to Minimize Taxes When Rebalancing

Tax-loss harvesting or adding new contributions to your account can both help minimize the impact of your rebalancing strategy. Avoid capital gains taxes by using new cash contributions to purchase assets that bring your allocation into balance.

Rebalancing usually does not increase long-term investment returns. It may reduce the volatility of your investment portfolio and keeps the asset allocation in sync with your risk tolerance.

What is the most tax-efficient investment? ›

Municipal bonds are very tax-efficient because the interest income isn't taxable at the federal level and it's often tax-exempt at the state and local level, too. 10 Munis are sometimes called triple-free because of this. These bonds are good candidates for taxable accounts because they're already tax efficient.

Tax-smart investing techniques, including tax-loss harvesting, are applied in managing certain taxable accounts on a limited basis, at the discretion of the portfolio manager, Strategic Advisers LLC (Strategic Advisers), primarily with respect to determining when assets in a client's account should be bought or sold.

Three target-date fund investors claim Vanguard violated its legal duties by triggering thousands of dollars in surprise tax bills. The plaintiffs claim the investment manager costs investors across the nation hundreds of millions of dollars in damages. The investors owned TDFs in taxable accounts.

The amount of cash you can withdraw from a bank in a single day will depend on the bank's cash withdrawal policy. Your bank may allow you to withdraw $5,000, $10,000 or even $20,000 in cash per day. Or your daily cash withdrawal limits may be well below these amounts.

As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.

Unless your bank has set a withdrawal limit of its own, you are free to take as much out of your bank account as you would like. It is, after all, your money. Here's the catch: If you withdraw $10,000 or more, it will trigger federal reporting requirements.

You can change your individual retirement account (IRA) holdings from stocks and bonds to cash, and vice versa, without being taxed or penalized. The act of switching assets is called portfolio rebalancing. There can be fees and costs related to portfolio rebalancing, including transaction fees.

Since a 401(k) is a tax-advantaged retirement account, you won't need to worry about paying taxes on the amounts you earn when you rebalance your portfolio. You'll only pay income taxes on your 401(k) money when it comes time to withdraw during retirement.

Selling assets to rebalance a portfolio will generate trading costs and perhaps also capital gains taxes. Instead, investors should buy more stock with cash if they're underweighted in equities. "Use cash flow to optimize rebalancing," Hasan says. Market dips can also be an opportunity to rebalance with cash.