Vanguard Target Date funds (in taxable accounts) --- WHAT IS GOING ON?

[Anonymous]

Ok, so we have a substantial amount of money in Vanguard target date funds. I noticed in Dec. that there was a day when the reported value dropped something like 16%. I thought it must be a glitch and it would be fixed, as I hadn't heard anything about a market crash like that.

So, I saw that it wasn't ever corrected, but the value of my portfolio didn't change... it was just a large change in the price. Again, I didn't worry about it b/c I figured it had something to do with the distributions and that affected the list price of the mutual funds. No big deal.

But, today, when I see the tax statement from Vanguard --- I'm seeing a similar number for the total ordinary dividends (as we had reported last year), but the line for "2a Total Capital Distributions" is $161,000!

Again, that looks a little alarming, but maybe it doesn't make a big difference for my taxes --- OH NO! IT DOES. Suddenly, Turbo Tax says we owe $28,000 (!!!). We didn't do anything but HOLD these two Vanguard Target date funds for the year (and added to them).

WHAT THE HECK IS GOING ON????

This does not seem right or fair.

[Anonymous]

To be clear, I understand that we pay taxes on re-invested dividends.

I don't understand how two target date Vanguard funds that have been mostly the same amount of shares all year, suddenly are resulting in $28,000 MORE TAX Than they did in previous years.

[Anonymous]

Unless you have $10 million in the account, I'd be furious about a $161k distribution. I'd call them and see if they have an explanation. You're kind of screwed because you will get hit with even more gains if you try to sell and move elsewhere.

[Anonymous]

OP here again:

https://bucksco.today/2022/01/26/vanguard-change-target-retirement-funds/

I've always been a fan of Vanguard and we consolidated ALL of our investments with them (outside of TSP). I just want to cry right now because of this. I feel like Vanguard screwed us over -- like I believed in them 100% -- and they knifed me in the back.

[Anonymous]

How much do you have in these funds? Mutual funds do pass through their capital gains, but that's A LOT unless you own millions of dollars worth of shares.

[Anonymous]

Did they send you a 1099-R or 1099-DIV? It sounds like an error. Have you discussed with one of their managers? Give them a chance to fix it.

[Anonymous]

Anonymous wrote:OP here again:

https://bucksco.today/2022/01/26/vanguard-change-target-retirement-funds/

I've always been a fan of Vanguard and we consolidated ALL of our investments with them (outside of TSP). I just want to cry right now because of this. I feel like Vanguard screwed us over -- like I believed in them 100% -- and they knifed me in the back.

Yeah, same happened to me as well. My distribution was 11% (different fund). I don't know why Vanguard did that but it sucks.

[Anonymous]

I am sorry OP. It seems that you should not hold these target date funds in a taxable account. I did not know this either.

[Anonymous]

Wow I just looked it up and they paid out $7.55 per share in long term cap gains on the 2040 fund.... that's HIGH. As a comparison, the T Rowe Price 2040 paid out $1.61. Honestly Vanguard should have a long explanation as to why this happened and why they didn't manage it better...

[Anonymous]

Anonymous wrote:I am sorry OP. It seems that you should not hold these target date funds in a taxable account. I did not know this either.

This is NOT typical.

[Anonymous]

Anonymous wrote:Did they send you a 1099-R or 1099-DIV? It sounds like an error. Have you discussed with one of their managers? Give them a chance to fix it.

PP again. Just read the article. I'd still talk to them and see what they can do. Is there any discussion on bogleheads?

[Anonymous]

WSJ ran an article about this last weekend. It appears folks were putting their after tax dollars into Target date funds. And due to institutional changes last year there was a lot of buying an selling by the big institutions which generated the taxable distribution for the average investor.

Bottom line is you have to be very cautious where you put your taxable investments.

[Anonymous]

https://www.wsj.com/articles/vanguard-target-retirement-tax-bill-surprise-11642781228?mod=hp_featst_pos4

Target date funds are not appropriate for taxable accounts for this reason. You have not control over what the fund manager does that could trigger capital gains distributions.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Did they send you a 1099-R or 1099-DIV? It sounds like an error. Have you discussed with one of their managers? Give them a chance to fix it.

PP again. Just read the article. I'd still talk to them and see what they can do. Is there any discussion on bogleheads?

There's absolutely NOTHING than can be done. Vanguard can't just reverse the sales of their investments that caused the gains.

Ultimately, you made the money and owe the taxes on it. Period.

[Anonymous]

Anonymous wrote:OP here again:

https://bucksco.today/2022/01/26/vanguard-change-target-retirement-funds/

I've always been a fan of Vanguard and we consolidated ALL of our investments with them (outside of TSP). I just want to cry right now because of this. I feel like Vanguard screwed us over -- like I believed in them 100% -- and they knifed me in the back.

OP how did you pick these funds? If you did it on your own, then how is that the fault of Vanguard?