Foreign Tax Credit - VGTSX

AKK · Post by **AKK** » Wed Apr 04, 2007 11:17 pm

There was some discussion on this forum regarding having global funds in a taxable account due to foreign tax credit benefit they get.

I recently read in a book ("All About Index Funds") that Vanguard Total Intl Fund (VGTSX) does not qualify for foreign tax credit as it is a fund of funds and IRS does not allow tax credit for such funds!

The book is from 2002, does anyone know if the rules have changed?

FreeSpirit · Post by **FreeSpirit** » Wed Apr 04, 2007 11:34 pm

VGTSX is a fund of funds and the rules have not changed.

Take a look at the following foreign fund from Vanguard that allows foreign tax credit and still provides the same diversification as VGTSX:

Vanguard® FTSE All-World ex-US Index Fund
https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0770&FundIntExt=INT

AKK · Post by **AKK** » Thu Apr 05, 2007 2:15 am

Hmm.. There's lot to learn in investing. Thanks for your suggestion, I looked at that fund (VFWIX). It has a purchase fee of 0.25% and an expense ratio 0.08% more than VGTSX. I understand that VGTSX's expense ratio is variable and depends on its underlying funds.

I will have to wait and watch VFWIX's tax cost ratio as compared to VGTSX.

Desi · Post by **Desi** » Thu Apr 05, 2007 3:22 am

If you want to invest in VGTSX and still be able to claim foreign tax credit, then the best approach is to invest in the 3 components of VGTSX. The components are: VEURX, VPACX and VEIEX.

You can invest in the same ratios as VGTSX invests or round it or invest with over weighting or under weighting in any particular market as compared to VGTSX.

The above approach will work as long as the total investment is over approximately 20K to be able to invest in exactly the same ratios as VGTSX.
VEIEX forms about 15% of VGTSX and VEIEX has a minimum investment of $3000. If $3000 is to be 15% then $20,000 will be 100%.