Vanguard's $106 million target-date fund settlement offers a key lesson about taxes

Published On Jan 23, 2025, 9:54 AM

Vanguard Group has reached a $106 million settlement with the SEC regarding the tax implications of its target-date funds (TDFs). The SEC alleged that Vanguard misled investors about the tax consequences associated with a reduction in the asset minimum for a lower-cost version of its TDFs. This led to higher capital gains distributions for those remaining in more expensive share classes, particularly impacting investors in taxable brokerage accounts as opposed to tax-advantaged accounts. The situation emphasizes the importance for investors of strategically placing tax-inefficient assets in retirement accounts to avoid significant tax liabilities and enhance net investment returns after taxes.