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My wife and I have reached the point where, after fully funding our 401k plans, we have money available to invest in a taxable account. (We are not eligible for a Roth IRA; we are putting money into a T-IRA for her to convert in 2010, but that does not make sense for me since I have a significant amount of untaxed money in a Rollover IRA.)

My issue is -- what is the best way to do this to maximize the *net* gain once the impact of taxes are taken into account?

Some key information:
1. All investing will be done via mutual funds at Vanguard.
2. I have an asset allocation plan that includes 4 classes: US Total Market, Total International, REIT, and Fixed Income.

It seems like the best way to do things, from a tax perspective, is to try and keep the REIT and Fixed Income funds in the tax-sheltered accounts and only invest in the US and International Equities in the taxable accounts. (At least this would be true initially. Eventually, it might be sensible to have the dividend producing assets in the taxable account where you can live on the dividends. But that is an issue for another day!)

Anyway, I am looking at the Total US Stock Market Index Fund (VTSMX) and it looks like it is already very tax-friendly. In comparing it to the Tax Managed Growth and Income Fund (VTGIX), it seems like VTSMX is actually *more* tax efficient than the tax-managed fund. Further, it looks like the Total International Index Fund (VGTSX) is very tax-efficient as well.

So...the real question is -- are VTSMX and VGTSX already at a level of tax-efficiency that I don't really need to worry about finding tax-managed alternatives? I want to get the best return possible, but only if the extra effort is reasonable!

Thanks for any insights.

Acme
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