No. of Recommendations: 1
TTRoberts wrote,

The lower figure of around 1.5 percentage points is the number Vanguards study came up with for such index funds that are supposed to be so tax efficient.

I don't know the source of the 1.5% figure, but Vanguard also offers a Tax-Managed Index fund designed to eliminate the involunary capital gains distributions that plague many mutual funds. You still have to pay ordinary income taxes on the annual dividend. If the dividend is 1.5% and you're in the 28% bracket, it works out to 0.42%. Add the 0.42% to the 0.17% annual expense ratio and you get 0.59%. It would be very hard to find a 403(b) arrangement with annual expenses as low as 0.59% -- and then you still pay ordinary income taxes on all your earnings. Most of the earnings from the Tax-Managed Index Fund would be taxed at the lower capital gains rate.

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