ETF Tax Strategy: How to Optimally Place VTV and SCHD by Account Type

💰 ETF Investing: Taxes Matter Too

You now know that both VTV and SCHD are excellent value ETFs. But there is something just as important as choosing which ETF: which account to place them in.

A well-planned tax strategy can significantly change the actual amount you keep in your pocket, even with the same returns. Today, we will look specifically at how to place VTV and SCHD by account type.

📊 Basic Principle: The Relationship Between Dividends and Taxes

For Brokerage Accounts

Key Point: You are taxed every time you receive dividends.

Immediate taxation upon dividend receipt
Higher dividend rate means more annual taxes
Some loss of compound effect possible

For Retirement Accounts (IRA, 401k, etc.)

Key Point: Taxes are deferred until withdrawal.

No immediate tax on dividends received
Dividends reinvested for maximum compound effect
Taxed at withdrawal (except Roth IRA)

🏦 Optimal Placement Strategy by Account Type

Brokerage Account

Recommendation: Higher VTV allocation

Reason

VTV dividend yield: approximately 2.1%
SCHD dividend yield: approximately 3.8%
Lower dividends = less annual tax = more reinvestment

Specific Allocation Example

ETF	Brokerage Allocation	Reason
VTV	70-80%	Minimize taxes with lower dividends
SCHD	20-30%	Secure some income

So your best bet there might be to go heavier VTV in the brokerage account and maybe a little bit lighter SCHD in the brokerage account, if you want to keep taxes down but still want to have value.

Retirement Accounts (Traditional IRA, 401k)

Recommendation: Higher SCHD allocation

Reason

No immediate taxation on dividends
High dividends reinvested tax-free
Maximum compound effect possible

Specific Allocation Example

ETF	Retirement Account Allocation	Reason
SCHD	60-70%	Maximize dividend reinvestment with tax deferral
VTV	30-40%	Additional diversification effect

For Roth IRA

Best Combination: Focus on SCHD!

Reason

Roth IRA has no tax even at withdrawal
High dividends grow completely tax-free
Tax-free cash flow secured in retirement

If you have a Roth IRA, you do not have to worry about taxes in any way. But that is a different video.

📈 Practical Portfolio Examples

Scenario: 30-something Working Professional

Account Composition

Brokerage Account: 60% of investments
401k: 30% of investments
Roth IRA: 10% of investments

Optimal Placement

Account Type	VTV	SCHD	Reason
Brokerage	75%	25%	Minimize taxes
401k	40%	60%	Tax-deferred dividend reinvestment
Roth IRA	20%	80%	Completely tax-free growth

Scenario: 50-something Pre-retiree

Account Composition

Brokerage Account: 40% of investments
401k/IRA: 50% of investments
Roth IRA: 10% of investments

Optimal Placement

Account Type	VTV	SCHD	Reason
Brokerage	60%	40%	Tax management + some income
401k/IRA	30%	70%	Prepare retirement cash flow
Roth IRA	10%	90%	Maximize tax-free dividend income

💡 Key Principles Summary

Tax Efficiency Maximization Formula

Brokerage Account = Higher allocation to low-dividend ETF (VTV)
Retirement Account = Higher allocation to high-dividend ETF (SCHD)
Roth IRA = SCHD focus (completely tax-free)

Important Notes

Consider Personal Circumstances: Optimal strategy varies based on tax rate, investment horizon, and retirement timing
Rebalancing: Regular allocation adjustments needed
Tax Advisor Consultation: Professional advice recommended for large amounts

🎯 Conclusion

I honestly like both in both accounts. But if you are very worried about having too many dividends or whatever the case may be, or you just want to diversify, it is a good option.

There is a scenario where I add VTV specifically into my brokerage to keep those taxes down because I am trying to increase my amount of value because value over these next 5 to 10 years I think is going to be the play and that is where I want to be.

Continue your investing journey. Remember to keep investing simplified!