5 Best ETFs for Taxable Accounts

In a taxable brokerage account offers flexibility and liquidity but it also requires smart planning to minimize tax drag

The right exchange-traded funds (ETFs) can reduce capital gains exposure, limit taxable distributions, and maximize your after-tax returns, in this volatile climate

The best ETFs for taxable accounts typically have low turnover, track broad market indexes, and use in-kind redemption strategies to avoid triggering capital gains, given the current landscape

Some even focus on qualified dividend income (QDI) or employ tax-managed strategies to further reduce tax liability

This guide reviews the five best ETFs for taxable accounts using criteria from our Long-Term evaluation methodology, prioritizing funds that align with buy-and-hold strategies, minimize tax friction, and offer strong total return potential

However, Table of ContentsHow We Chose the Best ETFs for Taxable Accounts5 Best ETFs for Taxable Brokerage AccountsVanguard Total Stock Market Index Fund ETF (VTI) - Best for Broad U, amid market uncertainty

Additionally, Market ExposureSee All 11 ItemsHow We Chose the Best ETFs for Taxable AccountsUsing our long-term framework, we evaluated ETFs based on:Tax efficiency: Use of in-kind redemptions, low turnover, and minimal taxable distributionsDistributions: Preference for funds with qualified dividends or tax-managed payoutsTurnover rate: Lower turnover generally equates to lower capital gains realizationTotal return potential: Long-term performance net of taxes and feesFund access: Availability across major brokerages with no-load, no-commission optionsFee structure: Low expense ratios and transparent cost structuresDividend reinvestment: Access to dividend reinvestment plans (DRIPs) and auto-invest featuresInvestor education: Tools for screening, ing, and understanding long-term ETF performance5 Best ETFs for Taxable Brokerage AccountsThe ing ETFs stand out for their tax efficiency, low costs, and strong long-term return potential making them potentially well-suited for taxable investment accounts

DRIPs can apply to all of the ETFs listed, but whether they’re available depends on your brokerage platform and whether you’ve opted in to reinvest dividends automatically (something worth watching)

Vanguard Total Stock Market Index Fund ETF (VTI) - Best for Broad U

At the same time, Stock market, from large-cap to micro-cap companies

VTI also benefits from in-kind redemptions, helping minimize capital gains distributions

If you’re re dividends through a DRIP, be sure to track those reinvestments carefully to manage your cost basis for capital gains reporting

Un many mutual funds, IVV benefits from ETF-specific tax advantages, such as in-kind creation/redemption mechanisms

Why it works in a taxable account:Rarely distributes capital gainsEligible for qualified dividend treatmentLong-term exposure to leading U

CompaniesWidely available with no commission fees at most brokeragesVanguard U

Conversely, 86Buy stockStart Your Free 14-Day Benzinga TrialThe Vanguard U

Multifactor ETF is unique in the tax-managed ETF space

Moreover, It seeks exposure to U

Equities with factor tilts (value, quality, momentum), while actively managing for tax efficiency (fascinating analysis)

This includes harvesting losses and minimizing short-term gains

Tax-loss harvesting matters because it allows investors to offset capital gains with losses, reducing their taxable income and potentially imving after-tax returns over time

Additionally, Factor tilts such as leaning into value or low-volatility stocks, can help keep taxes low by reducing portfolio turnover, which minimizes short-term capital gains

Additionally, In contrast, By favoring long-term holding strategies and more tax-efficient asset classes, investors can potentially defer taxes and imve after-tax returns (quite telling), in light of current trends

Why it works in a taxable account:Actively managed with tax sensitivityDesigned specifically for taxable accountsExposure to smart beta factors without high turnoverHigher QDI-eligible income compared to many factor fundsis MSCI ACWI ex U (this bears monitoring), in light of current trends

Furthermore, The is MSCI ACWI ex U

ETF gives access to non-U

Developed and emerging, without duplicating U

Holdings that are already in a fund VTI or IVV (noteworthy indeed)

Moreover, It avoids overlap and allows better tax-loss harvesting strategies between asset classes

Why it works in a taxable account:International diversification without U (something worth watching)

Dividend Equity ETF offers exposure to high-quality U, in light of current trends

On the other hand, Dividend stocks with a focus on sustainable yield and capital appreciation

Nevertheless, It tracks an index designed to select companies with long records of dividend payments and strong fundamentals

With nearly all of its dividends classified as qualified, SCHD offers an excellent balance between income generation and tax efficiency

Conversely, Investors using DRIPs should remember that reinvested dividends are still taxed in the year received, even though no cash is taken out

Accurate recordkeeping is essential to avoid tax surprises later

These tax liabilities, often referred to as tax drag, can quietly erode your long-term returns, especially for investors with frequent distributions or high portfolio turnover, in this volatile climate

Tax-efficient ETFs help mitigate this impact by limiting taxable events

Funds with low turnover and minimal distributions allow more of your investment gains to remain untouched, compounding over time (something worth watching)

This leads to the conclusion that is especially beneficial for buy-and-hold investors focused on long-term growth, in today's financial world

One of the key advantages of ETFs over mutual funds is their in-kind redemption mechanism

This structure allows ETF managers to remove appreciated assets from the fund without triggering taxable capital gains

Combined with low expense ratios and index-based strategies, ETFs are often better suited for taxable accounts where minimizing taxes is part of the overall investment strategy

Furthermore, How to Maximize After-Tax ReturnsTo maximize after-tax returns in a taxable account, focus on low-turnover ETFs that minimize capital gains distributions and prioritize those generating qualified dividends, which are taxed at lower rates than ordinary income

However, Implement tax-loss harvesting when appriate to offset gains, and avoid overlapping funds to better isolate losses

Using dividend reinvestment plans (DRIPs) can help maintain compounding, but be cautious of wash-sale rules when repurchasing similar ETFs

Many brokerages, including Vanguard, Schwab, and Fidelity, offer tax-efficient tools and automation features to line these strategies over time

Nevertheless, Choosing ETFs That Work for Your Taxable AccountNot all ETFs are created equal when it comes to tax efficiency

Moreover, Dividend Equity der broad exposure with minimal tax impact, while specialized options Vanguard U (something worth watching)

Multifactor and is MSCI ACWI ex U, amid market uncertainty

Offer strategic diversification and smart tax-aware management

On the other hand, When selecting ETFs for a taxable account, look beyond just performance

However, Evaluate turnover rates, distribution history, dividend classification, and structure

Nevertheless, The right combination of tax efficiency and total return can significantly imve your after-tax wealth over the long term, given the current landscape

However, Frequently Asked QuestionsQWhat makes an ETF tax-efficient

ATax-efficient ETFs typically have low turnover, use in-kind redemptions, and limit capital gains distributions, in today's financial world

QShould I avoid bond ETFs in a taxable account (an important development)

AMany bond ETFs generate ordinary income taxed at higher rates

Unless you’re using municipal bond ETFs, fixed income is often better suited for tax-advantaged accounts, in this volatile climate

QIs dividend reinvestment a taxable event

Even if you reinvest dividends through a dividend reinvestment plan (DRIP), they are still taxable in the year received (noteworthy indeed).