Thank you for this update. I was one of those people caught in this mess who got a huge tax bill. I put some money in one of these funds to hold for a few months until we figured out what to do with the proceeds of a house sale. Little did I know I was setting myself up for a huge tax mess and a huge disappointment with vanguard 🤦♀️
Thank you Rob!!! Long-time fan, here. I was looking at tax loss harvest opportunities, and couldn't for the life of me figure out what the deal was with my basis on the 2025 & 2050 funds that I own. NOW IT ALL MAKES SENSE!!! This pisses me off to no end. Next week, I will begin taking steps to cease being a Vanguard accountholder. I only have +/- $400k across all my accounts, so they won't care. But I'll be sure to tell my brother. He's got more in Vanguard than me, and wait till I tell him what they did. He will hit "TILT".
The argument that capital gains taxes would be due anyway doesn't hold water. First, there are State taxes. A person may accumulate wealth in California and spend it it Florida. Second, there is a step-up basis avoiding capital gains taxes altogether. And third, as you mentioned the withdrawal may be spread out in time rather than being taken as a lump sum -- again, reducing the tax liability.
Thank you very much for this update. My mother experienced these unexpected distributions from Vanguard in 2021. I'm glad you covered the damages question. While it may be hard to prove paying capital gains early rises to the level of damages, my mother's Medicare premium went up a lot as a result of this imaginary "income". I think there is a strong case for damages in this case. Thankfully the premium will return to normal this year.
Vanguard has lost it. After 30 yrs or so as a loyal customer I'm moving on. What Vanguard doesnt understand is that Ive guided many customers to Vanguard. No more. I've been screwed by Vanguard for the last time. Poor John Bogle is turning over in his grave.
Where you going? Fidelity? I have accounts at both. I also have accounts at Schwab and e trade. I’m not affected by this but would be good to know alternatives. I guess I always felt that vanguard was among the best and maybe they were but not anymore?
@dynasty5618 that's where I'm at, employer 401k VFIFX TD 2050 is what I'm stuck with. Thankfully it is fully funded by them, and my money goes where I chose in my IRA.
Thanks for this update. Although I knew it was NOT recommended to invest in target date funds within a taxable account, I did it anyway based on a review of the historical data Vanguard provided. It hit me hard.
Excellent and clean analysis, without getting buried in the minutiae. Isn’t Vanguard special - in that it is owned by its fund owners, that is, us investors? An interesting conundrum.
Good point. It always felt that this ownership construct has no real world consequences and just makes for good advertisement. Just another point that shows this.
I can imagine Mr Bogle walking to the office and up to the manager and slapping the s*** out of him for hurting the investors. He would never allow this to happen
I never trusted any target date funds. I figured the fund managers would invest in a more risky manner than they advertised. Then I read they weren't following their own guidelines. This was many companies, not just Vanguard. But I didn't know about this issue.
I'm wondering why someone would keep target-date retirement funds in a non-retirement account? If these are retirement funds in an IRA/401k (tax deferred) or Roth (all gains are tax free) then there would be no immediate tax impact, correct? I'm certainly missing something. Maybe an investor maxed out their contributions to retirement accounts but wanted to keep investing in that fund? To be clear, I'm not blaming the investors for this mess. It's obviously Vanguard's screw-up. Just curious about the investing decisions involved.
Unless I misunderstand, it is also true that the plaintiffs are taxable accounts in excess of $100 million, most likely institutions...making the decision to invest in target retirement funds even odder.
I'm an expat and not allowed to put my money into non-taxable accounts like IRAs (not eligible to use them since I am offshore) & I obviously don't have a 401K which is a US thing so I don't have a choice. I got screwed with huge tax bill.
I had a family member who was in one of these funds. Not only did she owe significantly more tax for that year, it also pushed her above the IRMAA limits and she has had to pay a surcharge on Medicare all this year (two-year look back). I feel bad because I recommended the fund 20 years ago. 😕Shockingly careless on Vanguard's part. Not what I expected from Mr. Bogle's firm.
Here is the bottom line: people invested with Vanguard because it’s a set and forget type of model. You give them your money with the idea that they will do the best thing for you, getting the highest rate of return with the lowest tax liability. That is the reason why people invest in these types of funds. If they had the capacity to do the investments themselves, they would do so. Paying someone else to do it for you means that they should be the experts and that you trust them to do the right thing. That trust was breached when they realized what they did and that they would stick the individual investors with the tax bill. There was another way to do this without the tax liability, which is what they eventually did anyway. Somebody messed up somewhere and now it’s out in the open. At the end of the day, it backfired on them, and they need to pay
There is a settlement by Vanguard to a Massachusetts Fund that will benefit state residents harmed by Vanguard's actions. I took the settlement rather than chance the lawsuit. I'm waiting to see what happens. I'll try to remember to email you when I find out my compensation.
Clearly, these board members have not done their job. You don't just vote without properly weighing the pros and cons of material events. You bring in experts if need be.... these clowns were just collecting a check, and reaping the benefit of titles and connections and advanced research for their own good.
Rob, thanks for the update. I got hit with a $16200 tax bill on this. What can I do to be part of the class action? Can I take them to small claims court ? Should i even bother to join a class action? I need a strategy to stay with. Can you make a video about some options for us?
How/where would go to be part of this suit??? I was absolutely invested in these Vanguard Target Date accounts.... which I have since moved out of because of the poor performance. Thx!
15:40..."Remember, the best thing money can buy is -FINANCIAL FREEDOM- .....apparently not a Vanguard Target Date Retirement Fund in a taxable account." I seriously laughed out loud! 🤣 Thanks for the humor after such a serious analysis.
Other than pushing ESG a couple years ago, I haven't noticed anything. Why are they slipping? My accounts are the same as they were many years ago, nothing different.
@@mplslawnguy3389 Customer service & one incident screwed up deceased spouse IRA wife was 52 y/o! You're right I never had any problems. My wife just recently direct transfered 3 employer high cost plans to Vanguard IRA at 59.5 y/o
@@mplslawnguy3389there isn't. These are a bunch of bitter people that put a retirement account fund in their taxable and got burned for it. They are now further compounding their losses by switching the higher fee brokerage firms.
I also had an investment in the target 2020 and got hit with the Cap Gains that year. As we are PAS clients, I had reached out to our personal advisor to see if Vanguard would waive our PAS fees for the year (as compensation). After checking with his supervisor, he said that they would not. I should have headed for the exit at that point, but the pain of moving to another broker and the possibility of additional Cap Gains in doing so stopped me.
Thanks Rob. In March of last year, I figured out the lawyers who filed this, shared my 1099 from VTIVX, and was told I would be put on their notification list. I should follow up on that.
You did an excellent job of explaining something that was very complicated. and something had no knowledge of. it's very disappointing to hear how cavalier bangard was in terms of their fiduciary responsibility. Very disappointed.
I moved most of my money out of Vanguard early this year. This was part of the reason. I had shares of the 2030 fund in my taxable account and was slapped with a big tax bill the year I FIREd (2021). That raised the cost basis of my TDF2030 shares significantly - such that I had relatively little in capital gains - so I decided to dump the entire position this year. However, I still consider myself to have been "damaged" in 2021. Even though I retired I was rearranging other assets and did a large Roth conversion (which I mostly, but not entirely, offset with a DAF contribution). My tax maneuvers were intentionally designed to keep me just under the $200,000 income threshold to avoid NIIT. And then Vanguard did this and I had to pay not just 15% LTCGs, but an additional 3.8% NIIT, for a total of 18.8%. Worse, starting this year I'm keeping my LTCGs in the 0% bracket, so that entire 18.8% tax would have been completely avoidable had I been the one to force the timing of recognition of the gains. With all that said, my actual damages were probably only on the order of $500. That's enough to really piss me off at Vanguard, but not enough to personally sue them over it. But as of right now I only have a couple grand in VMRXX and I've moved everything out of my brokerage account with them. I do still have shares of VTI, but my go-to ETF fund company has become iShares so most of my portfolio is in IVV and ITOT.
My Vanguard capital gains in 2021 were 17 TIMES what they were in 2020, even though I sold nothing. The bright side is that it led me to @Rob Berger. It’s been a GREAT two years, Rob. Thanks for following this case. This cost me over $20k in federal and CA taxes. Although I wish the plaintiffs well, I don’t expect to ever see a dime. I also worry that lack of commonality as to damages will preclude class certification. I don’t understand why more state AGs didn’t follow the Massachusetts example.
seems crazy to me that outflows from a fund can trigger capital gains tax or remaining unit holders. this issue is exactly why it's a silly system. here in the uk it's all purely based on when you the holder of the unit sell not when others sell.
@@JD-USA Their profits are supposed to be owned by those who hold Vanguard products. VG should up its customer service which is desired by its owners(us). Concerned they could be handing out bonuses instead.
target date funds are awful. They put you into bonds when you should not be in them. They are also relatively high expenses. Just use S&P 500 index. in the long run you will be better off.
I was with Vanguard from 2017 til 2022, and I rolled everything out of Vanguard. I had funds in 2025 and 2030. How do I find out how much I lost as a result of their scheme?
I still choose Vanguard with their lower costs, particularly if you want an advisory account that has much lower costs compared to Fidelity and others. I've never paid the extra to own retirement date funds anyway.
Vanguard advisors are kids fresh of college, they have no clue about investing. Don't rely on their guidance. They are there to sell product you may not need.
@@gben2457 Any evidence for your claim? You think Fidelity or others have more qualified advisors? I think not! I've been happy with Vanguard for many years, though they are going thru growing pains like many other companies. Fidelity manages my work 401K, and I can't say that I'm very impressed. I trust Vanguard more and believe they are a better value.
It is a shame that Vanguard got off scot-free from their SCAM, blaming their subcontractor. The only Vanguard Mutual Funds I own are in a Roth IRA so a SCAM like this would not affect me. I would definitely discourage anyone to avoid Vanguard Mutual Funds in a Taxable account.
The takeaway lesson for me is that any mutual fund or ETF in an after tax account has a potential for a capital gains tax bomb exploding for one reason or another.
I'm confused, wouldn't those taxes fall on those that moved their accounts? Why would they fall on existing shareholders of the funds? The taxes that were triggered would have to be paid by THOSE funds that were swapped, not the funds that an individual holds separate from that.
It is full of like minded “yes men”. Their entire corporate culture is about blindly following orders, no matter how illogical, and never rocking the boat.
Rob, you should do a video on Vanguard’s ex-CEO who was the lead independent director at GE during 2 Jets Jeff disasterous reign. The whole affair speaks a lot about the corporate good ole boy culture.
For those of you that were holding target date funds in a taxable account, have you decided to sell them and buy index funds / bonds instead to avoid this kind of issue? I'm still holding some TDFs in a taxable account and haven't decided yet.
That's the tricky thing, you can't easily get out of them without paying taxes. Personally I think it's unlikely to happen again now they know it was a problem and there is a way to do it without distributing gains. If you donate to charity and can donate assets to them or use a Donor advised fund you can dispose of some or all of the appreciated shares you don't want and replace them with ETFs or plain index funds. Depending how much you usually donate and how much you want to get rid of. Say you give $10k a year, you could instead donate $10k worth of shares and then buy $10k worth of replacement investments.
I had TDFs in 2025 and 2030. I rolled everything out to G funds in my TSP account. Didn't lose anything else as a rollover. Already lost enough with them, no longer trust them with my retirement funds.
It is being said now that these "target date retirement" funds are/were only supposed to be held in tax deferred or tax free Roth type accounts but I don't think that was common knowledge or belief at the time the Vanguard actions occurred.
Yeah, I've got a bit of a conservative TD fund in my brokerage account - I put it there as a mid-term investment (I had planned on doing some remodeling in a few years, and wanted someplace other than cash to park it for a while; this was in 2020), but I end up being taxed on it on a yearly basis, so it probably wasn't the best idea. In doing a bit of research, I learned more about how they worked, and how they REALLY are designed to be in retirement funds (including the ability to purchase a fraction of a share, so that automatic purchases are easier to do, and the fact that they do all of their accounting at the end of the day) - at the least, I probably should have gone for an ETF of some sort. Plus, y'know: massive stock market correction between then and now. Ah, well. That being said - if Fidelity ended up completely selling it and shifting it over into a different account, and forced me to pay a bunch of taxes on it? Yeah, I'd be pretty cheesed off as well.
From one litigator to another, you've got Lionel Hutz beaten by a country mile as a law talkin' guy. Seriously, enjoyed this deeper dive into the nexus between finance and law.
Hi Rob, question for you: Vanguard Total US Stock market fund VITSX requires a minimum of $5Million which offers the benefit of a low expense ratio of 0.03% While that is a great expense ratio, why don’t people instead invest in Fidelity’s Total US Stock Market Fund FSKAX which offers a 0.015% expense ratio and requires no minimum balance? Seems like a no brainer for the everyday retail investor.
Some people in early retirement are also in ACA health plans which go by income. If they miss this substantially they would have to pay most if not all of the premium breaks which could lead to thousands of dollars of unexpected tax burden. That perhaps is possibly part of what triggered this.
Thanks for the update! I got hosed by this nonsense. Tons of money gone... I've never forgiven Vanguard and I never will. My last words will likely be "@@#%@ Vanguard."
i wonder if this lawsuit might be one of the reasons Vanguard seems to have reduced its services for retail? such as no more free mailed statements, an antiquated web site, no dedicated Flagship rep.
@@mplslawnguy3389 Vanguard issues a statement at tax time saying you incurred $80K of profit because they restructured your investments, though you made no changes. That leads to a huge capital gain, which you don't get. You just get to pay taxes on it. I have moved my investments into ETFs since. It is supposed to be a way to avoid this scenario, unless tax codes change.
After reading several of Jack Bogle’s books, I’m convinced that if he wasn’t cremated, he’d be rolling over in his grave mumbling “ fiduciary duty “ and “ Investment Act of 1940”
You have to admit that the bump-up in basis (for stocks, real estate, etc.) upon the death of the owner is a weird tax concept. Who ever came up with such an idea in the first place?
I remember when these target date funds first came out, in the 90's. I was just starting my career and in my 20's. I thought even then they were stupid and still do.
I was wondering that. When my holdings got large enough, I was able to transfer my “invested” class shares to “admiral” class shares with a lower cost, and there was no tax implication, so Vanguard has done that before! They were just lazy.
This event really screwed me over. In 2021 I had a huge long term capital gain in VTWNX (Vanguard Target Retirement 2020 Fund;Investor) and it shocked the crap out of me. I was in this fund because it was allegedly a tax efficient investment. How do I become part of this class action?
I'm a little puzzled. How many people could this possibly have affected? We are talking about somebody who has shares of a retirement fund outside of a retirement account. Otherwise taxes would be irrelevant. And they have enough of those shares to qualify for institution grade treatment which is surely millions of dollars. Who does that?
Investors made a decision to change funds for the lower MER. They should have done their homework. Would set a dangerous precedent if vanguard was responsible for investors unilateral decision.
I thought Vanguards customers were also the owners of the business. At least that's what their literature says. The owners should fire the management and hire some ethical personnel although in their business those kind of people may not exist.
The customers are technically the owners, but with absolutely no one representing their best interests. This structure is used as a tax dodge in order to that top management is paid hundreds of millions.
confused by judge's plausible injury-in-fact equating to injury-in-fact, concrete and particularized. Anyway, I'm sure Vanguard wants these separate by state and done away with like Mass.
I would attribute this to the lack of people with institutional knowledge of Vanguard operations. The current Android mobile app has for 2.5 years run with a defective BUY SELL transaction flow. It would appear there is no one at Vanguard who is even aware of this. Likewise, I would assume consultants have axed all the people with long-term understanding of how mutual funds work
I don't hold any mutual funds in taxable account that is not an index fund that doesn't have capital gains, mostly ETFS thougth to avoid this. In my opinion, investors should know better, Vanguard has some fault with this but is not completely to blame. You should never invest in something that you don't understand.
I think Vanguard has taken reduced expense ratios to an illogical extreme. The low fees cause cutting basic analysis. I have found the customer service to be poor at best, and the advise to be surface level and generic. I pulled all my funds from Vanguard. The culture doesn't seem to be customer focused. They seem more likely to have undiscovered fraud given their striving to too low cost over service.
This is an interesting case and I can certainly see the case going either way. I read the actual case and I encourage people to do the same if they are interested in the topic and not just rely on this video and/or media coverage to form an opinion. The standard of being able to show concrete damage and not just speculative hypothetical damage could be an issue for the plaintiff. Vanguard does have a point that in some situations, some of those investors in taxable account with target date fund could benefit because their tax bracket (and perhaps health insurance premium or other factors tied to income) might have been lower in 2020 than in the future years. Since we do not know what the future holds in terms of each person's income level into the future, nor do we know what a person's tax bracket might be, nor do we know what the eventual plan of eventual distribution might be (it's entirely possible a person can die with the assets and stepped-up cost basis applies, donation to charity may happen, etc. or not). It is impossible to know in advance the actual damage amount (if any) at each individual level. If that's the case, you also do not know the actual damage in whole either. So does that not make it speculative conjecture and not concrete damage? On the other hand, if a person sold the shares at some point, there will be a concrete measurable gain/loss from what could be traced back to the lowering of the minimum of the institutional shares of Target Date fund. I don't think they can quantify the amount of damage until after the individuals either sold the shares, died with it, or gave it away to charity. I wonder if there's a time limit on such claim? Burden of proof is on the plaintiff so I would not be surprised if Vanguard prevails in this one with little or no settlement. But it can go the other way as well particularly if we have a liberal judge and not a conservative judge.
Yea vanguard is a set it and for get it there user interface has a lot to be desired they need to spends some money and upgrade there user experience or there going to be left behind Jack Boggle has passed someone at Vanguard needs to step up and look to the future but I suspect they’ll follow the Boggle mantra as there boomers age out I don’t see gen z coming in unless they change.😮
Hi Rob, just wanna say I really like your show. Earlier this year was when I decided to really start investing and planning for the future! I have a question if you have the time. I currently invest in 3 accounts (TSP, Roth IRA and Brokerage) and just recently decided to move bonds out of my brokerage and keep an 80/20 split between SWPPX and SWISX in my taxable account. I plan on using my tax advantaged accounts for bonds and rebalancing as the years go on. Is this a good idea? Thanks!
But..., is it only in/for taxable accounts? In my Roth, my target 2035 fund took a 20% hit after that move (which has not recovered yet). This was so disappointing and ball busting. Don't know if to give up on that fund and move to the 2040.
Ehhhhhh, .... how significant is the 4.83% cap gain any way? Isn't this relevant to only non-qualified accounts? With the exception of step up in basis at death, weren't these taxes due eventually anyway? Didn't they just bring a lil bit of cap gains current. I'm not saying that they handled this well. However, is it really that tremendously harmful? We're talking about 0 & 15% on gains (20% for a few) only on a 4.83% portion. A little loose and not handled like a fiduciary. But how significant in changing financial lives?
You’re ignoring the net investment income tax (3.8%), state taxes (9.3%), the lost opportunity cost of being able to time taxes, the costs associated with having to somehow come up with an extra $20,000+ in cash to pay Uncle Sam when the cap gains on your 1099 unexpectedly jump from the usual $5k to $85k, etc. You’re right, maybe the long term net cost is only a few thousand dollars. But to Jack Bogle and me, a few thousand dollars in unnecessary investment costs is a fairly big deal. Plus the erosion of trust in Vanguard as an institution that protects average investors.
Thank you for the update. You're one of the very few people reporting on this lawsuit so I really appreciate it.
Thank you for this update. I was one of those people caught in this mess who got a huge tax bill. I put some money in one of these funds to hold for a few months until we figured out what to do with the proceeds of a house sale. Little did I know I was setting myself up for a huge tax mess and a huge disappointment with vanguard 🤦♀️
Same here. Huge tax bill, got screwed ugh
Thank you Rob!!! Long-time fan, here. I was looking at tax loss harvest opportunities, and couldn't for the life of me figure out what the deal was with my basis on the 2025 & 2050 funds that I own. NOW IT ALL MAKES SENSE!!!
This pisses me off to no end. Next week, I will begin taking steps to cease being a Vanguard accountholder. I only have +/- $400k across all my accounts, so they won't care. But I'll be sure to tell my brother. He's got more in Vanguard than me, and wait till I tell him what they did. He will hit "TILT".
Thanks for the update. Being one of the possible members of the plaintiff class, I appreciate your information on this.
The argument that capital gains taxes would be due anyway doesn't hold water. First, there are State taxes. A person may accumulate wealth in California and spend it it Florida. Second, there is a step-up basis avoiding capital gains taxes altogether. And third, as you mentioned the withdrawal may be spread out in time rather than being taken as a lump sum -- again, reducing the tax liability.
Love this info. Keep us updated. I have accounts at both Fidelity and Vanguard. The customer service at Fidelity has always been superior.
Yeah and you are paying for it
Vanguard customer service been ok to me
...
Thank you very much for this update. My mother experienced these unexpected distributions from Vanguard in 2021. I'm glad you covered the damages question. While it may be hard to prove paying capital gains early rises to the level of damages, my mother's Medicare premium went up a lot as a result of this imaginary "income". I think there is a strong case for damages in this case. Thankfully the premium will return to normal this year.
Enjoyed your alteration of “the best thing money can buy”. Very witty and thus, humorous.
What do you have to do to join the class action suit?
Love how your law background is coming out, can tell that youre in your comfort zone!
Vanguard has lost it. After 30 yrs or so as a loyal customer I'm moving on. What Vanguard doesnt understand is that Ive guided many customers to Vanguard. No more. I've been screwed by Vanguard for the last time. Poor John Bogle is turning over in his grave.
Where you going? Fidelity? I have accounts at both. I also have accounts at Schwab and e trade. I’m not affected by this but would be good to know alternatives. I guess I always felt that vanguard was among the best and maybe they were but not anymore?
@GP-fw8hn you will pay more in fees elsewhere. Vanguard is still the best, just a lot of people pissed about a single mishap.
Not so easy in an Employer sponsored program....
@dynasty5618 that's where I'm at, employer 401k VFIFX TD 2050 is what I'm stuck with. Thankfully it is fully funded by them, and my money goes where I chose in my IRA.
Thanks for this update. Although I knew it was NOT recommended to invest in target date funds within a taxable account, I did it anyway based on a review of the historical data Vanguard provided. It hit me hard.
Those responsible knew what they were doing and what the impact would be. They should be fined, put in jail and the investors made whole.
Excellent and clean analysis, without getting buried in the minutiae.
Isn’t Vanguard special - in that it is owned by its fund owners, that is, us investors? An interesting conundrum.
Good point. It always felt that this ownership construct has no real world consequences and just makes for good advertisement. Just another point that shows this.
Thank you. I currently invest with three brokerages. That soon will be simplified to two. This helps me decide who has to go.
Jack Bogle is rolling in his grave.
I can imagine Mr Bogle walking to the office and up to the manager and slapping the s*** out of him for hurting the investors. He would never allow this to happen
Today's Vanguard is not the Vanguard of Jack Bogle.
Disappointing! Been a Vanguard investor for about 10 years. Someone screwed up!
I never trusted any target date funds. I figured the fund managers would invest in a more risky manner than they advertised. Then I read they weren't following their own guidelines. This was many companies, not just Vanguard.
But I didn't know about this issue.
I'm wondering why someone would keep target-date retirement funds in a non-retirement account? If these are retirement funds in an IRA/401k (tax deferred) or Roth (all gains are tax free) then there would be no immediate tax impact, correct? I'm certainly missing something. Maybe an investor maxed out their contributions to retirement accounts but wanted to keep investing in that fund?
To be clear, I'm not blaming the investors for this mess. It's obviously Vanguard's screw-up. Just curious about the investing decisions involved.
@@DeeSands-kj1io Thanks, I hadn't considered that. I also forgot you can't contribute to a retirement account without earned income.
Unless I misunderstand, it is also true that the plaintiffs are taxable accounts in excess of $100 million, most likely institutions...making the decision to invest in target retirement funds even odder.
I'm an expat and not allowed to put my money into non-taxable accounts like IRAs (not eligible to use them since I am offshore) & I obviously don't have a 401K which is a US thing so I don't have a choice. I got screwed with huge tax bill.
I had a family member who was in one of these funds. Not only did she owe significantly more tax for that year, it also pushed her above the IRMAA limits and she has had to pay a surcharge on Medicare all this year (two-year look back). I feel bad because I recommended the fund 20 years ago. 😕Shockingly careless on Vanguard's part. Not what I expected from Mr. Bogle's firm.
Here is the bottom line: people invested with Vanguard because it’s a set and forget type of model. You give them your money with the idea that they will do the best thing for you, getting the highest rate of return with the lowest tax liability. That is the reason why people invest in these types of funds. If they had the capacity to do the investments themselves, they would do so.
Paying someone else to do it for you means that they should be the experts and that you trust them to do the right thing. That trust was breached when they realized what they did and that they would stick the individual investors with the tax bill. There was another way to do this without the tax liability, which is what they eventually did anyway. Somebody messed up somewhere and now it’s out in the open.
At the end of the day, it backfired on them, and they need to pay
There is a settlement by Vanguard to a Massachusetts Fund that will benefit state residents harmed by Vanguard's actions. I took the settlement rather than chance the lawsuit. I'm waiting to see what happens. I'll try to remember to email you when I find out my compensation.
How could Vanguard not think through what would happen?
vanguard has been losing their edge over the last couple of years, and this certainly isn't helping their image
Clearly, these board members have not done their job. You don't just vote without properly weighing the pros and cons of material events. You bring in experts if need be.... these clowns were just collecting a check, and reaping the benefit of titles and connections and advanced research for their own good.
They, of course, knew what would happen. But profits rule! Just one more way the average guy gets screwed, regularly, in the stock market.
The company only cares about institutional money. Only lip-service is paid to the individual investor.
Rob, thanks for the update. I got hit with a $16200 tax bill on this. What can I do to be part of the class action? Can I take them to small claims court ? Should i even bother to join a class action? I need a strategy to stay with. Can you make a video about some options for us?
Where do we sign up to become part of the class?
How/where would go to be part of this suit??? I was absolutely invested in these Vanguard Target Date accounts.... which I have since moved out of because of the poor performance. Thx!
I think you already are by virtue of being an account holder.
Thanks for the update Rob. I got burned by this.
15:40..."Remember, the best thing money can buy is -FINANCIAL FREEDOM- .....apparently not a Vanguard Target Date Retirement Fund in a taxable account." I seriously laughed out loud! 🤣 Thanks for the humor after such a serious analysis.
Vanguard has been slipping for years. I hope it gets better or folks like me will transfer to Fidelity or Charles Swab.
When the decision had to be made, I chose Fidelity.
Other than pushing ESG a couple years ago, I haven't noticed anything. Why are they slipping? My accounts are the same as they were many years ago, nothing different.
@@mplslawnguy3389 Customer service & one incident screwed up deceased spouse IRA wife was 52 y/o! You're right I never had any problems. My wife just recently direct transfered 3 employer high cost plans to Vanguard IRA at 59.5 y/o
@@mplslawnguy3389there isn't. These are a bunch of bitter people that put a retirement account fund in their taxable and got burned for it. They are now further compounding their losses by switching the higher fee brokerage firms.
I went with Schwab. Completely out of Vanguard after this debacle. And I tell my friends to avoid Vanguard.
Great content. You can’t beat time and don’t time the market. This target date funds are absurd investment vechiles. No one should use them
was this just for USA investors or does it cover all markets?
How do I join the class? I got screwed two ways: taxes then disqualification from receiving finacial aid (FAFSA) for my son's college that year.
I also had an investment in the target 2020 and got hit with the Cap Gains that year. As we are PAS clients, I had reached out to our personal advisor to see if Vanguard would waive our PAS fees for the year (as compensation). After checking with his supervisor, he said that they would not. I should have headed for the exit at that point, but the pain of moving to another broker and the possibility of additional Cap Gains in doing so stopped me.
Thanks Rob. In March of last year, I figured out the lawyers who filed this, shared my 1099 from VTIVX, and was told I would be put on their notification list. I should follow up on that.
Hello! How did you do that? Who are the attorneys?
You did an excellent job of explaining something that was very complicated. and something had no knowledge of. it's very disappointing to hear how cavalier bangard was in terms of their fiduciary responsibility. Very disappointed.
I moved most of my money out of Vanguard early this year. This was part of the reason. I had shares of the 2030 fund in my taxable account and was slapped with a big tax bill the year I FIREd (2021). That raised the cost basis of my TDF2030 shares significantly - such that I had relatively little in capital gains - so I decided to dump the entire position this year.
However, I still consider myself to have been "damaged" in 2021. Even though I retired I was rearranging other assets and did a large Roth conversion (which I mostly, but not entirely, offset with a DAF contribution). My tax maneuvers were intentionally designed to keep me just under the $200,000 income threshold to avoid NIIT.
And then Vanguard did this and I had to pay not just 15% LTCGs, but an additional 3.8% NIIT, for a total of 18.8%. Worse, starting this year I'm keeping my LTCGs in the 0% bracket, so that entire 18.8% tax would have been completely avoidable had I been the one to force the timing of recognition of the gains.
With all that said, my actual damages were probably only on the order of $500. That's enough to really piss me off at Vanguard, but not enough to personally sue them over it. But as of right now I only have a couple grand in VMRXX and I've moved everything out of my brokerage account with them. I do still have shares of VTI, but my go-to ETF fund company has become iShares so most of my portfolio is in IVV and ITOT.
Sounds like there may be a settlement? Any interpretaton?
My Vanguard capital gains in 2021 were 17 TIMES what they were in 2020, even though I sold nothing. The bright side is that it led me to @Rob Berger. It’s been a GREAT two years, Rob. Thanks for following this case. This cost me over $20k in federal and CA taxes. Although I wish the plaintiffs well, I don’t expect to ever see a dime. I also worry that lack of commonality as to damages will preclude class certification. I don’t understand why more state AGs didn’t follow the Massachusetts example.
So Im safe if its my 401k? Its only an issue in a taxable brokerage account?
Yes it's just an issue for those in taxable accounts I have the same thing and we are all good if it's in your IRA
seems crazy to me that outflows from a fund can trigger capital gains tax or remaining unit holders. this issue is exactly why it's a silly system. here in the uk it's all purely based on when you the holder of the unit sell not when others sell.
So a settlement would come out of the pockets of all those who hold Vanguard funds? is that likely correct?
Or from profits that Vanguard would otherwise keep.
@@JD-USA Their profits are supposed to be owned by those who hold Vanguard products. VG should up its customer service which is desired by its owners(us). Concerned they could be handing out bonuses instead.
love when the lawyer brain comes out, rob!
target date funds are awful. They put you into bonds when you should not be in them. They are also relatively high expenses. Just use S&P 500 index. in the long run you will be better off.
Target date Funds are an expense ratio trap. No idea why people use them.
I don't get what you mean. Can you elaborate?
@@canyonoverlook9937 compare Target Date fund expense ratio’s with Vanguard index funds.
Also, not sure Fidelity was so “smart” as opposed to acting on the exit stampede that occurred at Vanguard.
Thank you, Rob!
I was with Vanguard from 2017 til 2022, and I rolled everything out of Vanguard. I had funds in 2025 and 2030.
How do I find out how much I lost as a result of their scheme?
I still choose Vanguard with their lower costs, particularly if you want an advisory account that has much lower costs compared to Fidelity and others. I've never paid the extra to own retirement date funds anyway.
Vanguard advisors are kids fresh of college, they have no clue about investing. Don't rely on their guidance. They are there to sell product you may not need.
@@gben2457 Any evidence for your claim? You think Fidelity or others have more qualified advisors? I think not! I've been happy with Vanguard for many years, though they are going thru growing pains like many other companies. Fidelity manages my work 401K, and I can't say that I'm very impressed. I trust Vanguard more and believe they are a better value.
It is a shame that Vanguard got off scot-free from their SCAM, blaming their subcontractor.
The only Vanguard Mutual Funds I own are in a Roth IRA so a SCAM like this would not affect me. I would definitely discourage anyone to avoid Vanguard Mutual Funds in a Taxable account.
The takeaway lesson for me is that any mutual fund or ETF in an after tax account has a potential for a capital gains tax bomb exploding for one reason or another.
Thank you for the explanation.
So does this lawsuit affect only those in PA who got hit with the tax bill?
No I think is nationwide.
I'm confused, wouldn't those taxes fall on those that moved their accounts? Why would they fall on existing shareholders of the funds? The taxes that were triggered would have to be paid by THOSE funds that were swapped, not the funds that an individual holds separate from that.
Vanguard really needs to beef up their management team.
It is full of like minded “yes men”. Their entire corporate culture is about blindly following orders, no matter how illogical, and never rocking the boat.
Rob, you should do a video on Vanguard’s ex-CEO who was the lead independent director at GE during 2 Jets Jeff disasterous reign. The whole affair speaks a lot about the corporate good ole boy culture.
For those of you that were holding target date funds in a taxable account, have you decided to sell them and buy index funds / bonds instead to avoid this kind of issue? I'm still holding some TDFs in a taxable account and haven't decided yet.
That's the tricky thing, you can't easily get out of them without paying taxes. Personally I think it's unlikely to happen again now they know it was a problem and there is a way to do it without distributing gains.
If you donate to charity and can donate assets to them or use a Donor advised fund you can dispose of some or all of the appreciated shares you don't want and replace them with ETFs or plain index funds. Depending how much you usually donate and how much you want to get rid of. Say you give $10k a year, you could instead donate $10k worth of shares and then buy $10k worth of replacement investments.
I had TDFs in 2025 and 2030. I rolled everything out to G funds in my TSP account. Didn't lose anything else as a rollover.
Already lost enough with them, no longer trust them with my retirement funds.
I'm staying the course. Annoyed, but staying the course due to tax issues.
While.i dont think there are target date versions, would an erf protected investors from these situations?
The judge finds Rob getting creative with his slogan at the end of the video.
First I heard of this! I was hit hard in cap gains that year. Is it too late to join the class action? If I still can, how?
How should someone transition out of Target Date Funds? I would like to transition out of it and into ETFs. Any thoughts 🤔
It is being said now that these "target date retirement" funds are/were only supposed to be held in tax deferred or tax free Roth type accounts but I don't think that was common knowledge or belief at the time the Vanguard actions occurred.
Yeah, I've got a bit of a conservative TD fund in my brokerage account - I put it there as a mid-term investment (I had planned on doing some remodeling in a few years, and wanted someplace other than cash to park it for a while; this was in 2020), but I end up being taxed on it on a yearly basis, so it probably wasn't the best idea. In doing a bit of research, I learned more about how they worked, and how they REALLY are designed to be in retirement funds (including the ability to purchase a fraction of a share, so that automatic purchases are easier to do, and the fact that they do all of their accounting at the end of the day) - at the least, I probably should have gone for an ETF of some sort.
Plus, y'know: massive stock market correction between then and now. Ah, well.
That being said - if Fidelity ended up completely selling it and shifting it over into a different account, and forced me to pay a bunch of taxes on it? Yeah, I'd be pretty cheesed off as well.
This has nothing to do with target date funds, specifically. This could happen to any fund held in an after tax account.
So if someone has their account in a target date fund ( Roth Account ) this lawsuit would not apply to them. Am I understanding that correctly? Thanks
Yes it only effected you if you held it in a taxable brokerage
From one litigator to another, you've got Lionel Hutz beaten by a country mile as a law talkin' guy. Seriously, enjoyed this deeper dive into the nexus between finance and law.
lol
Hi Rob, question for you: Vanguard Total US Stock market fund VITSX requires a minimum of $5Million which offers the benefit of a low expense ratio of 0.03%
While that is a great expense ratio, why don’t people instead invest in Fidelity’s Total US Stock Market Fund FSKAX which offers a 0.015% expense ratio and requires no minimum balance?
Seems like a no brainer for the everyday retail investor.
Why wouldn't you just buy VTI?
Some people in early retirement are also in ACA health plans which go by income. If they miss this substantially they would have to pay most if not all of the premium breaks which could lead to thousands of dollars of unexpected tax burden. That perhaps is possibly part of what triggered this.
Thanks for the update! I got hosed by this nonsense. Tons of money gone... I've never forgiven Vanguard and I never will. My last words will likely be "@@#%@ Vanguard."
Do target date funds change fees on top of the fees the underlying funds charge? Are target date funds paying two layers of fees?
Does anyone know how much monetary damage was done to the plaintiffs? In other words, how much would it likely cost for the defendants to settle?
I hope they argue that the step up in basis would eliminate the capital gains at death.
i wonder if this lawsuit might be one of the reasons Vanguard seems to have reduced its services for retail? such as no more free mailed statements, an antiquated web site, no dedicated Flagship rep.
I had to pay $20K to the government that year. I got screwed.
Same here
How does that happen? I don't get it. If you didn't sell anything, how do you owe capital gains?
@@mplslawnguy3389 Vanguard issues a statement at tax time saying you incurred $80K of profit because they restructured your investments, though you made no changes. That leads to a huge capital gain, which you don't get. You just get to pay taxes on it. I have moved my investments into ETFs since. It is supposed to be a way to avoid this scenario, unless tax codes change.
@@mplslawnguy3389the mutual fund that they were in sold part of its shares causing this taxable event is my understanding
Me too
How can we determine what the asset allocation of a target date fund will be 1 - 10 years after the date?
Open up the prospectus and look at it. How else?
After reading several of Jack Bogle’s books, I’m convinced that if he wasn’t cremated, he’d be rolling over in his grave mumbling “ fiduciary duty “ and “ Investment Act of 1940”
My wife’s direct rollover to Vanguard went smoothly. So far Vanguard’s service is getting better.
You have to admit that the bump-up in basis (for stocks, real estate, etc.) upon the death of the owner is a weird tax concept. Who ever came up with such an idea in the first place?
Rich peoples' adult children
I remember when these target date funds first came out, in the 90's. I was just starting my career and in my 20's. I thought even then they were stupid and still do.
why can't they just move the funds internally without selling? It is all in the same company.
I was wondering that. When my holdings got large enough, I was able to transfer my “invested” class shares to “admiral” class shares with a lower cost, and there was no tax implication, so Vanguard has done that before! They were just lazy.
I think that is what they essentially did.
This event really screwed me over. In 2021 I had a huge long term capital gain in VTWNX (Vanguard Target Retirement 2020 Fund;Investor) and it shocked the crap out of me. I was in this fund because it was allegedly a tax efficient investment. How do I become part of this class action?
I don't understand this, how would other people selling off their shares affect a current shareholder tax-wise?
so if had vanguard 2050 retirement in a 401k, did i get hurt?
Are Vanguard's ETFs susceptable to a "surprise" Capital Gain distribution due to Vangard's mismanagement?
I wouldn’t think so.
Imagine keeping a target date fund in a taxable account. That’s so stupid
Then suing the company after the fact too lol
Some of us don't have a choice. Like expats.
I'm a little puzzled. How many people could this possibly have affected? We are talking about somebody who has shares of a retirement fund outside of a retirement account. Otherwise taxes would be irrelevant. And they have enough of those shares to qualify for institution grade treatment which is surely millions of dollars. Who does that?
An expat like me who is not allowed to use IRAs and 401Ks don't exist abroad, that's who. We expats got screwed.
Just another reason to avoid investing with Vanguard. Other reason was high minimum investment of $3,000.
Buy ETFs with no minimums
Investors made a decision to change funds for the lower MER. They should have done their homework. Would set a dangerous precedent if vanguard was responsible for investors unilateral decision.
I thought Vanguards customers were also the owners of the business. At least that's what their literature says. The owners should fire the management and hire some ethical personnel although in their business those kind of people may not exist.
The customers are technically the owners, but with absolutely no one representing their best interests. This structure is used as a tax dodge in order to that top management is paid hundreds of millions.
I am glad I didn't have a taxable account, I have a Roth IRA in the 2050 Fund!
confused by judge's plausible injury-in-fact equating to injury-in-fact, concrete and particularized. Anyway, I'm sure Vanguard wants these separate by state and done away with like Mass.
One more reason not to own target date funds
This has nothing to do with target date funds, specifically. This could happen to any fund held in an after tax account.
I would attribute this to the lack of people with institutional knowledge of Vanguard operations.
The current Android mobile app has for 2.5 years run with a defective BUY SELL transaction flow.
It would appear there is no one at Vanguard who is even aware of this.
Likewise, I would assume consultants have axed all the people with long-term understanding of how mutual funds work
Thanks Rob, very interesting. Why wouldn't damages amount to the sum of the plaintiff's tax bills? That is quantifiable, right?
You have to subtract the present value of their future tax bill which is not calculable.
I don't hold any mutual funds in taxable account that is not an index fund that doesn't have capital gains, mostly ETFS thougth to avoid this. In my opinion, investors should know better, Vanguard has some fault with this but is not completely to blame. You should never invest in something that you don't understand.
I think Vanguard has taken reduced expense ratios to an illogical extreme. The low fees cause cutting basic analysis. I have found the customer service to be poor at best, and the advise to be surface level and generic. I pulled all my funds from Vanguard. The culture doesn't seem to be customer focused. They seem more likely to have undiscovered fraud given their striving to too low cost over service.
Thank you for the well made video
❤
This is an interesting case and I can certainly see the case going either way. I read the actual case and I encourage people to do the same if they are interested in the topic and not just rely on this video and/or media coverage to form an opinion. The standard of being able to show concrete damage and not just speculative hypothetical damage could be an issue for the plaintiff. Vanguard does have a point that in some situations, some of those investors in taxable account with target date fund could benefit because their tax bracket (and perhaps health insurance premium or other factors tied to income) might have been lower in 2020 than in the future years. Since we do not know what the future holds in terms of each person's income level into the future, nor do we know what a person's tax bracket might be, nor do we know what the eventual plan of eventual distribution might be (it's entirely possible a person can die with the assets and stepped-up cost basis applies, donation to charity may happen, etc. or not). It is impossible to know in advance the actual damage amount (if any) at each individual level. If that's the case, you also do not know the actual damage in whole either. So does that not make it speculative conjecture and not concrete damage? On the other hand, if a person sold the shares at some point, there will be a concrete measurable gain/loss from what could be traced back to the lowering of the minimum of the institutional shares of Target Date fund. I don't think they can quantify the amount of damage until after the individuals either sold the shares, died with it, or gave it away to charity. I wonder if there's a time limit on such claim? Burden of proof is on the plaintiff so I would not be surprised if Vanguard prevails in this one with little or no settlement. But it can go the other way as well particularly if we have a liberal judge and not a conservative judge.
Your last sentence told me all I needed to know about your opinion's prior to that. What a ridiculous thing to say.
Maybe I should stay away from vanguard
Schwab looking good
Yea vanguard is a set it and for get it there user interface has a lot to be desired they need to spends some money and upgrade there user experience or there going to be left behind Jack Boggle has passed someone at Vanguard needs to step up and look to the future but I suspect they’ll follow the Boggle mantra as there boomers age out I don’t see gen z coming in unless they change.😮
I went with Schwab after getting burned in this debacle.
Hi Rob, just wanna say I really like your show. Earlier this year was when I decided to really start investing and planning for the future! I have a question if you have the time. I currently invest in 3 accounts (TSP, Roth IRA and Brokerage) and just recently decided to move bonds out of my brokerage and keep an 80/20 split between SWPPX and SWISX in my taxable account. I plan on using my tax advantaged accounts for bonds and rebalancing as the years go on. Is this a good idea? Thanks!
But..., is it only in/for taxable accounts? In my Roth, my target 2035 fund took a 20% hit after that move (which has not recovered yet). This was so disappointing and ball busting. Don't know if to give up on that fund and move to the 2040.
If it was in your Roth it shouldn’t matter as long as you reinvested the capital gains. You don’t get taxed in the Roth. I’m in the same fund.
Target date ETFs
Ehhhhhh, .... how significant is the 4.83% cap gain any way? Isn't this relevant to only non-qualified accounts? With the exception of step up in basis at death, weren't these taxes due eventually anyway? Didn't they just bring a lil bit of cap gains current. I'm not saying that they handled this well. However, is it really that tremendously harmful? We're talking about 0 & 15% on gains (20% for a few) only on a 4.83% portion. A little loose and not handled like a fiduciary. But how significant in changing financial lives?
You’re ignoring the net investment income tax (3.8%), state taxes (9.3%), the lost opportunity cost of being able to time taxes, the costs associated with having to somehow come up with an extra $20,000+ in cash to pay Uncle Sam when the cap gains on your 1099 unexpectedly jump from the usual $5k to $85k, etc. You’re right, maybe the long term net cost is only a few thousand dollars. But to Jack Bogle and me, a few thousand dollars in unnecessary investment costs is a fairly big deal. Plus the erosion of trust in Vanguard as an institution that protects average investors.
I wonder how much my $1,139 got me this year?