VT vs. VTI + VXUS vs. DFAW in a Taxable Account

Should you hold an international stock fund in a taxable account or a retirement account? Part of the answer is the foreign tax credit, and in this video I explain what it is and what it's actually worth.

Other countries tax the dividends their companies pay. When your fund passes those taxes through, they show up on your 1099-DIV, and in a taxable account you can take them as a credit against your federal tax. I show what that credit was worth on $100,000 in five popular international funds (VXUS, IXUS, VEA, IEFA and VWO) from 2021 to 2025. In 2025 it ranged from about $200 to $330.

Vanguard's Total World Stock ETF (VT) can't pass the credit through because it isn't more than half international. Dimensional's World Equity ETF (DFAW) can, because it's a fund of funds, but it costs four times as much. I explain what VT gives up in a taxable account compared with holding VTI and VXUS, about $100 a year per $100,000, and how I'd decide whether its simplicity is worth it.

Resources mentioned in the video:

Vanguard 2025 foreign tax credit information (PDF): https://investor.vanguard.com/content/dam/retail/us/en/pdfs/taxes/ftcws-012026.pdf

iShares 2025 distribution summary (PDF): https://www.ishares.com/us/literature/tax-information/2025-ishares-distribution-summary-stamped.pdf

VTI on Morningstar: https://www.morningstar.com/etfs/arcx/vti/quote

VXUS on Morningstar: https://www.morningstar.com/etfs/xnas/vxus/quote

Vanguard qualified dividend income, 2025: https://investor.vanguard.com/investor-resources-education/taxes/qdi-yearend-qualified-dividend-income?year=2025

2026 tax brackets, IRS Rev. Proc. 2025-32 (PDF): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf

Vanguard Total World Stock ETF (VT): https://investor.vanguard.com/investment-products/etfs/profile/vt

Dimensional World Equity ETF (DFAW): https://www.dimensional.com/us-en/funds/dfaw/world-equity-etf

VT performance (Morningstar): https://www.morningstar.com/etfs/arcx/vt/performance

DFAW performance (Morningstar): https://www.morningstar.com/etfs/arcx/dfaw/performance

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0:00 International funds: taxable account or IRA?
0:17 Your questions about the foreign tax credit
1:42 What the foreign tax credit is and how it works
3:10 What the credit is worth per $100,000: five funds
4:44 Taxable or retirement account? Look past the credit
5:26 Dividend yields: VXUS vs. VTI
6:13 Qualified dividends: VXUS vs. VTI
7:00 My take: international funds in the IRA or Roth
8:19 Why VT gets no foreign tax credit
9:14 DFAW: a world fund that passes the credit through
9:54 DFAW vs. VT: fees and performance
10:54 Is VT OK in a taxable account?
12:03 Is VT's simplicity worth about $100 a year?
13:06 Bottom line

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While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. I've since sold my websites, bought them back, and started a new website and this YouTube channel.

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