International diversification + qualified-dividend income — tax-efficient by design, and the flexible bridge before the Roth IRA is accessible.
Update your numbers
Everything below recalculates automatically once you save.
Target allocation %
Key milestones
Setup checklist
Target allocation
Two funds, zero overlap with each other or with the Roth IRA
Monthly contribution split
How each month's deposit divides between the two funds
Acronyms used on this page
LTCG
Long-Term Capital Gains. Profit from selling an investment you've held over a year. Taxed at the lower 0%/15%/20% rates shown below, instead of your regular income tax rate.
NIIT
Net Investment Income Tax. An extra 3.8% surtax on investment income, but only once your MAGI passes $200,000 (single filer). Mentioned here mainly to confirm it doesn't apply to you yet.
MAGI
Modified Adjusted Gross Income. A specific IRS income figure (close to, but not always identical to, your regular taxable income) used to determine eligibility for things like the NIIT threshold.
FIRE
Financial Independence, Retire Early. Shorthand for your overall goal: building enough invested assets to retire well before the traditional age.
Std. Deduction
Standard Deduction. A flat amount the IRS lets you subtract from your gross income before calculating tax, no receipts or itemizing required. For 2026, single filers get $16,100 — so your first $16,100 of income isn't taxed at all.
0% LTCG ceiling
$49,450
taxable income, single, 2026
15% LTCG range
$49,451–$545,500
your bracket
Std. deduction
$16,100
single filer, 2026
NIIT threshold
$200,000
MAGI — not applicable to you
Annual tax cost by balance size
| Balance | Annual dividends | Tax at 15% | After-tax income |
|---|
The 0% capital gains window — FIRE strategy
If taxable income in early retirement stays under $49,450 (2026), long-term capital gains are taxed at 0% federal. With the $16,100 standard deduction, that's up to roughly $65,550 in gross income — including realized gains — before any LTCG tax applies.
Foreign tax credit — the VXUS bonus
VXUS pays foreign taxes on dividends from international holdings. In a taxable account, you claim this back as a direct credit — typically 0.15–0.25% of the position's value annually. Inside a Roth, this credit is forfeited entirely since there's no tax liability to offset.
VYMI qualified dividend treatment
VYMI pays a mix of qualified and non-qualified dividends from its 1,600+ international holdings. The qualified portion is taxed at your preferential 15% rate. Because VYMI holds stocks across developed and emerging markets, the qualified percentage varies year to year — typically 60–75% qualified. The foreign tax credit also applies, partially offsetting withholding taxes paid on foreign dividends, which is a separate positive benefit on top of the dividend income itself. Net effective tax rate on VYMI income in a normal year will typically run below the full 15% once the FTC is factored in.
VXUS — International total market
Tracks the entire investable world outside the US — developed and emerging markets blended by market cap. Roughly 8,000+ holdings.
0.05%
Expense ratio
~2.5%
Dividend yield
0.85
Beta vs US market
Healthy range for this category:
Expense ratio under 0.10% · dividend yield 2–4% · broad diversification (1,000+ holdings) signals low single-country risk.
Red flags to watch for:
Expense ratio above 0.20% for a passive index fund · heavy concentration in one country or currency · tracking error consistently above 0.5% versus the stated index.
VYMI — International high dividend yield
Tracks the FTSE All-World ex-US High Dividend Yield Index — 1,600+ international stocks with above-average dividend yields, across developed and emerging markets. Weighted toward large stable companies. Excludes REITs. Has outperformed SCHY across 1-year, 3-year, and 5-year horizons.
0.07%
Expense ratio
~3.4%
Dividend yield
−40%
Max drawdown
Performance vs. SCHY (dividends reinvested)
+31.80% vs +21.87%
1-year total return
20.81% vs 14.77%/yr
3-year annualized
13.03% vs 8.59%/yr
5-year annualized
Healthy range for this category:
Expense ratio under 0.10% · dividend yield 3–5% · broad diversification (1,000+ holdings) signals low single-country risk. VYMI meets all three.
Red flags to watch for:
Expense ratio drifting above 0.10% · heavy concentration in one country · dividend-per-share declining consistently year-over-year (note: VYMI's dividend has fluctuated with currency movements — watch the trend, not any single year).
Known tradeoff — accepted deliberately:
Max historical drawdown of −40% (vs SCHY's −24%) means VYMI falls harder in a genuine bear market. This was accepted in exchange for stronger total return performance, lower fees, broader diversification, and the Morningstar Gold rating.
Why VYMI was chosen over SCHY — the data-driven decision
SCHY was initially selected for its quality screen and shallower drawdown (−24% vs VYMI's −40%). After reviewing actual performance data across multiple time frames, VYMI was confirmed as the stronger choice: it outperformed SCHY by 9.93 percentage points over 1 year, 6.04 percentage points per year over 3 years, and 4.44 percentage points per year over 5 years — all with dividends reinvested — while charging a lower expense ratio (0.07% vs 0.14%). The yield is essentially identical (~3.41%). VYMI's 1,600+ holdings also provide meaningfully broader diversification than SCHY's 100-stock concentrated approach.
What to monitor going forward
Smart brokerage uses before retirement
Moved here from the Retirement Dashboard — this is brokerage-specific strategy.
Decision history
A running log of brokerage allocation decisions and the reasoning behind them
Growth trajectory
Adjust to model different contribution and return scenarios
Tax drag trend by balance size
Annual tax owed on dividends as the account grows, at your 15% qualified-dividend rate