Holding bond ETF BND in taxable accounts can cost retirees $6,600 yearly in taxes on a $1M 60/40 portfolio.

Retirees with a $1 million 60/40 stock-bond portfolio holding the Vanguard Total Bond Market ETF (BND) in taxable accounts may face significant tax drag. BND's income, largely from corporate bonds, is taxed as ordinary income, reducing after-tax returns from 3.69% to 2.04%, costing about $6,600 annually on a $400,000 bond allocation. An alternative is the Vanguard Tax-Exempt Bond ETF (VTEB), which holds municipal bonds with income generally exempt from federal taxes, offering competitive after-tax yields and potentially reducing tax costs for retirees in higher tax brackets.