The Securities and Exchange Commission (SEC) announced Friday that The Vanguard Group, one of the world's biggest asset managers, will pay a $106.4 million fine to settle charges for "misleading statements related to capital gains distributions and tax consequences" for individuals that invested in its Vanguard Investor Target Retirement Funds (TRF) in taxable accounts.
The SEC found that in December 2020, Vanguard lowered the minimum investment for its lower-expense Institutional TRFs, to $5 million from $100 million. This prompted many retirement plan investors to sell shares of the Investor TRFs and switch to institutional target-date funds.
However, this triggered capital gains taxes for those sellers. Furthermore, retail investors who remained in the Investor TRFs faced larger capital gains distributions and tax liabilities and missed out on potential growth.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"Materially accurate information about capital gains and tax implications is critical to investors saving for their retirements," said Corey Schuster, chief of the Division of Enforcement's asset management unit, in a statement. "Firms must ensure that they are accurately describing to investors the potential risks and consequences associated with their investments."
Vanguard agreed to the $106.4 million in penalties and relief to affected investors without admitting or denying the allegations. This is in addition to a $40 million settlement it agreed to pay to settle a class action lawsuit.
What is a target-date fund?
As Kiplinger contributor and investment adviser representative Tony Drake, CFP, explains in his piece on "Is a Target-Date Fund Right for You?," target-date funds "are mutual funds, based on the year the saver plans to retire.
"The target-date fund is actively managed for the rest of your life, rebalancing to adjust risk as you get older and closer to retirement," Drake explains. However, there are several factors to consider when selecting a target-date fund, including diversification, fees, risk and asset allocation, he writes.
If you're in the market for a target-date fund or just want to know what your options are, here are six target-date funds to buy for your retirement, courtesy of Nellie Huang, senior associate editor of Kiplinger Personal Finance Magazine.
Related Content
-
Over 50 and Still Paying Student Loans? Here's Some HelpIt's the club no one wants to join. But if you are over 50 and still paying student loans, there are ways to tackle both debt and retirement savings.
-
Eight Estate Planning Steps to Protect Your Loved Ones (and Your Legacy)Two-thirds of Americans don't have an estate plan. If you're one of them, these are the essential steps to take now to prevent problems for your family later.
-
Over 50 and Still Paying Student Loans? Here's Some Help
It's the club no one wants to join. But if you are over 50 and still paying student loans, there are ways to tackle both debt and retirement savings.
-
Eight Estate Planning Steps to Protect Your Loved Ones (and Your Legacy)
Two-thirds of Americans don't have an estate plan. If you're one of them, these are the essential steps to take now to prevent problems for your family later.
-
AI Is Missing the Wisdom of Older AdultsAI will increasingly affect your healthcare and finances, but young workers are primarily designing the systems and getting most of the jobs.
-
A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key PiecesIf retirement's a puzzle you're struggling with, try answering these five questions. The answers will guide you toward a solution.
-
Baby Boomers vs Gen X: Who Spends More?Baby Boomers and Gen X are guilty of spending a lot of money. Here's a look at where their money goes.
-
You're Close to Retirement and Cashed Out: How Do You Get Back In?If you've been scared into an all-cash position, it's wise to consider reinvesting your money in the markets. Here's how a financial planner recommends you can get back in the saddle.
-
Should You Ditch Your Medicare Advantage Plan? Most People DoIf you want to switch your Medicare Advantage plan or enroll in original Medicare, you're not alone. Here's when it's a good idea and how to go about it.
-
The 401(k) Mistake That Could Cost You Millions in Retirement SavingsThinking about reducing your 401(K) contributions in the current market? Here are six reasons why you may want to reconsider.
