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Does Vanguard Owe You Money? It's Paying Investors Millions

vanguard settlementSome investors will be getting a bit of money back soon, the result of a big settlement between financial firm Vanguard and the Massachusetts Secretary of State. The $6.25 million settlement has to do with allegations that the firm failed to warn investors they'd be facing large tax bills.

Want help with planning your finances and making smart investments? Consider working with a financial advisor.

Vanguard's Settlement Explained

vanguard settlementVanguard settled with the Massachusetts' Secretary of State's office last week, with a total of $6.25 million being awarded to Bay State Vanguard clients who were not properly informed of high tax bills coming their way.

The clients in question were users of Vanguard's target-date funds. These popular instruments are designed as "set it and forget it" options for retirement plan participants. They invest in a mix of equities, fixed income and cash holdings, starting out aggressive and becoming more conservative as retirement approaches. Each TDF has a set retirement year - the titular "target date" - set as a benchmark.

Massachusetts' Secretary of State William Galvin says that the issue started in 2020, when Vanguard lowered minimum investments in institutional funds from $100 million to $5 million. In turn, there were huge outflows from high-cost funds, which forced selloffs that resulted in capital gains tax, which individual investors had to pay.

"These extraordinary capital gains were caused by Vanguard's conscious decision to benefit ultra-wealthy shareholders over Main Street investors," Galvin said in a statement.

How Does the Payback Work?

More than 5,000 taxable accounts will be getting money back. A total of $5.5 million will be going to these investors, with another $750,000 going to the state.

If you are a Massachusetts resident who invested in a Vanguard TDF, you should be on the lookout for a notice from the state telling you that you are eligible for a payment.

The Bottom Line

vanguard settlementVanguard settled a suit with Massachusetts regarding unexpectedly high tax bills for retail investors in target-date funds. They will be paying $5.5 million back to more than 5,000 accounts. Potential beneficiaries will be notified of their status by the state.

Investing Tips

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