Balancing out brokerage account without taxable event

You can't route one fund's dividends into another at Vanguard, but you can do it manually: set the overweight fund's dividends to go to your settlement fund (VMFXX), then use that cash to buy the underweight fund. Send all new contributions to the underweight fund too. If you have a 401(k) or IRA, rebalance there instead, since sales inside it aren't taxed.

Largely, you don't. In Accumulation Phase you rebalance taxable brokerage via New Money purchases. In decumulating, you sell off what doesn't align with what you want to hold. If you were holding a 100% equity portfolio and headed into retirement, you'd simply rebalance the vastly more funds in the retirement accounts (tax free), and count the 100% Equity as part of the total portfolio, offsetting your retirement portfolio's need for equity, etc.

You could also consider selling losses at the same time as gains, or doing up to a certain taxable target. But you generally wouldn't care alot unless you were definitely holding things that were never smart to hold…. In that case, go forward with whatever tax implications after you've considered them.

Remember that for tax year 2026, the 0% long-term capital gains tax rate applies to single filers with taxable income up to $49,450 and married couples filing jointly with income up to $98,900.

So, if you sell long-term holdings only and can keep your rebalancing amounts below these thresholds, you won't create a taxable event.

Save rebalancing activities only for your pretax accounts. Ideally you would get the vbtlx out of taxable but it’s not the end of the world (sell and rebuy in pretax which shouldn’t be a big tax hit for vbtlx).

If you want to gradually tilt to another fund in taxable then buy more shares over time actively or have those dividends go into the settlement fund (you can see how to do that by going into account options).

PS Have you looked into replacing the bond fund with equities? In a taxable account, you generally look to own high growth / low income investments for tax efficiency. For instance, you could replace the Total Bond Fund with a Small Cap or Emerging Markets or International fund, or maybe some other industury / commodity specific funds. Idea being that if you use specific funds to diversify, then you can use the losses in one asset class to offset the gains in another. When you own everything in a single fund, there's no way to offset gains and losses.

Another possibility is plan for a zero income year(s) in whcih you only realize cap gains.

I prefer to avoid automatic dividend reinvestment in a taxable account. You can choose to reinvest on your own periodically. This allows you to rebalance slowly over time and keeps your tax lots a lot cleaner.

Also, I believe both of those funds have ETF equivalents, so you can convert to the ETF tax-free. This isn't going to solve the rebalancing issue. Some options are: 1) Donate appreciate shares to charity, then replace with new money that you reinvest at today's prices. 2) Gift appreciated shares to relatives/friends. Be aware of gift tax rules. Then replace with new money reinvesting at today's prices. 3) Steadily rebalance within your tax bracket over several years. 4) Start adding new investments and if market values decline, realize losses and gains at same time to offset each other.

There are more complex ideas like buying into a partnership that passes through losses in the first couple years. Depends on how many dollars you're talking about and how much work you want to do.

Dividends in a taxable account are taxed in the year you receive them. This is true even if you automatically or manually reinvest the dividends.

Vanguard tends to lag behind other brokerages in rolling out features so you may be right that customer service can change the dividend reinvestment fund for you. Just know automatic reinvestment doesn’t avoid the taxable event.

Another way to rebalance is by using new money to buy whatever you want more shares of.