Rotary encoders don't have a Vcc. Do you mean a rotary encoder on a PCB module where one of the pins on the PCB is marked Vcc? On these (badly designed) modules, you connect the Vcc pin on the encoder board to the Vcc of the Arduino. If you connect the toggle switch to that pin also, you are really just connecting the toggle switch to the Vcc of the Arduino also.
This is not the best way to connect any switch or button to the Arduino, firstly because it forces you to connect a wire from the Arduino's Vcc pin to the switch, and if that wire breaks loose, it could cause a damaging short circuit. Secondly, because you then need to add a pull down resistor to the Arduino pin, that the switch is connected to, to prevent the pin from floating.
The better way to connect a switch or button is to connect it between the Arduino pin and ground. Then you can use the Arduino's internal pull-up resistor to prevent the pin from floating, so no need to add an external resistor, and the short circuit danger I mentioned is avoided.
I just had a thought. Maybe you intended to connect the toggle switch between the Arduino Vcc and the encoder board's Vcc pin? Your thinking is that when the toggle switch is in the off position, no signals from the encoder will be read by the arduino pins? If I'm right, don't do it. The problem that will cause is that when the switch is in the off position, the Arduino pins will be floating and will read random noise from the environment.