Tax Efficient Taxable Account Options

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Tax Efficient Taxable Account Options

Postby Pondo33 » Sun Jun 30, 2013 11:28 pm

My wife and I just made our $11,000 contribution to our IRAs and she will be contributing the maximum allowable to her 401k. I do not have have a 401k available. Since we cannot contribute anymore to retirement accounts, we want to open a taxable account in which we can invest.

Of course, I want an index fund of some sort, but one that is as tax efficient as possible. I had considered something along the lines of VTMFX. Are there other tax-efficient favorites out there?

Secondly, we have been buying VSMGX in our retirement accounts since that properly represents our desired allocation. Since our desired asset allocation is approximately 60/40 stocks/bonds, how do I maintain that when I start working on my taxable account?

Below are the current stats:

Married Filing Jointly - 28% federal, 5% state (Illinois)

Me - 40

Wife - 36

Desired Asset Allocation - 60% stocks/40% bonds, with 15% or 20% in international

Current retirement savings:

$183k in 401k, $11,500 in traditional IRA (All in VSMGX)

$50k emergency fund

$13k in money market ready to invest

Checking account maintained at $4k

Income for 2013 (estimated) $190k

No debt.
Pondo33
 
Posts: 29
Joined: Sun Mar 10, 2013 9:44 pm

Re: Tax Efficient Taxable Account Options

Postby Bob's not my name » Mon Jul 01, 2013 4:11 am

Pondo33 wrote:28% federal, 5% state (Illinois)
Income for 2013 (estimated) $190k
It appears your wife is contributing to a traditional IRA but is covered by an employer plan, so her contributions would be non-deductible. Is that right, or did you leave out Roth IRA's? You, on the other hand, since you're not covered by an employer plan, are eligible for a deductible spousal TIRA, which is a good choice since Illinois favors traditional (taxing neither contributions nor withdrawals). You shouldn't be in the 28% bracket:

$190,000 gross income
- $3,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
- $17,500 maximum contribution to wife's 401k
- $x,xxx FSA contributions
--------------
$169,000 AGI --> below spousal TIRA and Roth IRA phaseout, with $9,000 of headroom
- $5,500 his spousal TIRA contribution
- $12,200 standard deduction
- $7,800 two personal exemptions (assuming no kids)
--------------
$143,500 taxable income --> just under the 28% bracket with about $3,000 of headroom
Bob's not my name
 
Posts: 7023
Joined: Sun Nov 15, 2009 9:24 am

Re: Tax Efficient Taxable Account Options

Postby Pondo33 » Mon Jul 01, 2013 1:00 pm

Bob's not my name wrote:
Pondo33 wrote:28% federal, 5% state (Illinois)
Income for 2013 (estimated) $190k
It appears your wife is contributing to a traditional IRA but is covered by an employer plan, so her contributions would be non-deductible. Is that right, or did you leave out Roth IRA's? You, on the other hand, since you're not covered by an employer plan, are eligible for a deductible spousal TIRA, which is a good choice since Illinois favors traditional (taxing neither contributions nor withdrawals). You shouldn't be in the 28% bracket:

$190,000 gross income
- $3,500 pre-tax health, dental, and disability insurance premiums withheld from your pay (guess)
- $17,500 maximum contribution to wife's 401k
- $x,xxx FSA contributions
--------------
$169,000 AGI --> below spousal TIRA and Roth IRA phaseout, with $9,000 of headroom
- $5,500 his spousal TIRA contribution
- $12,200 standard deduction
- $7,800 two personal exemptions (assuming no kids)
--------------
$143,500 taxable income --> just under the 28% bracket with about $3,000 of headroom


Right now I'm not sure whether we can deduct the IRA contributions. You are correct that my wife has an employer plan and I do not. We contributed to the Traditional and decided we would see how the year ended and to decide then whether we can take the deduction. If not, we may backdoor to a Roth.

The 28% tax rate is based on last year's income. This year may be less. My wife was out of work for six months and just went back. Therefore, our annual income will be less than last year- that's why I was estimating $190k income for this year, which is less than last year. It may end up that we are taxed at a lower rate this year.
Pondo33
 
Posts: 29
Joined: Sun Mar 10, 2013 9:44 pm

Re: Tax Efficient Taxable Account Options

Postby Bob's not my name » Mon Jul 01, 2013 1:19 pm

Pondo33 wrote:Right now I'm not sure whether we can deduct the IRA contributions. You are correct that my wife has an employer plan and I do not. We contributed to the Traditional and decided we would see how the year ended and to decide then whether we can take the deduction. If not, we may backdoor to a Roth.

The 28% tax rate is based on last year's income. This year may be less. My wife was out of work for six months and just went back. Therefore, our annual income will be less than last year- that's why I was estimating $190k income for this year, which is less than last year. It may end up that we are taxed at a lower rate this year.
The MAGI phaseout for the deductible spousal TIRA is $178,000 - $188,000. Per my above illustration, you should have about $9,000 of headroom under that phaseout. Your statements above are confusing to me because of the repeated "we". She is not eligible. You are.

Or do you mean that your gross income might exceed $200,000 this year?
Bob's not my name
 
Posts: 7023
Joined: Sun Nov 15, 2009 9:24 am


Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: dratkinson, Grateful1, jtaylor4818, MidwestMD, tacster, Toltek, truenorth418 and 100 guests