After a lot of reading and research, I think we have a comfortable AA for our retirement accounts. However, we're at the point where we've exhausted our tax advantaged accounts and need additional taxable investments to get caught up on retirement. I'm seeing conflicting suggestions everywhere on where to put those investments and why, so would love some advice and insights.
Emergency funds: 4 months liquid
Debt: 1 student loan at 3.25%; US mortgage on current rental property which we hope to return to eventually at around 4%
Tax Filing Status: MFJ
Tax Rate: 28% Federal
State of Residence: Wisconsin, but we're currently expats and using the FEIE for part of our income
Age: both 34
Desired Asset allocation: 75% stocks /25% bonds
Desired International allocation: 20% of stocks (????)
We've just gotten serious about investing and retirement, so are playing catch up. We are at about 1x annual income which we estimate is considerably more (75% more??) than we'd need annually to be comfortable in retirement--we live well below our income as it has increased fast but lifestyle has not and we previously focused on paying off debt including considerable student loans.
Current retirement assets
His 401A (15% total)--former employer
38% Blockrock Bond Index Fund (WFBIX)
62% Blackrock Non-US Equity Index Fund
His 401k (42% total)--former employer
15% Blockrock Bond Index Fund (WFBIX)
85% Blackrock US Equity Index Fund
Both the above accounts have the same fund options--these were by far the best options based on expense ratios.
His tIRA with Vanguard (6%)--maxing out annually
100% Vanguard REIT Index Fund Investor Shares (VGSIX)
Her tIRA with Vanguard (6%)--maxing out annually
100% Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)
Her 401k (31%)--former employer
56% Vanguard Total Bond Market Index Fund (VBMPX)
1% Vanguard Growth Index Fund (VIGIX)
43% Vanguard Extended Market Index I (VIEIX)
Plan is to move more out of nominal bonds and into inflation protected as we add to the tIRAs to get a better mix.
So, for the taxable investing I'd seen recommended to start with tax-exempt muni bonds, I/EE savings bonds, tax-managed stock funds, etc. but then elsewhere it suggests index funds and that some of the above listed options are tax-inefficient. I'm extremely confused!
What next after exhausting tax advantaged retirement?
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- Posts: 22
- Joined: Fri Jul 26, 2013 1:29 pm
Re: What next after exhausting tax advantaged retirement?
So you have seen the suggestions for what to put in a taxable account and they are all good. Basically, the standard 3 funds are tax efficient:
Total US Stock Market Index fund
Total Int'l Stock Market Index fund
A tax-exempt muni bond fund.
There are other equity funds that are tax-efficient such as an Emerging Market Index fund or Developed Markets index fund or a Small-cap index fund. Other funds sometimes named as tax-inefficient do not really incur much more in taxes, but folks haven't run the numbers to see that, so they just repeat what they have heard. So-called "tax-managed" funds are not that much more tax-efficient than the 3 funds above. I-bonds are tax-deferred.
So for the taxable just fulfill your asset allocation with the 4 investments listed above. It's that simple. Other than that, avoid REIT and TIPS in taxable.
Basically, I've repeated what you have already read and that you said confused you, so I am not sure if this is any help at all.
Total US Stock Market Index fund
Total Int'l Stock Market Index fund
A tax-exempt muni bond fund.
There are other equity funds that are tax-efficient such as an Emerging Market Index fund or Developed Markets index fund or a Small-cap index fund. Other funds sometimes named as tax-inefficient do not really incur much more in taxes, but folks haven't run the numbers to see that, so they just repeat what they have heard. So-called "tax-managed" funds are not that much more tax-efficient than the 3 funds above. I-bonds are tax-deferred.
So for the taxable just fulfill your asset allocation with the 4 investments listed above. It's that simple. Other than that, avoid REIT and TIPS in taxable.
Basically, I've repeated what you have already read and that you said confused you, so I am not sure if this is any help at all.
Re: What next after exhausting tax advantaged retirement?
Do you currently have any 401k/403b accounts that are receiving money? Are you still contributing to IRAs? Or are you now just saving for retirement in a taxable account?
This is not what you asked, but do you know about the back door contribution to Roth IRA? In your situation, Roth IRA would be preferable to tIRA, but you may not know that you can do that. http://thefinancebuff.com/the-backdoor- ... ow-to.html
Agree with livesoft about the best funds to put in taxable:
This is not what you asked, but do you know about the back door contribution to Roth IRA? In your situation, Roth IRA would be preferable to tIRA, but you may not know that you can do that. http://thefinancebuff.com/the-backdoor- ... ow-to.html
Agree with livesoft about the best funds to put in taxable:
- Total US Stock Market Index fund
Total Int'l Stock Market Index fund
A tax-exempt muni bond fund
Link to Asking Portfolio Questions
Re: What next after exhausting tax advantaged retirement?
Taxable accounts are under-appreciated. I am in de-accumulation phase. With the equity run-up I have been gradually selling off equity to re-balance and to pay bills. With all the tax-loss carry-forwards I banked in 2008-08 I have yet to pay any tax on any equity sales.
Stay hydrated; don't sweat the small stuff