Is it ok to NOT have significant taxable investments?

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hawkfan55
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Is it ok to NOT have significant taxable investments?

Post by hawkfan55 »

Most people on this board seem to have significant taxable investments in addition to their investments in tax advantaged accounts. Are there disadvantages to having almost all investments in IRAs, 403b, 401k, both deferred and Roth? These retirement vehicles would be preferable to having $ in taxable investments, correct? The only investments we have outside of tax advantaged accounts are the emergency fund and savings for near term goals such as car, vacation, etc.

With retirement on the horizon (2-6 years), I know we will need to turn our tax deferred accounts into an income stream. We've just never been able to save funds meant for retirement outside of Tax Deferred and Roth accounts. Meeting the contribution limits has always been a challenge for us. I guess the only downside is having to pay the taxes due on tax deferred retirement account withdrawls with additional tax deferred or Roth withdrawls. Any thoughts on this subject? Thank you!

Thanks all for your posts. I had thought we were investing correctly by attempting to max out all retirement vehicles such as 401k, 403b, and Roth IRAs before doing any taxable account investing. Guess I could do more taxable investing if our income was higher! I do have some Roth space in my I401k, might use some of that in addition to Roth IRAs.

As I am over the 59.5 year old threshold, I suppose I could tap my Roth IRA for a large expenditure. We plan to leave that money in the Roth account, withdrawing it last or with much thought as it is generating tax free returns as long as it remains in the Roth accounts. Might use some for managing tax bracket creep on distributions.

Due to our current savings priority, our living standard should increase significantly upon retirement. At least that is what ESPlanner says. Very difficult to smooth the years before retirement due to retirement contributions. I suppose we could dial back current retirement savings, pay more taxes and spend a little more during the next 2-6 years prior to retirement but it is awfully hard to do.
Last edited by hawkfan55 on Wed Apr 15, 2015 11:19 pm, edited 2 times in total.
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livesoft
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Re: Is it ok to NOT have significant taxable investments?

Post by livesoft »

Of course it is OK not to have significant taxable investments.

I would prefer to have ALL my retirement money in a Roth IRA if I could, but the US government would not allow me to do that.

The contribution limits for 401(k) and 403(b) are much, much higher than they used to be. In the old days, with a $2,000 annual contribution limit it was not unheard of to be able to make the maximum contribution annually. Nowadays, with $24,000 being the limit it can be pretty tough to reach that limit and the Roth limit for a married couple. If both spouses are working with 401(k), then the limit is $59,000 if they are 50 or older.
Last edited by livesoft on Wed Apr 15, 2015 2:41 pm, edited 1 time in total.
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Re: Is it ok to NOT have significant taxable investments?

Post by cadreamer2015 »

Like you, we have relatively little financial investments outside of tIRAs and t401ks. After contributing the maximum to tax sheltered investments over the years and rolling lump sum retirement payouts into rollover IRAs, about 90% of our financial assets are in tax deferred accounts. As long as your retirement spending plan recognizes that you will owe income taxes on withdrawals from tax deferred accounts, I think you will do OK. There is some advantage in being able to fine tune tax free withdrawals or 15% tax capital gains with fully taxable withdrawals in order to avoid bumping up into higher tax brackets. But that is a second order consideration and a first world problem, in my view.
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The Wizard
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Re: Is it ok to NOT have significant taxable investments?

Post by The Wizard »

I never had significant taxable investments during my working years.
But I had a good 403b plan allowing up to a combined max of around $50k per year to be contributed in later working years.
That plus $6000 to $6500 to my Roth IRA each year seemed like it would be enough to retire on.
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Leesbro63
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Re: Is it ok to NOT have significant taxable investments?

Post by Leesbro63 »

A local (Pittsburgh area) financial guy has a radio show that I listen to. James Lange...some Bogleheads are familiar with his podcasts here: http://www.paytaxeslater.com/radioshow.php
He's somewhat of an authority on IRA planning. A few of the professionals who post here have been guests on his show. Jim is not completely a Boglehead but he's close...uses DFA.

Anyway, he OFTEN comments that his typical retiree client was a Pittsburgh area (US Steel, Westinghouse, Heinz) mid-level executive or engineer or was a school teacher/college professor. "With $1-3M IRA, house and a Honda and that's it."

So yeah, it's very common for people to view their retirement plans as their total "savings" and just focus on that. Heck, if most of America would just max out their IRA/401K/Pension opportunities and do nothing else there wouldn't be so many so badly unprepared for retirement.
Last edited by Leesbro63 on Wed Apr 15, 2015 3:07 pm, edited 3 times in total.
weedf16
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Re: Is it ok to NOT have significant taxable investments?

Post by weedf16 »

In my opinion, the ONLY "advantage" that taxable accounts have over tax-advantaged accounts is that there is no early withdrawl fee if you withdraw before age 59 1/2. If you have a robust emergency fund and are adequately insured this should never happen anyway.
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Re: Is it ok to NOT have significant taxable investments?

Post by Leesbro63 »

weedf16 wrote:In my opinion, the ONLY "advantage" that taxable accounts have over tax-advantaged accounts is that there is no early withdrawl fee if you withdraw before age 59 1/2. If you
have a robust emergency fund and are adequately insured this should never happen anyway.
Well, another advantage is that you get the somewhat lower capgains & dividends tax rate. But that advantage has diminished and certainly isn't as good as the Roth IRA rate of 0. And the annual forced taxation of the dividends, even at the lower rate, offsets the lower rates versus deferring ALL taxes for years in an IRA. A big DISadvantage of taxable investments, especially for high net worth/high income folks, is the relative inability to rebalance without significant tax cost.

But most bigger nest eggs have a significant taxable portion just due to the fact that businesses get sold etc as taxable investments. And tax sheltered investment opportunities are limited.
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Re: Is it ok to NOT have significant taxable investments?

Post by HomerJ »

Well, if you want to retire early, it might be a good idea to have some money in taxable...

Or if you want to splurge pre-retirement... :)

My wife and I bought a lake condo with cash last year... couldn't have done that if all our money had been in a tax-deferred account.
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Re: Is it ok to NOT have significant taxable investments?

Post by OatmealAddict »

You might get there in time. My wife and I are just now at the point where we might be able to start contributing to a taxable account (at age 33), however between a mortgage, daycare, student loans, all the other bills, saving for college, maxing out a 401k, maxing out a 403b, and maxing two Roths, it's going to be chump change for a while. I consider it a minor miracle just to be able to do the aforementioned and hope that we'll be able to to put a little more in taxable in the not-so-distant future.
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Re: Is it ok to NOT have significant taxable investments?

Post by nisiprius »

I currently have no significant taxable investments. I don't know if that's OK or not!
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Re: Is it ok to NOT have significant taxable investments?

Post by House Blend »

The most important feature to look for is are you saving enough for retirement? (For younger folks this is harder to know, and you have to rely more on guesswork, such as making sure at least 15% of gross is being salted away. YMMV.)

If the "enough" is below the maximum contributions of your tax advantaged accounts, so much the better. Investing is a lot simpler that way. Less fussing over tax efficiency, for example, and rebalancing carries no extra tax costs.

A MFJ over 50 couple with two 401(k)s and two IRAs can tax shelter $61K in 2015. More, if there is an employer match. Whether that is "enough" very much depends on how much you plan to spend and how soon you plan to retire. I'm sure there are many Bogleheads are (a) saving more than enough and (b) unable or unwilling to save > $61K/year.

If you have a really sucky 401(k) plan maybe you should have second thoughts about maxing it out before going taxable, but nothing in your post suggests that.
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Re: Is it ok to NOT have significant taxable investments?

Post by asif408 »

Most people on this board have higher than average incomes: http://www.bogleheads.org/forum/viewtop ... 2&t=163384 so it's not surprising that they have significant taxable investments. There is definitely nothing wrong with not having significant taxable investments. I don't ever plan to have significant taxable investments outside of tax advantaged accounts because I can't fill up the tax-advantaged space available to me. To me the only advantage to a taxable account is having access to money needed in the short term, and you already have that with an emergency fund and savings.

I do prioritize Roth and HSA contributions over other accounts available to me (such as traditional IRA and 457(b)) because of my current marginal tax bracket (15%) and the lack of RMD's. But to me any tax advantaged account is better than a taxable account for retirement savings.
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Re: Is it ok to NOT have significant taxable investments?

Post by tludwig23 »

I can (and will) put $70,500 in the tax-sheltered investments this year. I have no more money to invest, so I have no significant taxable investments.
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Re: Is it ok to NOT have significant taxable investments?

Post by Watty »

I am in pretty much that situation and the only thing I am concerned about is that the taxable withdrawals from the IRA's will cause me to be in a higher than expected effective tax bracket if I am in the income range where each dollar of extra income causes more of my social security to be taxable. I expect to pretty much avoid this by doing Roth conversions after I retire but before I start social security.
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hawkfan55
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Re: Is it ok to NOT have significant taxable investments?

Post by hawkfan55 »

Thanks all for your posts. I had thought we were investing correctly by attempting to max out all retirement vehicles such as 401k, 403b, and Roth IRAs before doing any taxable account investing. Guess I could do more taxable investing if our income was higher!

As I am over the 59.5 year old threshold, I suppose I could tap my Roth IRA for a large expenditure. We plan to leave that money in the Roth account, withdrawing it last or with much thought as it is generating tax free returns as long as it remains in the Roth accounts.

Due to our current frugal ways, our living standard should increase significantly upon retirement. At least that is what ESPlanner says. Very difficult to smooth the years before retirement due to retirement contributions. I suppose we could dial back current retirement savings, pay more taxes and spend a little more during the next 2-6 years prior to retirement but it is awfully hard to do.
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Re: Is it ok to NOT have significant taxable investments?

Post by The Wizard »

Watty wrote:I am in pretty much that situation and the only thing I am concerned about is that the taxable withdrawals from the IRA's will cause me to be in a higher than expected effective tax bracket if I am in the income range where each dollar of extra income causes more of my social security to be taxable. I expect to pretty much avoid this by doing Roth conversions after I retire but before I start social security.
You can solve that problem by saving more and thus generate a higher retirement income aside from SS, such that all of your SS is 85% taxable...
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Re: Is it ok to NOT have significant taxable investments?

Post by ResearchMed »

hawkfan55 wrote:Thanks all for your posts. I had thought we were investing correctly by attempting to max out all retirement vehicles such as 401k, 403b, and Roth IRAs before doing any taxable account investing. Guess I could do more taxable investing if our income was higher!

As I am over the 59.5 year old threshold, I suppose I could tap my Roth IRA for a large expenditure. We plan to leave that money in the Roth account, withdrawing it last or with much thought as it is generating tax free returns as long as it remains in the Roth accounts.

Due to our current frugal ways, our living standard should increase significantly upon retirement. At least that is what ESPlanner says. Very difficult to smooth the years before retirement due to retirement contributions. I suppose we could dial back current retirement savings, pay more taxes and spend a little more during the next 2-6 years prior to retirement but it is awfully hard to do.
We are in a similar situation, except that it's our regular IRA accounts that we "use" as our emergency fund.
(Or we "would use" that money, if we had an emergency.)

Because we are going to be in a lower tax bracket once DH fully retires (he's not even partly retired yet, but at least he has finally started taking "real" vacations), it made sense to sock away as much as possible, saving the higher taxes now, and then remove the money later at at least somewhat lower tax rates (IF tax rates stay even somewhat similar).

We have therefore stopped adding to our retirement accounts, although we still get a nice Employer contribution (no matching required).
Instead, we are using the money we would have used, plus SS benefits, for the travel we are finally starting.

We had a couple of health scares, and figured it was TIME to start doing those things we had been saving for, all this time.
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Re: Is it ok to NOT have significant taxable investments?

Post by White Coat Investor »

hawkfan55 wrote:Most people on this board seem to have significant taxable investments in addition to their investments in tax advantaged accounts. Are there disadvantages to having almost all investments in IRAs, 403b, 401k, both deferred and Roth? These retirement vehicles would be preferable to having $ in taxable investments, correct? The only investments we have outside of tax advantaged accounts are the emergency fund and savings for near term goals such as car, vacation, etc.

With retirement on the horizon, I know we will need to turn our tax deferred accounts into an income stream. We've just never been able to save funds meant for retirement outside of Tax Deferred and Roth accounts. Meeting the contribution limits has always been a challenge for us. I guess the only downside is having to pay the taxes due on tax deferred retirement account withdrawls with additional tax deferred or Roth withdrawls. Any thoughts on this subject? Thank you!
Join the club. I've never thought it made sense to make a taxable investment when I had a Roth or tax-deferred investment available to me. When I do make taxable investments and they appreciate, I use those shares to make my charitable contributions. Thus....no taxable account despite saving a six figure amount every year.

Beats the opposite problem I assure you.
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Re: Is it ok to NOT have significant taxable investments?

Post by tenkuky »

EmergDoc makes me feel better about this.
I too have been agonizing about not having adequate taxable to tax-deferred ratio.
But since I'm maxing out my tax-deferred space, I am concentrating on improving my tax-free space (aka my newly available Roth 403b at work).
I'm instead paying down my mortgage (30 yr at 4.25% to pay off in 10 years), since I have an adequate EF.
In short, not much taxable, but getting less obsessed about it.
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Re: Is it ok to NOT have significant taxable investments?

Post by WisdomSeeker32 »

Say you have a high income, in a high tax bracket. You fully max out tax free/tax deferred each year to around 100k. You still have 200K+ leftover. You're saying it's not a good idea to throw all that in to taxable, because taxes will suck?

Is that what you're saying EmergDoc?
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Re: Is it ok to NOT have significant taxable investments?

Post by IMD801 »

EmergDoc wrote:
hawkfan55 wrote:Most people on this board seem to have significant taxable investments in addition to their investments in tax advantaged accounts. Are there disadvantages to having almost all investments in IRAs, 403b, 401k, both deferred and Roth? These retirement vehicles would be preferable to having $ in taxable investments, correct? The only investments we have outside of tax advantaged accounts are the emergency fund and savings for near term goals such as car, vacation, etc.

With retirement on the horizon, I know we will need to turn our tax deferred accounts into an income stream. We've just never been able to save funds meant for retirement outside of Tax Deferred and Roth accounts. Meeting the contribution limits has always been a challenge for us. I guess the only downside is having to pay the taxes due on tax deferred retirement account withdrawls with additional tax deferred or Roth withdrawls. Any thoughts on this subject? Thank you!
Join the club. I've never thought it made sense to make a taxable investment when I had a Roth or tax-deferred investment available to me. When I do make taxable investments and they appreciate, I use those shares to make my charitable contributions. Thus....no taxable account despite saving a six figure amount every year.

Beats the opposite problem I assure you.
Are you planning on a 72(t) for early retirement?
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Re: Is it ok to NOT have significant taxable investments?

Post by greg24 »

Our only taxable investments is our emergency fund/slush fund. Everything else in 401k/403b/IRA/Roth IRA.
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Rob54keep
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Re: Is it ok to NOT have significant taxable investments?

Post by Rob54keep »

In retirement taxable funds have allowed me to buy a car, pay off the house, manage my tax bracket on annual distributions and pay taxes on Roth conversion. Not having taxable funds is still doable situation, just less options...especially when it come to managing taxes.
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Re: Is it ok to NOT have significant taxable investments?

Post by tenkuky »

Rob54keep has a point; however I am hoping my RMD from my tax-deferred accounts will help cover my tax obligations in retirement.
The emergency fund will be a back-up until then, and is my only other fund (like greg24).
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Re: Is it ok to NOT have significant taxable investments?

Post by Shilling »

I was also concerned about the lack of taxable investments in my portfolio. Years ago, I had dabbled in trading stocks but the process was unnerving when the stock market tanked. I felt prone to doing day trading and faring out quite badly in my attempts to time the market by trading penny stocks.
I was thinking of making some investments in taxable accounts but am stuck in deciding which investment vehicle to use: mutual funds or ETFs (mainly for the flexibility and no minimums) or investing long term in quality stocks (no penny stocks) in large cap companies. I am especially attracted to the potential upside of the buying stocks and holding them versus making regular contributions into Vanguard index/actively managed funds. I was also trying to make investments that don’t add to the complexity of filing my taxes.
Any advice would be greatly appreciated! I want to make taxable investments as I have no debts, max out my match at work and contribute the max into my Roth IRA each year but want to put my disposable income to work especially in this low interest environment.
Many thanks
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Re: Is it ok to NOT have significant taxable investments?

Post by ncole1 »

A taxable account is a good fit for those in situations where buying a house doesn't make sense yet, as part of an overall "rent and invest the difference" strategy, particularly over time frames of 10+ years before buying. It can be used later to buy a house when the time is right, without being limited to a measly $10k. Part of the money can be put into a Roth but especially over long time frames the inability to pull out earnings without penalty can be significant.
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Re: Is it ok to NOT have significant taxable investments?

Post by Leesbro63 »

One problem related to all this is that for many, tax-sheltered space is limited. Only so many dollars per year can be invested in sheltered accounts. So this becomes an excuse to spend the difference. For many, the amounts able to be saved in tax-sheltered is the right amount. But for many others, There just isn't enough discipline to save non-sheltered dollars without some sort of more formal structure/dollar limits/dollar goals like the sheltered accounts. Related to that is something I heard on the James Langue/EmergDoc podcast that I posted about yesterday: Consider your HSA as an additional Roth IRA. Max it out each year if you can and pay for medical expenses with after tax dollars. Eventually (age 65?) you can take the money out of the HSA tax free for anything.

Anyway, my main comment is that it's fine to have no savings other than sheltered money IF you are truly saving a decent percentage of your income. Big for bigger earners, the tax sheltered amounts can be a false idol that limits savings from the more appropriate, higher amount needed to create a sustainable lifestyle over a lifetime.
Last edited by Leesbro63 on Thu Apr 16, 2015 7:10 am, edited 1 time in total.
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Re: Is it ok to NOT have significant taxable investments?

Post by livesoft »

Shilling wrote:Any advice would be greatly appreciated!
Based on what you typed in, your investments in a taxable account should only be VTSAX and/or VTIAX for the next several years.
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Re: Is it ok to NOT have significant taxable investments?

Post by avenger »

Most of my assets are in taxable. However, I only started saving at age 31 and am planning a very early FIRE. If you're planning a normal retirement (or an early retirement with 72(t)) you should be good.
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Re: Is it ok to NOT have significant taxable investments?

Post by Go Blue 99 »

We are in our 30s, and our taxable investments are tiny compared to our 401k/IRA balances.
However, as our savings rate increases, we are adding some to the taxable account. The main reason being that we also want to save for potential major purchases that occur before we turn 59.5.
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Re: Is it ok to NOT have significant taxable investments?

Post by cheese_breath »

HomerJ wrote:Well, if you want to retire early, it might be a good idea to have some money in taxable...
That's what I did. Retired at 56 with one small pension and supplemented it with my taxable monies until second pension and SS kicked in. Spent the taxable down to near zero during that time where it stayed until excess RMDs forced me to start building it up again.
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Re: Is it ok to NOT have significant taxable investments?

Post by negreenfield »

I have probably 1% or less in taxable, I only even have taxable because for a period of time my wife worked at a job where the 401k was so terrible with no match it was recommended on here to look into taxable. Now once the kids are all out of daycare (a little more than 4 years away) that frees up money that will at least 50% go into taxable meaning I can probably almost match what I put in 401k per year. It seems to me there's no way to retire early without it but I'm still shooting for between 55 and 60 (I'm currently 38)
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Re: Is it ok to NOT have significant taxable investments?

Post by trueblueky »

There's taxable, and then there's taxable now. I have I Bonds in Treasury Direct as part of my bond allocation. They're sorta tax-deferred by their very nature, but not in a retirement account and not subject to RMD.
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Re: Is it ok to NOT have significant taxable investments?

Post by cheese_breath »

negreenfield wrote:... It seems to me there's no way to retire early without it but I'm still shooting for between 55 and 60 (I'm currently 38)
Not necessarily. There's an exception to the 59 1/2 rule that may enable you to withdraw from your retirement accounts in a series of substantially equal periodic payments without incurring the 10% early withdrawal penalty. Check it out in about 15 years.
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Re: Is it ok to NOT have significant taxable investments?

Post by Shilling »

livesoft wrote:
Shilling wrote:Any advice would be greatly appreciated!
Based on what you typed in, your investments in a taxable account should only be VTSAX and/or VTIAX for the next several years.
Thanks! I read on the Wiki that Bond funds are not tax efficient and so won't include them in my taxable account. In addition to these two index funds, would it be advisable to supplement them with actively managed funds or specialized sector funds?
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Re: Is it ok to NOT have significant taxable investments?

Post by MathWizard »

livesoft wrote:Of course it is OK not to have significant taxable investments.

I would prefer to have ALL my retirement money in a Roth IRA if I could, but the US government would not allow me to do that.

The contribution limits for 401(k) and 403(b) are much, much higher than they used to be. In the old days, with a $2,000 annual contribution limit it was not unheard of to be able to make the maximum contribution annually. Nowadays, with $24,000 being the limit it can be pretty tough to reach that limit and the Roth limit for a married couple. If both spouses are working with 401(k), then the limit is $59,000 if they are 50 or older.
Livesoft,

Thanks for the pretty "tough to reach that limit and the Roth limit for a married couple" comment.

Many of the comments I've seen on this board seem to suggest that you are a slacker if you are not maxing
all tax-advantaged space.
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Re: Is it ok to NOT have significant taxable investments?

Post by Broken Man 1999 »

Is it ok to NOT have significant taxable investments?
I sure hope so, as our taxable account is less than 2% of our portfolio.

And, that very small account is slowly being drained, as I sell off the few remaining stocks I bought in the last big meltdown.

So, we face retirement with virtually everything in tax-deferred. Fortunately we have about 3 (three) years worth of expenses in ROTH IRAs to soften the tax load when we start living on our retirement portfolios.

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Re: Is it ok to NOT have significant taxable investments?

Post by neurosphere »

WisdomSeeker32 wrote:Say you have a high income, in a high tax bracket. You fully max out tax free/tax deferred each year to around 100k. You still have 200K+ leftover. You're saying it's not a good idea to throw all that in to taxable, because taxes will suck?

Is that what you're saying EmergDoc?
No, reread his post, he said that taxable investing does not make sense when tax advantaged accounts are available. I.e. don't choose to NOT fill up a Roth, 401k or other available tax-advantaged accounts simply to put something in taxable accounts. If you have maxed out such accounts, then taxable investing is a dang fine idea.
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Re: Is it ok to NOT have significant taxable investments?

Post by White Coat Investor »

neurosphere wrote:
WisdomSeeker32 wrote:Say you have a high income, in a high tax bracket. You fully max out tax free/tax deferred each year to around 100k. You still have 200K+ leftover. You're saying it's not a good idea to throw all that in to taxable, because taxes will suck?

Is that what you're saying EmergDoc?
No, reread his post, he said that taxable investing does not make sense when tax advantaged accounts are available. I.e. don't choose to NOT fill up a Roth, 401k or other available tax-advantaged accounts simply to put something in taxable accounts. If you have maxed out such accounts, then taxable investing is a dang fine idea.
Exactly. Besides, if you're putting away $300K a year....your financial problems should be very limited.

I like the idea of having a taxable account. I just like the idea of having larger tax-protected accounts and/or using appreciated shares for my charitable giving better.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
malloc
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Re: Is it ok to NOT have significant taxable investments?

Post by malloc »

Although I agree with the advice above for most people, there is one case worth consideration. A few years prior to retirement, it is a good idea to look ahead to see where you want to end up. A backdoor Roth is only one consideration, if your income after retirement will actually increase.

It may well be better to pay lower taxes on the income prior to retirement, rather than higher taxes after. Perhaps this is an unusual case, but the opportunity to optimize disappears upon retirement.
Nowizard
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Re: Is it ok to NOT have significant taxable investments?

Post by Nowizard »

Being retired and at an age where I must take an annual distribution from retirement accounts leads to this perspective. My wife and I each have SS, and she has a reasonable pension. I was self-employed and made regular contributions to retirement accounts and IRA's. The RMD results in greater income than we need annually. This results in two items of interest. First, we now have more in taxable investments than we had when working since RMD amounts are primarily re-invested in taxable accounts. Second, unless you have tax deductions made from any pension and RMD, you will have significant estimated tax payments when most assets are in retirement accounts. We have been putting as much as is allowed in Roth-IRA's the past several years due to relatively small amounts of earned income. When your assets are primarily in retirement funds and you are figuring net worth, it is important to consider the percentage you will owe in taxes when money is withdrawn. Ed Slott has written a very helpful book called The Retirement Savings Time Bomb for those who have significant assets in retirement vehicles. It offers ways to minimize taxation if you plan ahead.

Tim
LateStarter1975
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Re: Is it ok to NOT have significant taxable investments?

Post by LateStarter1975 »

MathWizard wrote:
livesoft wrote:Of course it is OK not to have significant taxable investments.

I would prefer to have ALL my retirement money in a Roth IRA if I could, but the US government would not allow me to do that.

The contribution limits for 401(k) and 403(b) are much, much higher than they used to be. In the old days, with a $2,000 annual contribution limit it was not unheard of to be able to make the maximum contribution annually. Nowadays, with $24,000 being the limit it can be pretty tough to reach that limit and the Roth limit for a married couple. If both spouses are working with 401(k), then the limit is $59,000 if they are 50 or older.
Livesoft,

Thanks for the pretty "tough to reach that limit and the Roth limit for a married couple" comment.

Many of the comments I've seen on this board seem to suggest that you are a slacker if you are not maxing
all tax-advantaged space.
+1
Debt is dangerous...simple is beautiful
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lthenderson
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Re: Is it ok to NOT have significant taxable investments?

Post by lthenderson »

negreenfield wrote:It seems to me there's no way to retire early without it but I'm still shooting for between 55 and 60 (I'm currently 38)
I felt exactly the same way until I learned about the 72(t). It allows you to withdraw money from your tax advantaged accounts early without tax penalties. I have every penny of my retirement in tax advantaged accounts but retired at 40. Right now, my wife still enjoys her job and wants to continue working so we're living off her income. However when she's had enough, I plan on using the 72(t) to access my retirement funds until I reach full retirement age.
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Re: Is it ok to NOT have significant taxable investments?

Post by minesweep »

Shilling wrote:
livesoft wrote:
Shilling wrote:Any advice would be greatly appreciated!
Based on what you typed in, your investments in a taxable account should only be VTSAX and/or VTIAX for the next several years.
Thanks! I read on the Wiki that Bond funds are not tax efficient and so won't include them in my taxable account. In addition to these two index funds, would it be advisable to supplement them with actively managed funds or specialized sector funds?
The two mutual funds that livesoft suggested to you for the taxable account are your best choices. Index funds are more tax efficient because they have low cost, provide broad diversification, and have low turnover. What more could you want? They have all the ingredients you need. Don’t throw a monkey wrench into the mix (with managed and/or sector funds). Low cost managed funds are best suited for a tax deferred account (or Roth IRA) because they generally have a higher turnover rate. Sector funds are more akin to speculating, not investing.

Principles of tax-efficient fund placement
Use index funds when possible

The best and lowest cost way to buy the whole stock market is with index funds (either through traditional mutual funds or ETFs). The first such retail fund was pioneered by Jack Bogle in 1976, and was called "Bogle's folly" by some members of the financial industry. Today, Vanguard Total Stock Market is the largest mutual fund in the world, and is also one of the best values. Fund expenses weigh in at about one-tenth the industry average. By purchasing this single fund, an investor owns a piece of essentially every public company in the US. This diversification lowers risk, because the failure of any one company does not have a big effect. The investor is still exposed to the high volatility of the overall stock market, but in exchange the investor gets to participate in whatever returns the market is generous enough to give over time.

Bogleheads also like to use low cost index funds to hold international stocks, so they can take advantage of economic growth in other countries. Vanguard Total International Stock Market is one such fund that owns a portion of most international public companies in both the developed and developing worlds. International equity may or may not provide higher growth than US equity over time, and it has historically been even more volatile than domestic stocks. The amount held varies, but is normally between 20 to 40% ofthe equity allocation.
Bogleheads® investment philosophy

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Time is your friend; impulse is your enemy - John Bogle | Learn every day, but especially from the experiences of others, it's cheaper! - John Bogle
NightTrain
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Re: Is it ok to NOT have significant taxable investments?

Post by NightTrain »

Maybe I missed it in the thread, but has anyone mentioned the 5 year Roth Pipeline strategy?

https://www.kitces.com/blog/understandi ... nversions/

You can get access to 401(k) money at any age without the 10% penalty, taxed at regular income tax rates, with a little strategy and planning. It's why I have absolutely no qualms maxing out our 401k and 403b accounts. We can get at that money even if we wanted to retire well before the age of 59 1/2.

I too was worried about not having any taxable investment accounts, we want to retire 47-50ish (in some capacity). This strategy flipped that worry on it's head. I'm always curious why that totally legal method is not touted more around here. Maybe it's more relevant to the FIRE crowd. Either way, OP, you might be intrigued.
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gasdoc
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Re: Is it ok to NOT have significant taxable investments?

Post by gasdoc »

I am not an accountant, and am no expert on the subject, but I believe there is a new medicare tax that was part of the ACA health care law. It falls on higher income folks that is based on the addition of your salary income and your investment income in terms of who has to pay it. I sure wish I didn't have those earnings from my taxable investments now!
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slow n steady
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Re: Is it ok to NOT have significant taxable investments?

Post by slow n steady »

NightTrain wrote:Maybe I missed it in the thread, but has anyone mentioned the 5 year Roth Pipeline strategy?

https://www.kitces.com/blog/understandi ... nversions/

You can get access to 401(k) money at any age without the 10% penalty, taxed at regular income tax rates, with a little strategy and planning. It's why I have absolutely no qualms maxing out our 401k and 403b accounts. We can get at that money even if we wanted to retire well before the age of 59 1/2.

I too was worried about not having any taxable investment accounts, we want to retire 47-50ish (in some capacity). This strategy flipped that worry on it's head. I'm always curious why that totally legal method is not touted more around here. Maybe it's more relevant to the FIRE crowd. Either way, OP, you might be intrigued.
I didn't see this mentioned either and I believe it is one of the best ways to access your money early. I have a 457b so I really don't have to worry about it, but if I did I would use the pipeline. :P
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avenger
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Re: Is it ok to NOT have significant taxable investments?

Post by avenger »

slow n steady wrote:
NightTrain wrote:Maybe I missed it in the thread, but has anyone mentioned the 5 year Roth Pipeline strategy?

https://www.kitces.com/blog/understandi ... nversions/

You can get access to 401(k) money at any age without the 10% penalty, taxed at regular income tax rates, with a little strategy and planning. It's why I have absolutely no qualms maxing out our 401k and 403b accounts. We can get at that money even if we wanted to retire well before the age of 59 1/2.

I too was worried about not having any taxable investment accounts, we want to retire 47-50ish (in some capacity). This strategy flipped that worry on it's head. I'm always curious why that totally legal method is not touted more around here. Maybe it's more relevant to the FIRE crowd. Either way, OP, you might be intrigued.
I didn't see this mentioned either and I believe it is one of the best ways to access your money early. I have a 457b so I really don't have to worry about it, but if I did I would use the pipeline. :P
I also have a 457. Unfortunately the deferral limits make this vehicle inadequate for my FIRE needs.
cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, BND, VTEB, SV fund]
jimishooch
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Re: Is it ok to NOT have significant taxable investments?

Post by jimishooch »

jimday1982 wrote:You might get there in time. My wife and I are just now at the point where we might be able to start contributing to a taxable account (at age 33), however between a mortgage, daycare, student loans, all the other bills, saving for college, maxing out a 401k, maxing out a 403b, and maxing two Roths, it's going to be chump change for a while. I consider it a minor miracle just to be able to do the aforementioned and hope that we'll be able to to put a little more in taxable in the not-so-distant future.
you're doing good, keep it up.
jim
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