quick question [Investing in a taxable account]

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gadoc
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Joined: Thu Aug 06, 2015 3:45 pm

quick question [Investing in a taxable account]

Post by gadoc »

Hello quick question for you all. I would like to start investing in a taxable account. I have a 403B and 457 which I max out. My wife maxes out her 403A. Combined we are saving about 60K in tax deferred accounts. My asset allocation in both of these is about 80/20.

As far as the taxable account I would like to keep this as simple as possible. I have aobut 7K a month to invest. I am 30 years old and would like to invest in a lifestratagy fund with an asset allocation close to 80/20. I keep hearing that the problem with this fund in a taxable account is that is is not tax efficient. What does this exactly mean? Can someone break this down in actual numbers for me? How much would I potentially lose to taxes if I invest 7K a month into this for the next 30 years if i'm in the 39% tax bracket.
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LAlearning
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Re: quick question

Post by LAlearning »

why not a roth IRA?
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gadoc
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Re: quick question

Post by gadoc »

We make too much to directly invest in a roth. I am currently looking into a backdoor ROTH.
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LAlearning
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Re: quick question

Post by LAlearning »

that was the point of my question :beer

look into it. do it. then use the rest of your money for taxable.
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JDCarpenter
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Re: quick question

Post by JDCarpenter »

Deemed "not tax efficient" due to the payouts from the bonds being subject to ordinary income tax rates (and, potentially, due to the Cap gains in the deferred accounts being withdrawn and taxed at higher ordinary income rates if you are a diligently saving high earner).

With that in mind, most would counsel maintaining your asset allocation (overall 80/20, or whatever) across the entire portfolio--with all the bonds in the tax advantaged accounts, and passive/index equities outside.
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Jack FFR1846
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Re: quick question

Post by Jack FFR1846 »

I understand that auto rebalance is desirable, but really......looking once a year and deciding to make one change in your investing percentages takes all of 15 minutes. You could save money on ER and get the same outcome.

If I were doing this, I'd personally open at Schwab, get the bonus for a new account and invest 80/20 into SCHB/SCHZ ETFs. ERs are 0.03%/0.04%. Do the trades when the market is open. Both are high volume, low spread ETFs with no commission or transaction fees from Schwab.
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pkcrafter
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Re: quick question

Post by pkcrafter »

LAlearning wrote:why not a roth IRA?
I suspect the OP is above the income limit for a Roth, but a backdoor Roth is still an option.

https://www.bogleheads.org/wiki/Backdoor_Roth_IRA

gadoc, you are probably in a high tax bracket, and while the drag caused by bonds in a TR fund would not be to heavy now, over time they would be. Consider all accounts as part of one portfolio. In doing that you can use only tax efficient funds in taxable and the rest in tax-advantaged.

Vanguard does offer a tax-managed balanced fund, VTMFX at 50/50, that you could consider, but there are tax-efficient equity funds you can use too.

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Have you visited White Coat Investor?

http://whitecoatinvestor.com/

Paul



Paul
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