Retirement savings catch up advice
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Retirement savings catch up advice
I am 62 years old and need to catch up on my retirement savings. I currently have a Roth IRA that I have not contributed to regularly, so I have not saved as much as I would like. I have made the maximum contribution to the Roth for this year, so I am looking for another fund to invest in that is similar to the Vanguard 2015 Target Roth IRA that I have, but that is not limited in the amount I can contribute per year. I have done some reading, but am still not clear on what fund would be best. I have been looking at 3 different Vanguard funds: Vanguard Life Strategy Conservative Growth, Vanguard Life Strategy Income Fund, and the Vanguard REIT Index Fund. I am considering the REIT because of what I have been reading about the trend toward negative interest among the Japanese and European banks that is also being considered by the US.
I am a novice to all of this, and it seems the more I read the less I understand. What are the pros and cons of the funds I am considering, and does anyone have other recommendations? I would like to stay with Vanguard for the additional investments.
I am a novice to all of this, and it seems the more I read the less I understand. What are the pros and cons of the funds I am considering, and does anyone have other recommendations? I would like to stay with Vanguard for the additional investments.
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Re: Retirement savings catch up advice
Hello and welcome to the forum!OldSchool99 wrote:I am 62 years old and need to catch up on my retirement savings. I currently have a Roth IRA that I have not contributed to regularly, so I have not saved as much as I would like. I have made the maximum contribution to the Roth for this year, so I am looking for another fund to invest in that is similar to the Vanguard 2015 Target Roth IRA that I have, but that is not limited in the amount I can contribute per year. I have done some reading, but am still not clear on what fund would be best. I have been looking at 3 different Vanguard funds: Vanguard Life Strategy Conservative Growth, Vanguard Life Strategy Income Fund, and the Vanguard REIT Index Fund. I am considering the REIT because of what I have been reading about the trend toward negative interest among the Japanese and European banks that is also being considered by the US.
I am a novice to all of this, and it seems the more I read the less I understand. What are the pros and cons of the funds I am considering, and does anyone have other recommendations? I would like to stay with Vanguard for the additional investments.
If you list your information as shown in the link by my signature - Asking Portfolio Questions, you will receive replies that take into consideration all of your assets and tax bracket. We do not recommend holding REIT in a taxable account, since it throws off lots of taxable income. You could consider using a 3 fund portfolio (search wiki on 3 fund portfolio) to mimic the Target Retirement 2015 fund holdings, the main issue you will find is as the 2015 fund alters it's allocation glide path, you will have to undertake actions that may or may not result in a taxable gain to you due to buying and selling fund shares.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Retirement savings catch up advice
Just wanted to share that I chose Vanguard LifeStategy Conservative Growth for one of my HSA's this year and it's up 9+%. It was up 11+% last quarter. It seems to be a gem of a fund.
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
"A penny saved is a penny earned." - Benjamin Franklin |
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"It's not how much you make, it's how much you keep." |
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"When you earn a dollar, try to save a minimum of 20 cents."
Re: Retirement savings catch up advice
Southern36year-old wrote:Just wanted to share that I chose Vanguard LifeStategy Conservative Growth for one of my HSA's this year and it's up 9+%. It was up 11+% last quarter. It seems to be a gem of a fund.
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
Now do you know why it is up 9%? Better than market returns.
At some point the stocks/bonds in the fund will not be onfavor or do well. I hope you will be happy and stay with LifeStrategy at that point. It does sound like a good fund.
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Re: Retirement savings catch up advice
Are you married? If so, your spouse can contribute to IRA as well. Are you covered by an employer plan at work? If so, start contributing to that. If you're self employed, consider opening a Solo 401k or SEP-IRA. You should try to max out all tax advantaged options first before investing in taxable accounts.
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Re: Retirement savings catch up advice
Welcome Old School.Southern36year-old wrote:Just wanted to share that I chose Vanguard LifeStategy Conservative Growth for one of my HSA's this year and it's up 9+%. It was up 11+% last quarter. It seems to be a gem of a fund.
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
Just a word of caution on the REIT fund and how much risk are you able to take? No one knows what future returns are going to be, however you may want to look at what happened to the REIT fund in 2008 and just how volatile it can be. A $10,000 investment dropped to less than $3,600. during that time frame. Pick an AA that you can hold onto during all market cycles and choose the fund(s) that work best for you. Good luck.
Full disclosure: I personally was holding a small amount in the REIT fund during this period. Approximately 5% of our portfolio.
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Re: Retirement savings catch up advice
Grt2bOutdoors wrote:Hello and welcome to the forum!OldSchool99 wrote:I am 62 years old and need to catch up on my retirement savings. I currently have a Roth IRA that I have not contributed to regularly, so I have not saved as much as I would like. I have made the maximum contribution to the Roth for this year, so I am looking for another fund to invest in that is similar to the Vanguard 2015 Target Roth IRA that I have, but that is not limited in the amount I can contribute per year. I have done some reading, but am still not clear on what fund would be best. I have been looking at 3 different Vanguard funds: Vanguard Life Strategy Conservative Growth, Vanguard Life Strategy Income Fund, and the Vanguard REIT Index Fund. I am considering the REIT because of what I have been reading about the trend toward negative interest among the Japanese and European banks that is also being considered by the US.
I am a novice to all of this, and it seems the more I read the less I understand. What are the pros and cons of the funds I am considering, and does anyone have other recommendations? I would like to stay with Vanguard for the additional investments.
If you list your information as shown in the link by my signature - Asking Portfolio Questions, you will receive replies that take into consideration all of your assets and tax bracket. We do not recommend holding REIT in a taxable account, since it throws off lots of taxable income. You could consider using a 3 fund portfolio (search wiki on 3 fund portfolio) to mimic the Target Retirement 2015 fund holdings, the main issue you will find is as the 2015 fund alters it's allocation glide path, you will have to undertake actions that may or may not result in a taxable gain to you due to buying and selling fund shares.
Hi Grt2bOutdoors,
I looked at the link you posted, but all I have is the Roth IRA, nothing else, so there isn't much else to tell. For the tax bracket info, I think I am in the 28% Federal Tax bracket, and 6.65% for New York state.
Last edited by OldSchool99 on Tue Nov 01, 2016 9:32 am, edited 1 time in total.
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Re: Retirement savings catch up advice
Thanks for the input on how the Vanguard LifeStategy Conservative Growth is performing, that's the one I was most leaning toward.Southern36year-old wrote:Just wanted to share that I chose Vanguard LifeStategy Conservative Growth for one of my HSA's this year and it's up 9+%. It was up 11+% last quarter. It seems to be a gem of a fund.
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
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Re: Retirement savings catch up advice
I am single. My employer offers a 403b managed by some company called "Omni", and all of the "providers" they list seem to be insurance companies.DSInvestor wrote:Are you married? If so, your spouse can contribute to IRA as well. Are you covered by an employer plan at work? If so, start contributing to that. If you're self employed, consider opening a Solo 401k or SEP-IRA. You should try to max out all tax advantaged options first before investing in taxable accounts.
I'm not sure they are offering good options, and they do not match funds, so I would rather invest on my own.
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Re: Retirement savings catch up advice
So what you want to do is start a taxable brokerage account with Vanguard.OldSchool99 wrote:I have made the maximum contribution to the Roth for this year, so I am looking for another fund to invest in that is similar to the Vanguard 2015 Target Roth IRA that I have, but that is not limited in the amount I can contribute per year.
Why are you looking at different funds? Did you know you can also invest in Vanguard Target Retirement 2015 Fund in a regular, taxable brokerage account? https://personal.vanguard.com/us/funds/ ... IntExt=INT
Honestly that makes the most sense to me, this fund seems the most appropriate for your timeline. It also has a minimum of $1,000 initial investment which will be lower than a lot of the other funds you are stating (which are typically $3,000 minimums).
Where the tides of fortune take us, no man can know.
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Re: Retirement savings catch up advice
While investment options offered by insurance companies are rarely low cost, it may still make sense to take advantage of the 403b plan as it allows for much larger contributions than IRA and contributions to Traditional 403b are pre-tax which would reduce your fed and state taxes significantly. At age 62, you'd be allowed to contribute 24K/yr to 403b and that 24K contribution reduces your Adjusted Gross Income and Taxable Income by 24K on your 1040 tax form.OldSchool99 wrote:I am single. My employer offers a 403b managed by some company called "Omni", and all of the "providers" they list seem to be insurance companies.DSInvestor wrote:Are you married? If so, your spouse can contribute to IRA as well. Are you covered by an employer plan at work? If so, start contributing to that. If you're self employed, consider opening a Solo 401k or SEP-IRA. You should try to max out all tax advantaged options first before investing in taxable accounts.
I'm not sure they are offering good options, and they do not match funds, so I would rather invest on my own.
If you provide a list of investment options in the 403b with fund names, tickers (if available) and expense ratios, readers can help you pick the least bad options and help you build a low cost, diversified and easy to manage portfolio across 403b, IRA, and taxable accounts.
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Re: Retirement savings catch up advice
No, I did not know the Target Retirement products were available in non IRA form, if that is the case then I definitely want to look at setting up a second Target Retirement 2015 Fund. Thank you for pointing that out.Engineer250 wrote:So what you want to do is start a taxable brokerage account with Vanguard.OldSchool99 wrote:I have made the maximum contribution to the Roth for this year, so I am looking for another fund to invest in that is similar to the Vanguard 2015 Target Roth IRA that I have, but that is not limited in the amount I can contribute per year.
Why are you looking at different funds? Did you know you can also invest in Vanguard Target Retirement 2015 Fund in a regular, taxable brokerage account? https://personal.vanguard.com/us/funds/ ... IntExt=INT
Honestly that makes the most sense to me, this fund seems the most appropriate for your timeline. It also has a minimum of $1,000 initial investment which will be lower than a lot of the other funds you are stating (which are typically $3,000 minimums).
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Re: Retirement savings catch up advice
Thanks for the warning about REITs. I wasn't really sure about them, but had been reading some articles about protecting against negative interest and REITs were mentioned as a good option for that. But maybe I should steer clear of them as I am looking for minimal risk.B. Wellington wrote:Welcome Old School.Southern36year-old wrote:Just wanted to share that I chose Vanguard LifeStategy Conservative Growth for one of my HSA's this year and it's up 9+%. It was up 11+% last quarter. It seems to be a gem of a fund.
Then I read an article that Dan Wiener said it is a really good fund this year for Vanguard.
From what I understand the REIT's may be more volatile and fluctuate with the market more.
(I am not a professional).
Regards,
Just a word of caution on the REIT fund and how much risk are you able to take? No one knows what future returns are going to be, however you may want to look at what happened to the REIT fund in 2008 and just how volatile it can be. A $10,000 investment dropped to less than $3,600. during that time frame. Pick an AA that you can hold onto during all market cycles and choose the fund(s) that work best for you. Good luck.
Full disclosure: I personally was holding a small amount in the REIT fund during this period. Approximately 5% of our portfolio.
Re: Retirement savings catch up advice
Ok, you are making over $100,000 wages and put $6500 into a Roth IRA.
Agree that it might be good to put money into a bad 403b for a few years for tax deferring now and saving for retirement. Maybe a lower-ER S&P500 fund and a lower-ER bond fund would be worth searching for. This would lower your taxes now. Will you have a pension?
Yes, a Target fund can be bought separately outside of Roth. It is a good simple solution, although you will have to pay annual taxes on the dividends of the bond components in there. You could also buy just the Total Stock Market part and exchange your Target fund for a Target Retirement Fund if you want more bonds (70%) there.
Agree that it might be good to put money into a bad 403b for a few years for tax deferring now and saving for retirement. Maybe a lower-ER S&P500 fund and a lower-ER bond fund would be worth searching for. This would lower your taxes now. Will you have a pension?
Yes, a Target fund can be bought separately outside of Roth. It is a good simple solution, although you will have to pay annual taxes on the dividends of the bond components in there. You could also buy just the Total Stock Market part and exchange your Target fund for a Target Retirement Fund if you want more bonds (70%) there.
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Re: Retirement savings catch up advice
Yes, I will have a small pension.BL wrote:Ok, you are making over $100,000 wages and put $6500 into a Roth IRA.
Agree that it might be good to put money into a bad 403b for a few years for tax deferring now and saving for retirement. Maybe a lower-ER S&P500 fund and a lower-ER bond fund would be worth searching for. This would lower your taxes now. Will you have a pension?
Yes, a Target fund can be bought separately outside of Roth. It is a good simple solution, although you will have to pay annual taxes on the dividends of the bond components in there. You could also buy just the Total Stock Market part and exchange your Target fund for a Target Retirement Fund if you want more bonds (70%) there.
I guess I don't understand the benefit of a tax deferred account. I'd rather pay taxes upfront then be taxed at the time I need to make a withdrawal, which is one of the reasons why I got a Roth instead of a traditional IRA. Would the taxes on bond dividends consume that much of the profit?
Re: Retirement savings catch up advice
The problem with taxes on dividends is that you lose some of your capital every year. That lost money is not available to grow and compound in the following years.OldSchool99 wrote:I guess I don't understand the benefit of a tax deferred account. I'd rather pay taxes upfront then be taxed at the time I need to make a withdrawal, which is one of the reasons why I got a Roth instead of a traditional IRA. Would the taxes on bond dividends consume that much of the profit?
With a tax-deferred account, you keep all of those dividends in the account to compound for years (decades?) until you take the money out. Then you only pay tax on that money one time, when you take it out. Additionally, your tax rate may well be lower in retirement, for example you may only pay 15% in retirement where your current tax bracket is 25%.
I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Retirement savings catch up advice
Thank you for the clear explanation. I wish I had understood that years ago.David Jay wrote:The problem with taxes on dividends is that you lose some of your capital every year. That lost money is not available to grow and compound in the following years.OldSchool99 wrote:I guess I don't understand the benefit of a tax deferred account. I'd rather pay taxes upfront then be taxed at the time I need to make a withdrawal, which is one of the reasons why I got a Roth instead of a traditional IRA. Would the taxes on bond dividends consume that much of the profit?
With a tax-deferred account, you keep all of those dividends in the account to compound for years (decades?) until you take the money out. Then you only pay tax on that money one time, when you take it out. Additionally, your tax rate may well be lower in retirement, for example you may only pay 15% in retirement where your current tax bracket is 25%.
I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
Outside of the 403b, what would the next best, albeit taxable option be?
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Re: Retirement savings catch up advice
Note that at age 62, OP would be allowed to contribute 24K/yr to 403b.David Jay wrote:I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
OP, 403b contributions are withheld from your paycheck so you would need to work with payroll department to get 403b contributions going. If you want pre-tax contributions for the 2016 tax year, those contributions must be withheld in the remaining paychecks in NOV and DEC 2016. Any 403b contributions withheld after DEC 31, 2016 will be for the 2017 tax year.
Any Traditional 403b contributions will reduce your W-2 box one wages which flows into your 1040 line7 and reduce your Adjusted Gross Income and Taxable Income.
Be aware that Roth IRA contributions are not permitted if your MAGI for Roth IRA purposes exceeds 132K in 2016 (single filer). If your salary exceeds 132K, Traditional 403b contributions will help reduce your AGI and MAGI for Roth IRA purposes and stay eligible for direct Roth IRA contributions.
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Re: Retirement savings catch up advice
Thank you. Outside of the 403b, what is the next best, albeit taxable fund to invest in? For example, if I had $5 to $10k to invest now, what would be the best fund to invest in?DSInvestor wrote:Note that at age 62, OP would be allowed to contribute 24K/yr to 403b.David Jay wrote:I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
OP, 403b contributions are withheld from your paycheck so you would need to work with payroll department to get 403b contributions going. If you want pre-tax contributions for the 2016 tax year, those contributions must be withheld in the remaining paychecks in NOV and DEC 2016. Any 403b contributions withheld after DEC 31, 2016 will be for the 2017 tax year.
Any Traditional 403b contributions will reduce your W-2 box one wages which flows into your 1040 line7 and reduce your Adjusted Gross Income and Taxable Income.
Be aware that Roth IRA contributions are not permitted if your MAGI for Roth IRA purposes exceeds 132K in 2016 (single filer). If your salary exceeds 132K, Traditional 403b contributions will help reduce your AGI and MAGI for Roth IRA purposes and stay eligible for direct Roth IRA contributions.
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Re: Retirement savings catch up advice
It is hard to make suggestions without knowing about the investment options in the 403b. Generally at your high tax bracket of 28% fed and 6-7% state, it would be best to consider tax efficient funds for the taxable account. This could be a tax exempt bond fund like Vanguard Intermediate Term Tax Exempt VWITX or Total Stock Market Index VTSMX. Which fund you invest in for the taxable account could depend on what is available in the 403b. For example if all fixed income options in the 403b are high cost and the only low cost fund is an S&P 500 fund, we may suggest holding some tax exempt bond funds in taxable to help round out the portfolio. Alternatively, if you have a good low cost bond fund or stable value fund in the 403b, we may suggest holding a tax efficient stock index fund like Total Stock Market VTSMX.OldSchool99 wrote:Thank you. Outside of the 403b, what is the next best, albeit taxable fund to invest in? For example, if I had $5 to $10k to invest now, what would be the best fund to invest in?DSInvestor wrote:Note that at age 62, OP would be allowed to contribute 24K/yr to 403b.David Jay wrote:I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
OP, 403b contributions are withheld from your paycheck so you would need to work with payroll department to get 403b contributions going. If you want pre-tax contributions for the 2016 tax year, those contributions must be withheld in the remaining paychecks in NOV and DEC 2016. Any 403b contributions withheld after DEC 31, 2016 will be for the 2017 tax year.
Any Traditional 403b contributions will reduce your W-2 box one wages which flows into your 1040 line7 and reduce your Adjusted Gross Income and Taxable Income.
Be aware that Roth IRA contributions are not permitted if your MAGI for Roth IRA purposes exceeds 132K in 2016 (single filer). If your salary exceeds 132K, Traditional 403b contributions will help reduce your AGI and MAGI for Roth IRA purposes and stay eligible for direct Roth IRA contributions.
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Re: Retirement savings catch up advice
Would your suggestions change if I were not going to contribute to the 403b?DSInvestor wrote:It is hard to make suggestions without knowing about the investment options in the 403b. Generally at your high tax bracket of 28% fed and 6-7% state, it would be best to consider tax efficient funds for the taxable account. This could be a tax exempt bond fund like Vanguard Intermediate Term Tax Exempt VWITX or Total Stock Market Index VTSMX. Which fund you invest in for the taxable account could depend on what is available in the 403b. For example if all fixed income options in the 403b are high cost and the only low cost fund is an S&P 500 fund, we may suggest holding some tax exempt bond funds in taxable to help round out the portfolio. Alternatively, if you have a good low cost bond fund or stable value fund in the 403b, we may suggest holding a tax efficient stock index fund like Total Stock Market VTSMX.OldSchool99 wrote:Thank you. Outside of the 403b, what is the next best, albeit taxable fund to invest in? For example, if I had $5 to $10k to invest now, what would be the best fund to invest in?DSInvestor wrote:Note that at age 62, OP would be allowed to contribute 24K/yr to 403b.David Jay wrote:I also agree with everyone who is saying that you can catch up by putting $18,000 into your 403b for the next few years in addition to putting $6500 into your Roth.
OP, 403b contributions are withheld from your paycheck so you would need to work with payroll department to get 403b contributions going. If you want pre-tax contributions for the 2016 tax year, those contributions must be withheld in the remaining paychecks in NOV and DEC 2016. Any 403b contributions withheld after DEC 31, 2016 will be for the 2017 tax year.
Any Traditional 403b contributions will reduce your W-2 box one wages which flows into your 1040 line7 and reduce your Adjusted Gross Income and Taxable Income.
Be aware that Roth IRA contributions are not permitted if your MAGI for Roth IRA purposes exceeds 132K in 2016 (single filer). If your salary exceeds 132K, Traditional 403b contributions will help reduce your AGI and MAGI for Roth IRA purposes and stay eligible for direct Roth IRA contributions.
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Re: Retirement savings catch up advice
If 403b were not in the mix, I would look at what you hold in your IRA accounts. At your high tax bracket while working, I would definitely not recommend balanced funds like LifeStrategy or Target Retirement for the taxable accounts as they are not tax efficient.OldSchool99 wrote: Would your suggestions change if I were not going to contribute to the 403b?
If you are reluctant to hold a separate bond or stock fund and prefer convenience of a balanced fund, you could consider the Vanguard Tax Managed Balanced Admiral VTMFX er=0.11% which holds roughly 50% stocks and 50% bonds. This fund is much more tax efficient than the LifeStrategy or Target Retirement funds because the bond portion is made up of tax exempt municipal bonds rather than taxable bonds.
If you're happy with the 46% stock 54% bond allocation of the Target Retirement 2015 fund, the 50/50 allocation of the Tax Managed Balanced fund may be a good choice and eliminate any need to manually rebalance the portfolio. Each fund will automatically maintain the asset allocation for you. If you ever decide to change your asset allocation, there is no tax cost to exchange funds in your IRA or 403b. However, investments held in taxable accounts will be subject to capital gains tax if you sell for a net capital gain.
Once you invest in taxable accounts, you will receive 1099-DIV (dividends and capital gains distributions, 1099-INT (tax exempt interest), 1099-B (if you sell shares) to report your investment income to you and to IRS. These tax slips need to be included in your tax returns. Investments in IRA and 403b do not generate these tax slips.
I encourage you to consider making 403b contributions ASAP as you're running out of time for 2016 contributions. If you're looking to contribute 5-10K to a taxable account, consider making large 403b contributions for NOV and DEC and living off that 5-10K cash to make up for the smaller paycheck.
Re: Retirement savings catch up advice
Old school:
I don't understand your situation. The name of the thread is "catch up advice". We told you that you can contribute a bunch of money to your 403b, save a bunch in taxes (money goes into your 403b pre-tax) and the portfolio will compound tax free for years and years. Even if the funds in your 403b aren't great, you can roll the 403b into a traditional IRA when you retire (or earlier, depending on your employer's plan) so it will only be in those mediocre funds for a few years.
But you keep asking about implementing a taxable strategy. I don't get it. If I had $10,000, I would live on it so I could put more in my 403b.
I don't understand your situation. The name of the thread is "catch up advice". We told you that you can contribute a bunch of money to your 403b, save a bunch in taxes (money goes into your 403b pre-tax) and the portfolio will compound tax free for years and years. Even if the funds in your 403b aren't great, you can roll the 403b into a traditional IRA when you retire (or earlier, depending on your employer's plan) so it will only be in those mediocre funds for a few years.
But you keep asking about implementing a taxable strategy. I don't get it. If I had $10,000, I would live on it so I could put more in my 403b.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius