Maxed accounts... what do I do in taxable?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
beastykato
Posts: 29
Joined: Wed Aug 05, 2009 8:59 pm

Maxed accounts... what do I do in taxable?

Post by beastykato » Mon Jan 09, 2017 9:12 pm

Hi, love the board and always come back now and then to check back and make sure I'm doing my investing correctly by people who know much better than I do myself.

I can say I'm pretty happy so far. My goal since finding this board and learning how to invest was to hit 100k before I was 30y/o and I'm well over that number and don't hit 30 for another 6 months. I definitely attribute that to much of the knowledge I gained from this board.

Here is how I'm currently allocated and I'm trying to stay roughly around 90/10, but I don't fret to much if it strays a little:

Roth IRA: $25996.93 VTIAX 24%

401k ($81667.16)

9% Bonds Vanguard Total Bond ($7350)
8% North Trust SP400 ($6533) (extra small/mid exposure)
83% North Trust SP500 ($67783)

Total: 107664.09

I do have a TIRA and a new Taxable account. They each have ~$3000 in each, but are just in 2060 target retirement funds because until now they didn't have enough value to purchase into the other Vanguard funds. Although, I will be transferring my Roth IRA contributions for 2016 to the TIRA to take advantage of the tax credit.

I think I'm following all the rules I learned here and allocating everything right. However, in my taxable I'm not sure what I should do. Should I just add more international since it seems to be the most tax efficient if I recall correctly?

The money in my taxable is not being touched at all, however it's not necessarily my "retirement" money, I think of it more as a emergency fund for my emergency fund. I plan on never touching it hopefully, but want it to be available should I ever come in dire need or maybe need to supplement a large purchase for a home/etc.

harikaried
Posts: 1179
Joined: Fri Mar 09, 2012 3:47 pm

Re: Maxed accounts... what do I do in taxable?

Post by harikaried » Tue Jan 10, 2017 6:01 pm

You didn't mention any debt although previous posts have a mix of mortgage, car loan, and student loans. viewtopic.php?f=1&t=113219

Assuming you don't need to pay any more towards debt, investing in international for taxable is reasonable as you can take foreign tax credits on your income tax return.

For Roth vs Traditional IRA, are you still in the 15% bracket? If you think you'll be in a higher bracket when withdrawing, then putting money towards Roth would be better.

lolatlogan
Posts: 24
Joined: Thu Dec 22, 2016 3:12 pm

Re: Maxed accounts... what do I do in taxable?

Post by lolatlogan » Tue Jan 10, 2017 6:14 pm

harikaried wrote:You didn't mention any debt although previous posts have a mix of mortgage, car loan, and student loans. viewtopic.php?f=1&t=113219

Assuming you don't need to pay any more towards debt, investing in international for taxable is reasonable as you can take foreign tax credits on your income tax return.

For Roth vs Traditional IRA, are you still in the 15% bracket? If you think you'll be in a higher bracket when withdrawing, then putting money towards Roth would be better.


I don't mean to detour OP's question but I have a question about your comment about Roth vs. Trad. After 401k and HSA contributions I'm still in the 25% tax bracket, at $41.3K. After my Trad IRA contribution, i'm just within the 15%. When I was making sub $40K I had contributed to a Roth but am now contributing to a Trad IRA mainly so I can deduct those taxes and sit within the 15% tax bracket. Does it make sense to do this or should I be contributing to a Roth IRA?

My end goal is to retire early and do a conversion ladder to access those Trad contributions earlier than the retirement age.

beastykato
Posts: 29
Joined: Wed Aug 05, 2009 8:59 pm

Re: Maxed accounts... what do I do in taxable?

Post by beastykato » Tue Jan 10, 2017 9:11 pm

I do still have some debt. All the school loans are currently paid off and I have a second vehicle now. Looked over that old thread and I've definitely simplified my portfolio from where I was at that time.

Mortgage is 129k @ 3.25%
Auto Loan is 16K @ 1.99%

So, nothing with a high enough rate that I would use cash for instead of investing. After those two though I'm officially completely out of debt.

I'm currently in the 25% bracket. I honestly don't know what to expect my bracket will be in retirement.

lol@Logan: I believe what you're doing is the better way to go from what I've read. I try to lower my taxable amount NOW as much as possible, which is why I'm doing the transfer from Roth to TIRA for my 2016 tax credit. Unfortunately, I won't be able to get my income down in the 15% bracket and I don't have an HSA to contribute to. I'm still on one of those fancy PPO plans, but I'm pretty sure an HSA will be coming on my next company contract.

My end goal is similar and hope to access my money like you, goal going forward is 1Mil @ 40 y/o, and I hope to retire prior to 50. So, hopefully I blow that goal outta the water.

User avatar
jafcorrea
Posts: 256
Joined: Sat Nov 05, 2016 9:55 am
Location: CA

Re: Maxed accounts... what do I do in taxable?

Post by jafcorrea » Tue Jan 10, 2017 9:51 pm

beastykato wrote:Hi, love the board and always come back now and then to check back and make sure I'm doing my investing correctly by people who know much better than I do myself.

I can say I'm pretty happy so far. My goal since finding this board and learning how to invest was to hit 100k before I was 30y/o and I'm well over that number and don't hit 30 for another 6 months. I definitely attribute that to much of the knowledge I gained from this board.

Here is how I'm currently allocated and I'm trying to stay roughly around 90/10, but I don't fret to much if it strays a little:

Roth IRA: $25996.93 VTIAX 24%

401k ($81667.16)

9% Bonds Vanguard Total Bond ($7350)
8% North Trust SP400 ($6533) (extra small/mid exposure)
83% North Trust SP500 ($67783)

Total: 107664.09

I do have a TIRA and a new Taxable account. They each have ~$3000 in each, but are just in 2060 target retirement funds because until now they didn't have enough value to purchase into the other Vanguard funds. Although, I will be transferring my Roth IRA contributions for 2016 to the TIRA to take advantage of the tax credit. .. maybe for T IRA - Vanguard Life Strategy Growth Fund (VASGX), same ER better return (you still young), I do not know how much left on your Roth after transferring to the T IRA if is 10k or more you can do Vanguard REIT Index Fund Admiral Shares (VGSLX) and Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)

I think I'm following all the rules I learned here and allocating everything right. However, in my taxable I'm not sure what I should do. Should I just add more international since it seems to be the most tax efficient if I recall correctly? international i only go up to 20%

The money in my taxable is not being touched at all, however it's not necessarily my "retirement" money, I think of it more as a emergency fund for my emergency fund. I plan on never touching it hopefully, but want it to be available should I ever come in dire need or maybe need to supplement a large purchase for a home/etc. For taxable .. EF for EF :mrgreen: Vanguard Total Stock Market VTSMX
Thanks JC

User avatar
grabiner
Advisory Board
Posts: 20567
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Maxed accounts... what do I do in taxable?

Post by grabiner » Tue Jan 10, 2017 10:20 pm

lolatlogan wrote:I don't mean to detour OP's question but I have a question about your comment about Roth vs. Trad. After 401k and HSA contributions I'm still in the 25% tax bracket, at $41.3K. After my Trad IRA contribution, i'm just within the 15%. When I was making sub $40K I had contributed to a Roth but am now contributing to a Trad IRA mainly so I can deduct those taxes and sit within the 15% tax bracket. Does it make sense to do this or should I be contributing to a Roth IRA?


The optimal place to be might be at the top of the 15% bracket. That is, it's probably better to contribute a dollar to a Roth IRA if you pay 15% tax on that dollar, and to a Traditional IRA if you would pay 25% tax otherwise.

You can get this right to the dollar by filling out your taxes and recharacterizing part of your contribution. That is, if you find that you have $1200 left below the 25% tax bracket, you can recharacterize $1200 of your 2016 Traditional IRA contribution to a Roth IRA contribution before filing the tax return. You will pay an extra $180 in tax, but you will have that $1200 in the Roth and will avoid losing at least 15% of it when you withdraw.

However, if you are close, it doesn't matter that much. If you wind up $200 over the bottom of the 25% bracket, you'll pay $50 in taxes on that $200 instead of the $30 you were expecting, but it isn't worth recharacterizing something that small.
David Grabiner

User avatar
Duckie
Posts: 4987
Joined: Thu Mar 08, 2007 2:55 pm

Re: Maxed accounts... what do I do in taxable?

Post by Duckie » Wed Jan 11, 2017 8:21 pm

beastykato wrote:I do have a TIRA and a new Taxable account. They each have ~$3000 in each, but are just in 2060 target retirement funds because until now they didn't have enough value to purchase into the other Vanguard funds. Although, I will be transferring my Roth IRA contributions for 2016 to the TIRA to take advantage of the tax credit.

I think I'm following all the rules I learned here and allocating everything right. However, in my taxable I'm not sure what I should do. Should I just add more international since it seems to be the most tax efficient if I recall correctly?.

The TR2060 fund does not belong in taxable. The best options are Total Stock Market or Total International Stock. As for which is better, the dividends for Total Stock Market (TSM) are about 100% qualified and the dividends for Total International Stock Market (TISM) are about 70% qualified. This makes TSM better in taxable at first glance. But, when you add in the 
Foreign tax credit that evens things out. One year TSM may do a little better and the next year TISM may, so it's pretty much a wash which fund is better in taxable for IRS purposes. However, if you have state income taxes and the FTC is not deductible (and that's the case for most states) then TISM is at a slight disadvantage in taxable.

aristotelian
Posts: 2633
Joined: Wed Jan 11, 2017 8:05 pm

Re: Maxed accounts... what do I do in taxable?

Post by aristotelian » Wed Jan 11, 2017 10:09 pm

I don't get why you would have money in the taxable when the IRA isn't maxed out. Max out the IRA first.

beastykato
Posts: 29
Joined: Wed Aug 05, 2009 8:59 pm

Re: Maxed accounts... what do I do in taxable?

Post by beastykato » Mon Jan 16, 2017 8:57 pm

The Roth IRA is maxed. I have $3k in the TIRA from previous years of claiming a partial tax credit.

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Maxed accounts... what do I do in taxable?

Post by brad.clarkston » Mon Jan 16, 2017 9:13 pm

I really don't get the "So, nothing with a high enough rate that I would use cash for instead of investing" argument (and I never will).
Debt is debt, that money has better uses *right now* than lining a fat-cat bankers pocket monthly.

If you can max your 401k and Roth and still be inside 15% of your total yearly income then fine otherwise burn that car loan with fire. When that's done quickly invest that extra money which will do far more for you than pay for a car that lost 1/3 of it's value when you drove it off the lot.

When your down to just a mortgage and have money extra after living expenses and maxing all investment methods then you pay more on the mortgage.

That's just my viewpoint, encase you want to think about the other side of the coin.

User avatar
grabiner
Advisory Board
Posts: 20567
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Maxed accounts... what do I do in taxable?

Post by grabiner » Mon Jan 16, 2017 11:10 pm

brad.clarkston wrote:I really don't get the "So, nothing with a high enough rate that I would use cash for instead of investing" argument (and I never will).
Debt is debt, that money has better uses *right now* than lining a fat-cat bankers pocket monthly.


"Debt is debt" is only partly correct. It doesn't matter why you took out the debt in deciding whether to pay it down. It may have been a good or a bad decision to take out the debt, but that is a decision you already made. The debt now is made up only of dollars which you must either pay now or pay more later.

But what does matter is the payment terms: the interest rate and the remaining term determine the value of paying down the debt. This is why you recommended that the OP max out retirement accounts before paying down a mortgage; the mortgage is a debt, but it is a long-term debt at a low after-tax rate.

And I recommend paying down the car loan before making any taxable investments, by this logic. The car loan has two years left, so paying it down is equivalent to a risk-free bond investment with a 1-year duration. Since 1.99% is more than you can earn after tax on such an investment, it's better to pay down. Likewise, it makes sense to sell taxable investments if there isn't much of a tax cost.

However, I would recommend maxing out tax-deferred accounts, because that has a long-term benefit. Yes, you'll pay more interest on the car loan while you contribute to your tax-deferred accounts. However, the car loan will be gone eventually, and because you maxed out your tax-deferred accounts, you will have more tax-deferred growth from now until retirement; that is worth more than the interest.
David Grabiner

brad.clarkston
Posts: 451
Joined: Fri Jan 03, 2014 8:31 pm
Location: Kansas City, MO

Re: Maxed accounts... what do I do in taxable?

Post by brad.clarkston » Mon Jan 16, 2017 11:37 pm

grabiner wrote:
brad.clarkston wrote:I really don't get the "So, nothing with a high enough rate that I would use cash for instead of investing" argument (and I never will).
Debt is debt, that money has better uses *right now* than lining a fat-cat bankers pocket monthly.


"Debt is debt" is only partly correct. It doesn't matter why you took out the debt in deciding whether to pay it down. It may have been a good or a bad decision to take out the debt, but that is a decision you already made. The debt now is made up only of dollars which you must either pay now or pay more later.

But what does matter is the payment terms: the interest rate and the remaining term determine the value of paying down the debt. This is why you recommended that the OP max out retirement accounts before paying down a mortgage; the mortgage is a debt, but it is a long-term debt at a low after-tax rate.

And I recommend paying down the car loan before making any taxable investments, by this logic. The car loan has two years left, so paying it down is equivalent to a risk-free bond investment with a 1-year duration. Since 1.99% is more than you can earn after tax on such an investment, it's better to pay down. Likewise, it makes sense to sell taxable investments if there isn't much of a tax cost.

However, I would recommend maxing out tax-deferred accounts, because that has a long-term benefit. Yes, you'll pay more interest on the car loan while you contribute to your tax-deferred accounts. However, the car loan will be gone eventually, and because you maxed out your tax-deferred accounts, you will have more tax-deferred growth from now until retirement; that is worth more than the interest.


What do you mean by "I would recommend maxing out tax-deferred accounts" ? Do you mean just tax deferred 401k/403b or also post-pay check IRA/HSA ? I guess it wouldn't matter if all of that fit withen the 15% of total net salary.

But what if it didn't? Would you be OK with IRA/HSA maxing if it was past that % as long as your chasing the mini-max numbers?

User avatar
grabiner
Advisory Board
Posts: 20567
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Maxed accounts... what do I do in taxable?

Post by grabiner » Tue Jan 17, 2017 1:00 am

brad.clarkston wrote:
grabiner wrote:However, I would recommend maxing out tax-deferred accounts, because that has a long-term benefit. Yes, you'll pay more interest on the car loan while you contribute to your tax-deferred accounts. However, the car loan will be gone eventually, and because you maxed out your tax-deferred accounts, you will have more tax-deferred growth from now until retirement; that is worth more than the interest.


What do you mean by "I would recommend maxing out tax-deferred accounts" ? Do you mean just tax deferred 401k/403b or also post-pay check IRA/HSA ? I guess it wouldn't matter if all of that fit withen the 15% of total net salary.

But what if it didn't? Would you be OK with IRA/HSA maxing if it was past that % as long as your chasing the mini-max numbers?


An HSA (if allowed) should be maxed out in preference to almost any debt, because of the IRS subsidy.

But I do mean to include the IRA. If the OP is saving enough to max out a 401(k) and an IRA without any extra payments on low-interest debt, then he will be maxing them out after the debt is gone, and thus any payments will permanently affect his tax-deferred savings.

Note that this is somewhat specific to the OP's situation. If you won't max out your retirement accounts even if you do pay off the debt, then paying off debt doesn't have a permanent cost. If you have the choice between paying $1000 this year or $1020 next year, and you won't max out your Roth IRA either way, it is better to contribute $1020 to the Roth IRA next year. Effectively, you bought a one-year risk-free bond earning 2%, which is a good deal at current rates.
David Grabiner

Post Reply