Help with first taxable account

[Dilbydog]

I just received a rather large bonus and want to open a taxable retirement account. I currently have a 401k & Roth which I've maxed out for 2017. Here are some specifics:

Age: 35
Single
Renting
Salary Base = $135K+ bonus, Bonus can vary widely. I.E. 2015 Bonus = $70k, 2016 Bonus = $520k
401k = $297K (80/20) Vanguard S&P 500 / Vanguard Total Bond Market
Roth = $11,800 (100% in Vanguard S&P 500 ETF )
HSA = ~6,500
Cash on hand = 360K. Of this $100k is for EF, 80k for taxable, remainder for down payment on a home in the next 1-2 years.
Debt = 0

My 401 K options are:
Vanguard S&P 500 ER = .05
Vanguard Total Bond ER = .06
Vanguard Mid Cap ER = .08
Vanguard Small Cap ER = .08
Vanguard Total International Stock Market ER = .11

I've excluded the Oakmark, Contra, etc due to EF's greater than 0.5

My Roth is currently with TD and I would prefer to open my taxable with TD also. I plan on only selecting their no load ETF's unless there's a better option. I have a very high risk tolerance. My initial thoughts are to add some international to my AA and then pick either the vanguard S&P or Total Stock for the remainder. My thought is that they are similar enough, that I can move from one to the other for TLH opportunities, and not get hit with a wash sale???? My other concern is in regards to qualified dividends. I haven't completely wrapped my head around timing of equitity purchases as the dividend date approaches.

I know this is a little open ended, but basically, from a tax standpoint, given my risk tolerance, what should I place in my taxable? And what changes should I make, if any to my 401k, to keep my AA in the 80/20 to 90/10 range?

Thanks ahead of time!

[retiredjg]

The best things to hold in a taxable account are usually a total stock index or total international index fund. If you buy either of these in taxable, you'd need to sell stocks and buy bonds in your 401k to maintain your desired stock to bond ratio.

My thought is that they are similar enough, that I can move from one to the other for TLH opportunities, and not get hit with a wash sale????

Which funds are you talking about?


Try not to hold the same exact fund in taxable and in your other accounts (although 401k and HSA may be exempt) in order to avoid wash sales. I think most people would say that holding total stock in taxable and 500 index in IRA would be OK.

[aristotelian]

I think it is especially important to strategize when you are opening a taxable account because it is harder to undo in the future than rebalancing an IRA.

If you want to add bond funds to offset, either rebalance your 401k until you hit the overall allocation you want, or consider short term or tax exempt muni bonds in your taxable.

Unless you really need $100K in cash, consider using short term bonds in taxable as part of a tiered EF.

If you are really looking to do TLH, you probably want more than just Total Stock and International. You would want an assortment of sectors and slices, the more volatile the better, and perhaps even individual stocks. I would not have a problem with doing this with a small sector of your portfolio, but others may disagree.

[Dilbydog]

The best things to hold in a taxable account are usually a total stock index or total international index fund. If you buy either of these in taxable, you'd need to sell stocks and buy bonds in your 401k to maintain your desired stock to bond ratio.

My thought is that they are similar enough, that I can move from one to the other for TLH opportunities, and not get hit with a wash sale????

Which funds are you talking about?


Try not to hold the same exact fund in taxable and in your other accounts (although 401k and HSA may be exempt) in order to avoid wash sales. I think most people would say that holding total stock in taxable and 500 index in IRA would be OK.

Sorry... to clarify, I would initially invest in either the Vanguard 500 ETF (VOO) or Total Market (VTI), and migrate from one to the other as TLH opportunities present themselves. From what I've gathered on this site, this type of movement wouldn't trigger a wash sale.

[aristotelian]

Sorry... to clarify, I would initially invest in either the Vanguard 500 ETF (VOO) or Total Market (VTI), and migrate from one to the other as TLH opportunities present themselves. From what I've gathered on this site, this type of movement wouldn't trigger a wash sale.

TLH is fine--wash sale only applies if you re-buy the same investment within 30 days. If you just wait 31 days you are fine.

The problem for you if you are serious about TLH is that S&P500 and Total Stock are going to move together. If you look at the total returns of VTI versus the S&P, it is going to be a very rare circumstance that one is negative while the other is positive. That is why I suggested a larger variety of funds. Honestly it may not be worth the trouble unless you could get into the 15% tax bracket.

[ruralavalon]

I just received a rather large bonus and want to open a taxable retirement account. I currently have a 401k & Roth which I've maxed out for 2017. Here are some specifics:

Age: 35
Single
Renting
Salary Base = $135K+ bonus, Bonus can vary widely. I.E. 2015 Bonus = $70k, 2016 Bonus = $520k
401k = $297K (80/20) Vanguard S&P 500 / Vanguard Total Bond Market
Roth = $11,800 (100% in Vanguard S&P 500 ETF )
HSA = ~6,500
Cash on hand = 360K. Of this $100k is for EF, 80k for taxable, remainder for down payment on a home in the next 1-2 years.
Debt = 0

My 401 K options are:
Vanguard S&P 500 ER = .05
Vanguard Total Bond ER = .06
Vanguard Mid Cap ER = .08
Vanguard Small Cap ER = .08
Vanguard Total International Stock Market ER = .11

I've excluded the Oakmark, Contra, etc due to EF's greater than 0.5

My Roth is currently with TD and I would prefer to open my taxable with TD also. I plan on only selecting their no load ETF's unless there's a better option. I have a very high risk tolerance. My initial thoughts are to add some international to my AA and then pick either the vanguard S&P or Total Stock for the remainder. My thought is that they are similar enough, that I can move from one to the other for TLH opportunities, and not get hit with a wash sale???? My other concern is in regards to qualified dividends. I haven't completely wrapped my head around timing of equitity purchases as the dividend date approaches.

I know this is a little open ended, but basically, from a tax standpoint, given my risk tolerance, what should I place in my taxable? And what changes should I make, if any to my 401k, to keep my AA in the 80/20 to 90/10 range?

Thanks ahead of time!

My personal preference would be to have the accounts at Vanguard, and use Vanguard mutual funds rather than ETFs. In general if you want to use Vanguard products then there is usually no good reason to hold them in an account elsewhere, in my opinion. Is there a reason you want the Roth IRA and taxable account to be at TD?

In a taxable account, at TD or elsewhere, stick to very tax-efficient stock index funds. Examples would include Vanguard Total Stock Market Index Fund or Vanguard Total International Stock Index Fund, both of which have ETF versions. Please see the wiki article "tax-efficient fund placement".

In my opinion an 80/20 asset allocation is within the range of what is reasonable at age 35.

To maintain your desired asset allocation, once you start the taxable account, simply exchange some Vanguard S&P 500 Index Fund to the Vanguard Total Bond Market Fund inside your 401k.

In the taxable account the S&P 500 fund and the total stock market fund are similar enough to use for tax loss harvesting, but not identical so as to create wash sale problems.

[retiredjg]

Sorry... to clarify, I would initially invest in either the Vanguard 500 ETF (VOO) or Total Market (VTI), and migrate from one to the other as TLH opportunities present themselves. From what I've gathered on this site, this type of movement wouldn't trigger a wash sale.

It would not trigger a wash sale in taxable, but VOO could easily trigger a wash sale with the 500 index in Roth IRA. And some people (I''m not one of them) believe the 500 index in the 401k would be involved too.

[Dilbydog]

I just received a rather large bonus and want to open a taxable retirement account. I currently have a 401k & Roth which I've maxed out for 2017. Here are some specifics:

Age: 35
Single
Renting
Salary Base = $135K+ bonus, Bonus can vary widely. I.E. 2015 Bonus = $70k, 2016 Bonus = $520k
401k = $297K (80/20) Vanguard S&P 500 / Vanguard Total Bond Market
Roth = $11,800 (100% in Vanguard S&P 500 ETF )
HSA = ~6,500
Cash on hand = 360K. Of this $100k is for EF, 80k for taxable, remainder for down payment on a home in the next 1-2 years.
Debt = 0

My 401 K options are:
Vanguard S&P 500 ER = .05
Vanguard Total Bond ER = .06
Vanguard Mid Cap ER = .08
Vanguard Small Cap ER = .08
Vanguard Total International Stock Market ER = .11

I've excluded the Oakmark, Contra, etc due to EF's greater than 0.5

My Roth is currently with TD and I would prefer to open my taxable with TD also. I plan on only selecting their no load ETF's unless there's a better option. I have a very high risk tolerance. My initial thoughts are to add some international to my AA and then pick either the vanguard S&P or Total Stock for the remainder. My thought is that they are similar enough, that I can move from one to the other for TLH opportunities, and not get hit with a wash sale???? My other concern is in regards to qualified dividends. I haven't completely wrapped my head around timing of equitity purchases as the dividend date approaches.

I know this is a little open ended, but basically, from a tax standpoint, given my risk tolerance, what should I place in my taxable? And what changes should I make, if any to my 401k, to keep my AA in the 80/20 to 90/10 range?

Thanks ahead of time!

My personal preference would be to have the accounts at Vanguard, and use Vanguard mutual funds rather than ETFs. In general if you want to use Vanguard products then there is usually no good reason to hold them in an account elsewhere, in my opinion. Is there a reason you want the Roth IRA and taxable account to be at TD?

In a taxable account, at TD or elsewhere, stick to very tax-efficient stock index funds. Examples would include Vanguard Total Stock Market Index Fund or Vanguard Total International Stock Index Fund, both of which have ETF versions. Please see the wiki article "tax-efficient fund placement".

In my opinion an 80/20 asset allocation is within the range of what is reasonable at age 35.

To maintain your desired asset allocation, once you start the taxable account, simply exchange some Vanguard S&P 500 Index Fund to the Vanguard Total Bond Market Fund inside your 401k.

In the taxable account the S&P 500 fund and the total stock market fund are similar enough to use for tax loss harvesting, but not identical so as to create wash sale problems.

Regarding TD, I already have my Roth there and Vanguard isn't as highly rated as TD as a brokerage. I have access to the Vanguard ETF's I'm interested in and they mirror their admiral counterparts from a ER perspective. Am I missing something as to why the mutual fund is more attractive than the ETF in the taxable space?

[Theoretical]

Owning Total World isn't likely to give you much in the way of TLH that won't leave you stuck in a more expensive fund.

Consider splitting it up something like

Large Cap - VTI/IVV/IWD/VTV*
Small Cap - IJR/VB/IJS or IJT* (avoid Russell 2K, even if you end up with a value or growth tilt)
Developed - VEA/IEFA*/VEU (adds back EM) or EFV (Value tilted fund)/the other/FNDF* (Fundamental weighted)
Emerging Markets - VWO/IEMG*/FNDE*

Asterisked funds have commissions. That way you'll have multiple pieces to shuffle for TLH

One caveat I have about TD is that their passwords are garbage (letters and numbers only) and have no 2 factor authentication, so change 'em often.

Though I will warn you, capital gains can mean you'll be stuck in whatever TLH partner you choose when the market swings back up, so make sure you're ok with the partners you use. Also be careful not to trigger wash sales by transactions involving your Roth.

The complexity with taxable accounts can get agonizing, so that's a warning too.

[retiredjg]

Regarding TD, I already have my Roth there and Vanguard isn't as highly rated as TD as a brokerage. I have access to the Vanguard ETF's I'm interested in and they mirror their admiral counterparts from a ER perspective. Am I missing something as to why the mutual fund is more attractive than the ETF in the taxable space?

If you like TD and if you like ETFs and if they offer the ones you want commission free....then no, mutual funds should not be more attractive to you.

[ruralavalon]

Regarding TD, I already have my Roth there and Vanguard isn't as highly rated as TD as a brokerage. I have access to the Vanguard ETF's I'm interested in and they mirror their admiral counterparts from a ER perspective. Am I missing something as to why the mutual fund is more attractive than the ETF in the taxable space?

If you will be doing a lot of trading, or using ETFs from several different providers, then a good brokerage platform is important for you. If you will be doing buy and hold investing using just Vanguard products then that makes little difference.

In a taxable account Vanguard ETFs and their mutual fund equivalents are equally tax-efficient.

Vanguard ETFs and Admiral Shares have the same expense ratios. If you prefer TD and ETFs they will work fine for you if you get them commission free.

My own personal preference for mutual funds over ETFs has to do with ease of use, such as setting up automatic investment and automatic reinvestment. Please see the wiki article "mutual funds vs ETFs".

[Dilbydog]

I truly appreciate all the advise.... one last question. Are there any dividend timing considerations I need to account for before purchasing either the total stock or S&P ?

[retiredjg]

I was hoping someone would answer this because I don't know. However, if you go to the Wiki and search for "buying the dividend" you might find your answer.

[Theoretical]

The Vanguard funds should be paying out soon, with the X date being usually around the 3rd or 4th week of March.