Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

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joo2lo
Posts: 81
Joined: Sat Nov 19, 2016 3:28 am

Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

Post by joo2lo »

I am currently making max contributions to Vanguard's Target Retirement 2060 fund to my employer sponsored 401k (Institutional shares) and both Backdoor Roth IRA accounts with Vanguard for my wife and I (Admiral shares). I have been comfortable with the fund's current 90:10 allocation and 60:40 Domestic/International split. I also like how I do not have to worry about rebalancing as the fund does so automatically. My dilemma is that I want to start contributing to a taxable account in the near future but want to maintain my current asset allocation in the most tax efficient manner across all my accounts. Any suggestions on how to go about this? My 401k does offer institutional shares of Vanguard's Total Stock and Bond Market funds in addition to the funds offered at Vanguard for our Roth accounts which helps keep things flexible. I would also be ok with nixing the Total International Bond Index portion of the TDF and turning my portfolio into a 3-fund portfolio to help simplify things. Any help would be appreciated. Thanks in advance.
Chip
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Joined: Wed Feb 21, 2007 4:57 am

Re: Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

Post by Chip »

You don't have to be precise. Close is good enough.

Depending on the balance of the TR account, you could just start contributing to a total market fund (e.g. VTSMX) in your taxable account and not worry about it. At some point, as the VTSMX/VTSAX balance builds up switch to a less aggressive TR fund in the 401k. Don't even worry about international. Or, at some point start buying both domestic total market and total international in taxable.

There are lots of ways to make this happen.
robertalpert
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Joined: Wed Aug 22, 2007 10:09 pm

Re: Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

Post by robertalpert »

Approximate with 90% vtsax and 10% tax-exempt municipal bond fund.
radiowave
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Re: Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

Post by radiowave »

If you have the ability to break up the target date fund into total stock, total international, and total bond, then in taxable add total stock and intermediate municipal bonds (as robertalpert notes above), that would give you a 4 fund portfolio and you can adjust your asset allocation across your portfolio as needed. Note, make adjustments on the 401k side as there are no tax implications - buying/selling on the taxable side will likely incur capital gains taxes.

Also consider adding a high yield savings account, e.g. Ally, AMEX, CapitalOne, Discover, etc., and link it to your taxable account. Easy to do in Vanguard.
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goingup
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Re: Dilemma: TDFs in tax advantaged accounts, but want to open a taxable account

Post by goingup »

As Chip says above--just keep doing what you're doing with Target Fund. Use Total Stock Market index in taxable, along with Total International if you like. When your taxable grows so large that your AA is really out of whack you could dial back T2060 to T2050. Or at that point break up into individual components.
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