Keeping track of a taxable account

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Topic Author
Investing Newbie
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Keeping track of a taxable account

Post by Investing Newbie »

Hi,

This is hopefully not too silly of a question. I am at the point where I'll be starting taxable investing in the very near future. Will max out his/her 403b and 401k and his/her backdoor Roths. Not eligible for HSA. Considering 529 too. Most things I've read in this site say for maximal tax efficiency to have only one taxable account only for both retirement and non retirement goals and rebalance in tax deferred or tax free as needed to maintain asset allocation.

How do you distinguish which dollars are earmarked for retirement and which are for other goals? I would hate to spend money that I thought was for a non retirement goal and in reality spending retirement money and saving less than the 20% gross income that I'm striving for. I could obviously just keep track of how much I contributed for retirement vs non retirement but gains and dividends might get confusing.

Thank you for your time.
kaneohe
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Re: Keeping track of a taxable account

Post by kaneohe »

Seems much simpler to just have 2 separate accounts. Don't see how much less tax efficient this would be than
having just 1 account.........assuming there are no major penalties for being a small player initially.
WL2034
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Re: Keeping track of a taxable account

Post by WL2034 »

I just consider money put into taxable account as money for "later" or "someday". It doesn't necessarily have to be for retirement or not for retirement.

For example, maybe in 15 years I want to buy a vacation home, boat, or some other luxury, but I'm not retired yet. Maybe I'll take that money out of taxable if I feel like I have enough that it won't negatively affect my retirement plans.

So, what purposes are you planning to planning to save for in a taxable investment account other than retirement? Typically if the goals are near-term enough for me to be saving explicitly for that purpose, then I probably don't want the money in equities. I suppose I've never felt the need to differentiate between retirement and non-retirement in my taxable investments because it's all tentatively for retirement, unless I find a better reason to spend it first.
delamer
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Re: Keeping track of a taxable account

Post by delamer »

kaneohe wrote:Seems much simpler to just have 2 separate accounts. Don't see how much less tax efficient this would be than
having just 1 account.........assuming there are no major penalties for being a small player initially.
Agreed. Is there a place in the wiki that recommends just one account?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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badbreath
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Re: Keeping track of a taxable account

Post by badbreath »

I look at my portfolio as one portfolio in taxable and tax deferred. In my tax deferred I have bonds and a S&P 500 fund so I can rebalance the assets as needed. In my taxable I have total stock and ex US foreign so that I can rebalance and TLH if needed.
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Topic Author
Investing Newbie
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Re: Keeping track of a taxable account

Post by Investing Newbie »

[/quote]Agreed. Is there a place in the wiki that recommends just one account?[/quote]
I'm not sure how to quote in the colored boxes like everyone else does here

I don't recall if I read this in the wiki or in a post. I believe it was a post. Seems like a comment one of the senior/knowledgeable members would post as part of the notion of looking at all your accounts as one portfolio and not duplicating your asset allocation in each account.

I think part of my confusion is due to the fact that I don't yet have a taxable account and I'm not sure what the layout will look like. For example, when I create a brokerage account at Vanguard, since the mutual funds account appear to not be available from what I've seen on this forum, would I just buy my funds there? It makes sense to have different AA for retirement vs non retirement goals and I think that's where the confusion is coming from as well. If I'm saving for something in the 5-10 year horizon and want maybe a 50/50 equity/bond I feel like that should be separate from my overall retirement AA of 80/20. The two separate taxable accounts make more sense to me in this scenario.
Longdog
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Re: Keeping track of a taxable account

Post by Longdog »

Investing Newbie wrote: How do you distinguish which dollars are earmarked for retirement and which are for other goals? I would hate to spend money that I thought was for a non retirement goal and in reality spending retirement money and saving less than the 20% gross income that I'm striving for. I could obviously just keep track of how much I contributed for retirement vs non retirement but gains and dividends might get confusing.

Thank you for your time.
Realize that earmarking portions of your portfolio for one thing versus another is really just a psychological game you're playing with yourself. You are free at any time for any reason to change the allocations without any repercussions from anyone other than yourself. I'm not saying not to do it, but you shouldn't take it too seriously or be too attached to your allocation because money (in a taxable account) allocated one day for one purpose can easily be reallocated the next day for a different purpose if necessary. I have a short-term "want" that I have a dedicated Ally savings account for, but I realize it's a want (not a need) and if something were to happen in the next six months, it could easily be used for other purposes.
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Re: Keeping track of a taxable account

Post by Jack FFR1846 »

Having 3 funds in a tax advantaged account allows you to rebalance with no tax for doing so.

Now, for the rest of your accounts, it makes no difference how many funds you keep in each and certainly trying to keep your AA in every account makes no sense. Yes, put tax efficient funds in taxable accounts so that you are not paying tax any time you do anything in them.

For an example, about half my portfolio is in a rollover IRA. That's where I rebalance and has all the funds available. My wife and I have 8 other accounts. Every single one of them has exactly one fund in them. Why do we have all these accounts? Rollovers from previous 401k plans, 401k, roths, taxable with some opened to collect bonuses (Schwab and TDAmeritrade).

How do I keep track of 9 accounts plus a boatload of savings bonds? Excel. Very easy. I use the savings bond wizard to keep track of the bonds and when I take one to my credit union to get cash, I update the wizard, then put the total into my portfolio spreadsheet.

I have never seen any consensus to put everything into one account or even a small number of accounts. There are *some* people who prefer this so that when they pass, the spouse more easily manages the portfolio. Ok, I get that. For my wife, I have a listing of all of our accounts on paper in our safe with instructions to take money from wherever she feels like taking it from because it doesn't make all that much difference.
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goingup
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Re: Keeping track of a taxable account

Post by goingup »

We have one portfolio, the majority of it is taxable. Set your up tax efficiently using broad market index funds like Total Stock and Total International. You can also hold bonds funds, either muni or regular depending on your bracket. I'd resist the urge to wall off your money using separate accounts. It complicates things.
dbr
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Re: Keeping track of a taxable account

Post by dbr »

Investing Newbie wrote:
Agreed. Is there a place in the wiki that recommends just one account?[/quote]
I'm not sure how to quote in the colored boxes like everyone else does here

I don't recall if I read this in the wiki or in a post. I believe it was a post. Seems like a comment one of the senior/knowledgeable members would post as part of the notion of looking at all your accounts as one portfolio and not duplicating your asset allocation in each account.

The result you get in the end is the total of everything you do. Taking little risk in one place and taking a lot of risk in another place adds up to what it adds up to and you would want to know what that is. Exactly which accounts holds what is a question of how things are taxed and rules that affect that such as not being able to take money out of a tax preferred account early without penalties. That usually leads to choosing different asset ditsributions in different kinds of accounts.

I think part of my confusion is due to the fact that I don't yet have a taxable account and I'm not sure what the layout will look like. For example, when I create a brokerage account at Vanguard, since the mutual funds account appear to not be available from what I've seen on this forum, would I just buy my funds there?

Exactly.

It makes sense to have different AA for retirement vs non retirement goals and I think that's where the confusion is coming from as well. If I'm saving for something in the 5-10 year horizon and want maybe a 50/50 equity/bond I feel like that should be separate from my overall retirement AA of 80/20. The two separate taxable accounts make more sense to me in this scenario.

Alternatively the plan can just be that when you want to spend that money you will sell bonds to raise the money and your overall asset allocation will then shift to more in stocks. You certainly don't need two physically different accounts. You do need enough bonds available to sell. But actually you don't. The bonds could be in a tax deferred account. You sell stocks in the taxable account and then you sell bonds in the deferred account and buy back the stocks. The balance portfolio considered as a whole is what you intended but you don't need to label individual accounts in any particular way other than how taxes are handled.

[/quote]
mmcmonster
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Re: Keeping track of a taxable account

Post by mmcmonster »

Investing Newbie wrote:How do you distinguish which dollars are earmarked for retirement and which are for other goals? I would hate to spend money that I thought was for a non retirement goal and in reality spending retirement money and saving less than the 20% gross income that I'm striving for.
I use a spreadsheet that I update on a monthly basis (I try to get it done on the last day of the month for consistency sake). Since I always add money to the same funds, it's just a matter of changing how much I have in those funds every month. Including login times, I can update my spreadsheet in under 10 minutes.

I would suggest setting up a spreadsheet with all your funds and getting useful totals.

Totals I find useful in mine are:
Total Equities
Total stocks / Total bonds
Total Taxable / Total Tax Deferred

You may want to add:
Total Retirement / Total Medium Term Goals

I use the following (though those aren't my actual $ amounts :happy ). I just update the last two columns (the date and dollar amounts) on a monthly basis.
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SJR
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Re: Keeping track of a taxable account

Post by SJR »

Investing Newbie wrote:Agreed. Is there a place in the wiki that recommends just one account?
I'm not sure how to quote in the colored boxes like everyone else does here

I don't recall if I read this in the wiki or in a post. I believe it was a post. Seems like a comment one of the senior/knowledgeable members would post as part of the notion of looking at all your accounts as one portfolio and not duplicating your asset allocation in each account.

I think part of my confusion is due to the fact that I don't yet have a taxable account and I'm not sure what the layout will look like. For example, when I create a brokerage account at Vanguard, since the mutual funds account appear to not be available from what I've seen on this forum, would I just buy my funds there? It makes sense to have different AA for retirement vs non retirement goals and I think that's where the confusion is coming from as well. If I'm saving for something in the 5-10 year horizon and want maybe a 50/50 equity/bond I feel like that should be separate from my overall retirement AA of 80/20. The two separate taxable accounts make more sense to me in this scenario.
I actually have 2 separate brokerage accounts at vanguard for this purpose. I'm invested 80/20 for retirement and 50/50 for non retirement. So we're quite similar. For retirement all my bonds are held in my solo 401k. However for non retirement, I have Munis in taxable. Technically I could merge the accounts but I chose not to because of the confusion it would cause. I am actively contributing
to both and prefer to keep them separate. It's important to realize that keeping them separate is purely convenience and a mental thing. One can certainly manage everything in one place. You'd just need to figure out the resulting AA you'd want if they were together and maintain that with all new contributions. Perhaps the only real complication is when you withdraw from non retirement a shift in your AA may be appropriate.

The bottom line is if it's easier for you to keep them separate and your not sacrificing anything by doing so (ie incurring more taxes or fees ) there's no reason that I can think of not to.
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grabiner
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Re: Keeping track of a taxable account

Post by grabiner »

If you view all accounts together, you can keep track of multiple allocations. You can have a $500K account which is being invested with $400K for retirement (80% stock) and $100K for a home down payment in three years (0% stock), and compute your overall stock allocation as $320K. If the market drops and your account drops to $400K, you would now have 80% of $300K in stock, so you would rebalance to $240K in stock.

I do the same thing viewing my mortgage as a negative bond. I have a mortgage of $X, so I count $X of my bond portfolio as offsetting that mortgage; this is money that I owe but have not yet spent. My target allocation is 94% stock. Therefore, my actual stock allocation is not 94% of my total investments, but 94% of $X less than my total investments. If I decide to pay off my mortgage, that $X will go away, and I will invest 94% of the remainder in stock. My taxable account is all stock, so I would do this by selling $X in stock, and moving $X from bonds to stock in my retirement account.
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delamer
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Re: Keeping track of a taxable account

Post by delamer »

Investing Newbie wrote:
Agreed. Is there a place in the wiki that recommends just one account?
I'm not sure how to quote in the colored boxes like everyone else does here
I don't recall if I read this in the wiki or in a post. I believe it was a post. Seems like a comment one of the senior/knowledgeable members would post as part of the notion of looking at all your accounts as one portfolio and not duplicating your asset allocation in each account.

I think part of my confusion is due to the fact that I don't yet have a taxable account and I'm not sure what the layout will look like. For example, when I create a brokerage account at Vanguard, since the mutual funds account appear to not be available from what I've seen on this forum, would I just buy my funds there? It makes sense to have different AA for retirement vs non retirement goals and I think that's where the confusion is coming from as well. If I'm saving for something in the 5-10 year horizon and want maybe a 50/50 equity/bond I feel like that should be separate from my overall retirement AA of 80/20. The two separate taxable accounts make more sense to me in this scenario.
If you and your spouse each had a 401(k) and a Roth IRA and a desired asset allocation of 70/30 for retirement savings, you would not want to have 70/30 in each of the 4 accounts. You'd want to use the best funds available in each account and have an overall allocation of 70/30 across the 4 accounts. If you also were savings for retirement in a taxable account, then you'd want to have an overall allocation across the 5 accounts at 70/30.

But the above does not mean that you should not have another taxable account set up for your kids' college education that you want to invest at 40/60. It is fine, and I'd argue preferable, to segregate the college money in a separate account from your retirement account.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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triceratop
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Re: Keeping track of a taxable account

Post by triceratop »

Investing Newbie wrote:
Agreed. Is there a place in the wiki that recommends just one account?
I'm not sure how to quote in the colored boxes like everyone else does here
First, if you simply want to wholly quote someone in the current thread there is a button on the top right of each post which looks like a large " sign. Clicking that will reply to the thread with a quote of that post as the template for your message.

If you simply want to add quotes for yourself, you were pretty close! Instead of starting a quote with [/quote] use [ quote] instead; you close the quotation block with the [/ quote] tag. (Remove the extra spaces that I added in those tags to make them functional.
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Topic Author
Investing Newbie
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Re: Keeping track of a taxable account

Post by Investing Newbie »

I appreciate everybody's input. I don't have a specific non retirement goal I'm saving for but I like to be knowledgeable about something before I dive in and make sure I wasn't giving myself a disadvantage from the beginning. The conclusion seems to come down to personal preference but I think for sake of simplicity a separate taxable account for retirement vs non retirement goals makes the most sense.

Thank you as always.
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