Taxable account setup

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stevedc
Posts: 12
Joined: Sat Jun 23, 2018 11:37 pm

Taxable account setup

Post by stevedc » Sun Jun 24, 2018 12:19 am

Here's our general scenario:

- 44 and 48 y/o
- Overall net worth of 1.2m
- Combined household income: 320K gross
- Live in DC
- Myself and spouse max out annual federal TSP contributions
- Contributing 5.5K each to Roth via annual non-deductible tIRA to Roth conversion. (don't hold any other tIRA assets)
- Saving 11K per year into 529 (1 child, 4 y/o currently)
- Halfway through 15 yr mortgage with ~280K left to pay, 3.75% fixed rate. Equity is ~ 570K
- Working to save about 170K in cash for home reno in 2 yrs. (would give us better living spaces and upgrade 1940s era kitchen and infrastructure. Estimate we would break even on this money at resale).
- Have about 130K in cash on hand so far plus emergency funds.
- Everything's at Vanguard

Our plan was to put 50K in a taxable brokerage account [3 fund portfolio for long term], leaving 80K for the renovation to be held in VMFXX/CDs/T-bills. We would add to the renovation fund each month with our surplus savings. We've worked out a budget and believe in 2 years we can make the 170K target.

2 main questions:

1) does the 50K in taxable brokerage for LT investment make sense, or should money be used in a different way at this point?
2) [more mundane question] Assuming we do have the LT taxable brokerage money invested, should I set up 2 different brokerage accounts at Vanguard, one for the long-term money, and one for the near-term "cash" for the renovation, just to keep accounts in line with the different goals? Or would 2 separate accounts create some kind of hidden complexity or headache that I should be aware of?

blueman457
Posts: 411
Joined: Sun Jul 26, 2015 12:19 pm

Re: Taxable account setup

Post by blueman457 » Sun Jun 24, 2018 8:54 am

I just went through this mental exercise myself as I have different goals for my investments. After reading a few posts on this, and knowing myself, I ended up creating 2 brokerage accounts: one for general savings, one for college savings. It was just easier for me to see my "buckets" separated by account. However you plan to spend down one of your "buckets" in 2 years, so one account should be fine. There shouldn't be any issue with accounting either way.

Blue Man

livesoft
Posts: 62902
Joined: Thu Mar 01, 2007 8:00 pm

Re: Taxable account setup

Post by livesoft » Sun Jun 24, 2018 9:05 am

Your income is so high that I expect all this is an after thought.

How much extra money will you save when your 4-year-old starts school?

I personally don't think investing in Money Market, CDs, Treasuries is going to be helpful. If you invest in equities and they drop, they won't drop enough to make any difference because you can make it up easily with savings. But if equities go up, you will reach your goals faster.
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stevedc
Posts: 12
Joined: Sat Jun 23, 2018 11:37 pm

Re: Taxable account setup

Post by stevedc » Sun Jun 24, 2018 9:15 am

OP here, just to clarify, the MM/CD/Treasury investments would only be for the renovation money we need in two years. Everything else would be index fund invested in appropriate equity/bond mix.

livesoft
Posts: 62902
Joined: Thu Mar 01, 2007 8:00 pm

Re: Taxable account setup

Post by livesoft » Sun Jun 24, 2018 9:26 am

And I'd invest in equities the renovation money needed in 2 years.
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stevedc
Posts: 12
Joined: Sat Jun 23, 2018 11:37 pm

Re: Taxable account setup

Post by stevedc » Sun Jun 24, 2018 2:49 pm

OP here... as we are currently in pretty high tax bracket, are we missing a trick by not using ibonds at Treasury Direct for 1-3yr savings?

ofckrupke
Posts: 555
Joined: Mon Jan 10, 2011 2:26 pm

Re: Taxable account setup

Post by ofckrupke » Sun Jun 24, 2018 4:24 pm

stevedc wrote:
Sun Jun 24, 2018 2:49 pm
OP here... as we are currently in pretty high tax bracket, are we missing a trick by not using ibonds at Treasury Direct for 1-3yr savings?
Probably not. You'd be forfeiting the interest on the three months preceding redemption if held under 5 years; and since you probably expect to be in the same bracket as the renovation costs come due, the optional deferral of taxation until redemption would be a wash anyway, roughly speaking (it's a trick to defer taxation while holding US saving bonds in a high bracket, then redeem and pay taxes while in a low bracket).

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