Is there a point to a Taxable Acount?

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jb1
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Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 2:34 pm

Hey all,

Currently 28, maxing out my Roth IRA for 4 years now. Any extra money I have has been put into a Vanguard Taxable account of the US Total Market (85%) and International market (15%). I currently have 50k put into the taxable account.

My question is, is there a point to this? Im looking to start withdrawing in the next 10 years (start with dividends, then go to selling).

I already have a mortgage with roommates that pay me, no student debt, just come across some extra money that I want to invest.

Silk McCue
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Re: Is there a point to a Taxable Acount?

Post by Silk McCue » Thu Dec 06, 2018 2:39 pm

I'm not certain of the question. What would be your alternative to putting the money in a Taxable Account?

Cheers

jb1
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Re: Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 2:40 pm

Silk McCue wrote:
Thu Dec 06, 2018 2:39 pm
I'm not certain of the question. What would be your alternative to putting the money in a Taxable Account?

Cheers
Unsure to be honest, just want something alternative to invest in.

22twain
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Re: Is there a point to a Taxable Acount?

Post by 22twain » Thu Dec 06, 2018 2:44 pm

Does your employer offer a tax-deferred retirement savings plan like a 401K, 403B, 457, etc.? You can put more money into one of those than into an IRA (higher contribution limits).
My investing princiPLEs do not include absolutely preserving princiPAL.

260chrisb
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Re: Is there a point to a Taxable Acount?

Post by 260chrisb » Thu Dec 06, 2018 2:45 pm

Sure there is; it's a very good means to grow wealth assuming a long term investment outlook which you have based on your 10 year withdrawal plan. For whatever reason that would be. If you plan to live off of it in 10 years you're gonna need a lot more. You're a lot further ahead at 28 than most. Keep doing what you're doing, keep your emergency fund out of equities and slowly build it. The question often is; where else would be a good place to invest money? Having a mortgage is not required but paying it down is a good place to save money now that you have one.

MotoTrojan
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Re: Is there a point to a Taxable Acount?

Post by MotoTrojan » Thu Dec 06, 2018 2:46 pm

jb1 wrote:
Thu Dec 06, 2018 2:34 pm
Hey all,

Currently 28, maxing out my Roth IRA for 4 years now. Any extra money I have has been put into a Vanguard Taxable account of the US Total Market (85%) and International market (15%). I currently have 50k put into the taxable account.

My question is, is there a point to this? Im looking to start withdrawing in the next 10 years (start with dividends, then go to selling).

I already have a mortgage with roommates that pay me, no student debt, just come across some extra money that I want to invest.
Strange question frankly. Also a Roth IRA alone isn't going to fund a retirement so I'd think long and hard about your plans to withdraw this at age 38.

jb1
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Re: Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 2:49 pm

260chrisb wrote:
Thu Dec 06, 2018 2:45 pm
Sure there is; it's a very good means to grow wealth assuming a long term investment outlook which you have based on your 10 year withdrawal plan. For whatever reason that would be. If you plan to live off of it in 10 years you're gonna need a lot more. You're a lot further ahead at 28 than most. Keep doing what you're doing, keep your emergency fund out of equities and slowly build it. The question often is; where else would be a good place to invest money? Having a mortgage is not required but paying it down is a good place to save money now that you have one.
Id like to get a second property soon, so I am saving for that on the side as well as putting $125 every week into the US and International funds. I am also paying down the mortgage by adding $200 extra a month.

Ideally Id like to make more annually, should invest it in myself.
22twain wrote:
Thu Dec 06, 2018 2:44 pm
Does your employer offer a tax-deferred retirement savings plan like a 401K, 403B, 457, etc.? You can put more money into one of those than into an IRA (higher contribution limits).
We have a Simple IRA at work in which I put enough in to get the full employer match. The funds are rather poor with high expense ratios.

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HomerJ
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Re: Is there a point to a Taxable Acount?

Post by HomerJ » Thu Dec 06, 2018 2:51 pm

You only get so much tax-deferred space. Once you fill it up, all extra savings go to a Taxable account.

That's it. There's no other alternatives. Even a checking account is taxable.

Now, you can put the money in tax-managed funds or municipal bonds inside that taxable account, and pay 0 or little taxes, but it's still a taxable account.

One really nice advantage for early retirement is that money you pull from a taxable account is not considered income. You may have to pay long-term capital gain taxes on the gains of the funds that you pull, but your taxable income will look a lot lower to the government.

For instance, if I have $200,000 in a taxable account when I retire, I could pull $20,000 a year from that for 10 years, $30,000 a year from my standard IRA, and the government will treat me like I only have $30,000 in income instead of $50,000 (qualifying me for the Affordable Care Act, etc.).

I'd pay some capital gain taxes on the money I withdrew from the taxable account, but only on the growth, not all of it (because the money I put in had already been taxed way back when I earned it)

Of course, your IRA is a ROTH IRA, so you could pull money from that tax-free, and it won't be considered income. So you shouldn't have any problems keeping your official "income" very low, and therefore your taxes very low or zero.
The J stands for Jay

averagedude
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Re: Is there a point to a Taxable Acount?

Post by averagedude » Thu Dec 06, 2018 2:53 pm

Strange question frankly. Also a Roth IRA alone isn't going to fund a retirement so I'd think long and hard about your plans to withdraw this at age 38.
[/quote] mototrojan



I respectfully disagree. If you start in your twenties and contribute the max to a roth ira and retire at full retirement age, your retirement will be fully funded if you are an average American. My roth ira will be all i need after 70 and alot of years i was only able to invest $2000.
Last edited by averagedude on Thu Dec 06, 2018 3:03 pm, edited 2 times in total.

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corn18
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Re: Is there a point to a Taxable Acount?

Post by corn18 » Thu Dec 06, 2018 3:00 pm

Stop paying extra on your current mortgage and save that money for a downpayment on another rental home. Get 5-10 properties under your belt and maybe you can FIRE with that Roth money.

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HomerJ
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Re: Is there a point to a Taxable Acount?

Post by HomerJ » Thu Dec 06, 2018 3:03 pm

averagedude wrote:
Thu Dec 06, 2018 2:53 pm
Strange question frankly. Also a Roth IRA alone isn't going to fund a retirement so I'd think long and hard about your plans to withdraw this at age 38.
I respectfully disagree. If you start in your twenties and contribute the max to a roth ira and retire at full retirement age, your retirement will be fully funded if you are an average American. My roth ira will be all i need after 70 and alot of years i was only able to invest $2000.
He wants to retire at 38, not full retirement age.

A SIMPLE IRA max contribution is $12,500.. I don't think there's a ROTH version of that, is there?

And then can also contribute $5,500 to a ROTH or standard IRA.

So the most he can save is $18,000 a year tax-deferred. Hard to retire on that by 38.

But he's also saving a ton in taxable as well.
Last edited by HomerJ on Thu Dec 06, 2018 3:06 pm, edited 1 time in total.
The J stands for Jay

Flyer24
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Re: Is there a point to a Taxable Acount?

Post by Flyer24 » Thu Dec 06, 2018 3:04 pm

I would put more money into your work plan than taxable. I also don’t understand your intentions to withdraw in 10 years.

abc132
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Re: Is there a point to a Taxable Acount?

Post by abc132 » Thu Dec 06, 2018 3:10 pm

1. Simple IRA to matching amount
2. Roth to max allowed (6k)
3. Taxable

Fill 1 before 2 before 3.

The point of having the taxable account is the hope that your 50k will grow in the next years. With your plans, you would plan on selling those stocks and (hopefully) paying long term capital gains tax on any gains from that 50k. If you find a way to do this in a year where your income is low, this can be very tax-efficient.

If you NEED that money for something at a set time (exactly 10 years from now), you might want it to be in cash/CD at least for a year or two before it is used.

If you view that money as growth that you eventually want to put into a second property without a strict timeline, then keeping your current investment in stocks and selling when the time is good might be another option.

l1am
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Re: Is there a point to a Taxable Acount?

Post by l1am » Thu Dec 06, 2018 3:55 pm

My taxable account is not strictly for retirement. I may pull from it within 5-10 years - it's an account with funds I can actually pull from e.g. buy a home, car etc. So I'm buying (tax exempt) bonds there too since 100% equities is not suitable for a potentially short timeframe.

Where do you all keep money that you might need within the next few years?

jb1
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Re: Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 3:59 pm

Sorry for all the confusion*** Roth IRA is 100% for retirement. I meant that I will withdraw the taxable account in 10 years just as extra income.

jb1
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Re: Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 4:00 pm

l1am wrote:
Thu Dec 06, 2018 3:55 pm
My taxable account is not strictly for retirement. I may pull from it within 5-10 years - it's an account with funds I can actually pull from e.g. buy a home, car etc. So I'm buying (tax exempt) bonds there too since 100% equities is not suitable for a potentially short timeframe.

Where do you all keep money that you might need within the next few years?
GS high yield bank account currently. Yields 2.05

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triceratop
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Re: Is there a point to a Taxable Acount?

Post by triceratop » Thu Dec 06, 2018 4:11 pm

Yes, use of a taxable account is required if you want to invest money and do not have access to a tax-advantaged account (or wish to invest more per year than those vehicles allow). There are plenty of people who can contribute none of their income to 401ks, 403bs, IRAs, etc. For them, a taxable account is their only option.
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JBTX
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Re: Is there a point to a Taxable Acount?

Post by JBTX » Thu Dec 06, 2018 4:20 pm

jb1 wrote:
Thu Dec 06, 2018 2:49 pm
260chrisb wrote:
Thu Dec 06, 2018 2:45 pm
Sure there is; it's a very good means to grow wealth assuming a long term investment outlook which you have based on your 10 year withdrawal plan. For whatever reason that would be. If you plan to live off of it in 10 years you're gonna need a lot more. You're a lot further ahead at 28 than most. Keep doing what you're doing, keep your emergency fund out of equities and slowly build it. The question often is; where else would be a good place to invest money? Having a mortgage is not required but paying it down is a good place to save money now that you have one.
Id like to get a second property soon, so I am saving for that on the side as well as putting $125 every week into the US and International funds. I am also paying down the mortgage by adding $200 extra a month.

Ideally Id like to make more annually, should invest it in myself.
22twain wrote:
Thu Dec 06, 2018 2:44 pm
Does your employer offer a tax-deferred retirement savings plan like a 401K, 403B, 457, etc.? You can put more money into one of those than into an IRA (higher contribution limits).
We have a Simple IRA at work in which I put enough in to get the full employer match. The funds are rather poor with high expense ratios.
Poor and high compared to what? Depending on what they are, it still may make sense to contribute to it. It likely won't be in that 401k for the rest of your life.

l1am
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Re: Is there a point to a Taxable Acount?

Post by l1am » Thu Dec 06, 2018 4:31 pm

jb1 wrote:
Thu Dec 06, 2018 4:00 pm
GS high yield bank account currently. Yields 2.05
I'd rather take my chances on muni bonds, some level of risk but higher interest plus no fed tax. CDs/savings/ibonds are a good option if you absolutely can't lose principal.

jb1
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Re: Is there a point to a Taxable Acount?

Post by jb1 » Thu Dec 06, 2018 4:48 pm

l1am wrote:
Thu Dec 06, 2018 4:31 pm
jb1 wrote:
Thu Dec 06, 2018 4:00 pm
GS high yield bank account currently. Yields 2.05
I'd rather take my chances on muni bonds, some level of risk but higher interest plus no fed tax. CDs/savings/ibonds are a good option if you absolutely can't lose principal.
Interesting, never thought of that. Is there a certain time limit I need to keep it before selling? Sorry new to this. Im looking at the Vanguard High Yield Tax Exempt Fund VWAHX

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Re: Is there a point to a Taxable Acount?

Post by midareff » Thu Dec 06, 2018 5:05 pm

jb1 wrote:
Thu Dec 06, 2018 2:34 pm
Hey all,

Currently 28, maxing out my Roth IRA for 4 years now. Any extra money I have has been put into a Vanguard Taxable account of the US Total Market (85%) and International market (15%). I currently have 50k put into the taxable account.

My question is, is there a point to this? Im looking to start withdrawing in the next 10 years (start with dividends, then go to selling).

I already have a mortgage with roommates that pay me, no student debt, just come across some extra money that I want to invest.
While I was still working I was maxing allowed deferred compensation and maxing Roth contribution. Had medical insurance that basically covered everything paid by employer..... what's left besides taxable? Last 8 years my conservative portfolio produced 7.96% average annual return so paying off a 3.0% mortgage early did not seem like the most intelligent use of income.

TheAccountant
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Re: Is there a point to a Taxable Acount?

Post by TheAccountant » Thu Dec 06, 2018 5:16 pm

It's for investing and withdrawing before retirement without penalty.

You still need to pay attention to risk tolerance, etc. just like with anything else.

For most people they are better off in a savings/MM account unless they can risk losing funds associated with market ups and downs.

l1am
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Re: Is there a point to a Taxable Acount?

Post by l1am » Thu Dec 06, 2018 5:39 pm

jb1 wrote:
Thu Dec 06, 2018 4:48 pm
Interesting, never thought of that. Is there a certain time limit I need to keep it before selling? Sorry new to this. Im looking at the Vanguard High Yield Tax Exempt Fund VWAHX
High yield funds are more risky, due to lower credit quality holdings. I prefer VWITX; but again depends on your risk tolerance (https://www.bogleheads.org/wiki/Municipal_bonds#Risks).

You are also still subject to state income tax (at your marginal rate) on bond interest in a taxable account.

MotoTrojan
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Re: Is there a point to a Taxable Acount?

Post by MotoTrojan » Thu Dec 06, 2018 5:51 pm

jb1 wrote:
Thu Dec 06, 2018 3:59 pm
Sorry for all the confusion*** Roth IRA is 100% for retirement. I meant that I will withdraw the taxable account in 10 years just as extra income.
Income for what? Stocks would be a poor investment for a known/hard 10 year withdrawal.

Flyer24
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Re: Is there a point to a Taxable Acount?

Post by Flyer24 » Thu Dec 06, 2018 5:59 pm

l1am wrote:
Thu Dec 06, 2018 3:55 pm
My taxable account is not strictly for retirement. I may pull from it within 5-10 years - it's an account with funds I can actually pull from e.g. buy a home, car etc. So I'm buying (tax exempt) bonds there too since 100% equities is not suitable for a potentially short timeframe.

Where do you all keep money that you might need within the next few years?
My money that I might need in the next few years is in a CD ladder with Ally. Anything less than 5 years shouldn’t be in market. Some people even use the 10 year rule.

Flyer24
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Re: Is there a point to a Taxable Acount?

Post by Flyer24 » Thu Dec 06, 2018 6:01 pm

jb1 wrote:
Thu Dec 06, 2018 2:49 pm
260chrisb wrote:
Thu Dec 06, 2018 2:45 pm
Sure there is; it's a very good means to grow wealth assuming a long term investment outlook which you have based on your 10 year withdrawal plan. For whatever reason that would be. If you plan to live off of it in 10 years you're gonna need a lot more. You're a lot further ahead at 28 than most. Keep doing what you're doing, keep your emergency fund out of equities and slowly build it. The question often is; where else would be a good place to invest money? Having a mortgage is not required but paying it down is a good place to save money now that you have one.
Id like to get a second property soon, so I am saving for that on the side as well as putting $125 every week into the US and International funds. I am also paying down the mortgage by adding $200 extra a month.

Ideally Id like to make more annually, should invest it in myself.
22twain wrote:
Thu Dec 06, 2018 2:44 pm
Does your employer offer a tax-deferred retirement savings plan like a 401K, 403B, 457, etc.? You can put more money into one of those than into an IRA (higher contribution limits).
We have a Simple IRA at work in which I put enough in to get the full employer match. The funds are rather poor with high expense ratios.
I would not pay extra on the mortgage until you max out your Simple IRA.

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