What’s the point of a taxable account?

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jb1
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What’s the point of a taxable account?

Post by jb1 » Sun Oct 13, 2019 3:00 pm

Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?

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whodidntante
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Re: What’s the point of a taxable account?

Post by whodidntante » Sun Oct 13, 2019 3:02 pm

It's the next best alternative once all tax-advantaged accounts have been filled for the year.

Do you have access to a 401k and an HSA?

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TomatoTomahto
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Re: What’s the point of a taxable account?

Post by TomatoTomahto » Sun Oct 13, 2019 3:03 pm

I don’t guess there’s a “point” to a taxable account, but when you make more than you need to spend, there’s no place else to put money.

ETA: assuming you’ve used all of the tax-advantaged space available to you and described in the wiki.
Last edited by TomatoTomahto on Sun Oct 13, 2019 3:10 pm, edited 1 time in total.
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stoptothink
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Re: What’s the point of a taxable account?

Post by stoptothink » Sun Oct 13, 2019 3:03 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?

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RickBoglehead
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Re: What’s the point of a taxable account?

Post by RickBoglehead » Sun Oct 13, 2019 3:04 pm

The point? To invest money.

There is a hierarchy that is followed when people fund accounts. It's in the Wiki.

At some point, the accounts are as full as one can make them. Then, the rest goes into a taxable brokerage account.

Currently, 1/3rd of our investments are in retirement accounts. 2/3 are in a taxable account. One could ask - "why haven't you put more in retirement accounts"? Answer - we max out every year.

If we retire right now, with 9 years until we pull Social Security, the taxable account would easily fund those years, then the rest of the years would be the rest of the taxable plus Social Security, possibly never hitting the retirement accounts, which are nearly 90% Roth.
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 3:13 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
jb1,

<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.

KlangFool
Last edited by KlangFool on Sun Oct 13, 2019 3:28 pm, edited 1 time in total.

pyld76
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Re: What’s the point of a taxable account?

Post by pyld76 » Sun Oct 13, 2019 3:19 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
Plenty of folks in the 22% bracket who max a 401k and an IRA and an HSA. After that, if you want to invest money, it becomes a necessity absent things like annuities or the like (which might or might not be appropriate anyway).

My question: are you fully funding the Roth? If not, you probably should prioritize that.

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Clever_Username
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Re: What’s the point of a taxable account?

Post by Clever_Username » Sun Oct 13, 2019 3:24 pm

My taxable account is because I don't have enough tax-advantaged space for all the money I'm putting away. After maxing out workplace accounts, IRA availability, and Series I Bonds, I go into taxable space.

OP, you should favor putting the money into your Roth IRA and/or workplace plan (if any) instead of putting into taxable account unless there's some very specific reason you are using the taxable account for -- and from your question, I am guessing you are not.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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jb1
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Re: What’s the point of a taxable account?

Post by jb1 » Sun Oct 13, 2019 3:47 pm

KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
jb1,

<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.

KlangFool
Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.

In regards to klang, can you elaborate? I just have vanguard automatically take out funds weekly for the Ira. Would you say there is an advantage to just funding it at one shot?

KlangFool
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 3:54 pm

jb1 wrote:
Sun Oct 13, 2019 3:47 pm
KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
jb1,

<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.

KlangFool
Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.

In regards to klang, can you elaborate? I just have vanguard automatically take out funds weekly for the Ira. Would you say there is an advantage to just funding it at one shot?
jb1,

You have a choice of

A) Contribute $6,000 to 2020 Roth IRA on 1/2/2020 or the beginning of the year and enjoy tax-free growth of one whole year.

B) Contribute $500 per month to 2020 Roth IRA and enjoy tax-free growth of $500 of less than 1-year every month. And, pay taxes for your money in your taxable account.

Which one gives you more money?

<<I do have a 401k at work however it is not matched, so I do not contribute to it.>>

Why? If you save a lot of taxes and you can get free money from your refundable tax credit, why won't you do it?

KlangFool

sd323232
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Re: What’s the point of a taxable account?

Post by sd323232 » Sun Oct 13, 2019 4:12 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
It's better to have taxable account than checking/savings

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KSOC
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Re: What’s the point of a taxable account?

Post by KSOC » Sun Oct 13, 2019 4:22 pm

What if you retire early, say 58? Your spouse is still working. To keep under the ACA limit it sure helps to have access to money that doesn't count as income. That could be Roth money too I guess, but we didn't have the extra cash to build that up with kids in college. Then I got laid off. The last 3 months of my income, plus severance, plus a small inheritance, mostly went into taxable. But we'd slowly build it (& a savings account) up for car replacement, home repairs & potential expenses down the road like daughters (2) weddings.
Too soon old, too late smart.

arsenalfan
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Re: What’s the point of a taxable account?

Post by arsenalfan » Sun Oct 13, 2019 4:25 pm

As others have said, for investment after you've maxed all other accounts (401k, HSA, backdoor Roth, mega backdoor Roth, etc) and have an emergency fund. And have weighed other stuff which is largely personal - and which you'll see asked about on BH a lot, e.g. 529? Mortgage Prepay? Alternative Investments (real estate, REITs, syndicated RE, private equity, peer to peer, etc).

Having an IPS helpful, so you know the time horizons for the money which can set the AA.

Is it just for retirement 20+ years from now? More stocks.
Is part of it for car replacement and car will die in 5 years? Less stocks.
Is it for house downpayment in 2-3 years? Mostly bonds.
etc etc.

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Wiggums
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Re: What’s the point of a taxable account?

Post by Wiggums » Sun Oct 13, 2019 4:34 pm

Should You Contribute to a 401k Without an Employer Match?

In most cases, it is still a good idea to contribute to a 401(k) plan, even without an employer match. Here are a few benefits to continuing your 401(k) contributions:

Automatic and guaranteed savings

401(k) contributions are made automatically with each paycheck – you never have to worry about transferring money, writing a check, mailing a letter, etc. Automation guarantees you will make your investment on time.

Lower taxable income

Contributions to a Traditional 401(k) plan lower your taxable income because the contributions are invested with money that has not yet been taxed. This leads to the next benefit:

Tax-deferred growth

Investing in a Traditional 401(k) plan means your contributions will grow without the drag of taxes until you make your withdrawals. Your money gets taxed when you withdraw it, and possibly at a lower tax rate if your tax bracket is lower in retirement than it is now.

rossington
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Re: What’s the point of a taxable account?

Post by rossington » Sun Oct 13, 2019 4:44 pm

KlangFool wrote:
Sun Oct 13, 2019 3:54 pm
jb1 wrote:
Sun Oct 13, 2019 3:47 pm
KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
jb1,

<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.

KlangFool
Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.

In regards to klang, can you elaborate? I just have vanguard automatically take out funds weekly for the Ira. Would you say there is an advantage to just funding it at one shot?
jb1,

You have a choice of

A) Contribute $6,000 to 2020 Roth IRA on 1/2/2020 or the beginning of the year and enjoy tax-free growth of one whole year.

B) Contribute $500 per month to 2020 Roth IRA and enjoy tax-free growth of $500 of less than 1-year every month. And, pay taxes for your money in your taxable account.

Which one gives you more money?

<<I do have a 401k at work however it is not matched, so I do not contribute to it.>>

Why? If you save a lot of taxes and you can get free money from your refundable tax credit, why won't you do it?

KlangFool
Do this^^^. Max out Roth first, 401k second(if possible), then contribute to taxable if any money left. Keep taxable VTSAX as it is very tax efficient. At 29 I might have all VTSAX + emergency fund...unless you are not comfortable with all VTSAX for reasons others have stated above.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

HomeStretch
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Re: What’s the point of a taxable account?

Post by HomeStretch » Sun Oct 13, 2019 4:56 pm

jb1 wrote:
Sun Oct 13, 2019 3:47 pm
I do have a 401k at work however it is not matched, so I do not contribute to it.
In our case, spouse and I contribute to Taxable accounts after maxing out all Roth and tax-deferred options available to us.

If you have an adequate emergency fund and are on track with Taxable savings for other short to mid-term goals (for example, a house down payment), there wouldn’t be a point to putting your long-term savings in a Taxable account before you maxed out your 401k (assuming it has good fund choices with reasonable ERs). Whether 401k contributions should be pretax or Roth depends on your marginal tax rate(s) now versus in retirement.

retired@50
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Re: What’s the point of a taxable account?

Post by retired@50 » Sun Oct 13, 2019 5:14 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
I initially started a taxable account just for emergency funds. After a while, I started sending the max to my 401k AND my Roth IRA, so when I wanted to save even more, it had to go into my taxable account. Some people never get around to putting the maximum into their retirement account(s), so for them, a taxable account is only for emergency cash. Taxable accounts are often where inherited money ends up. Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

UpperNwGuy
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Re: What’s the point of a taxable account?

Post by UpperNwGuy » Sun Oct 13, 2019 5:51 pm

What's the point of a taxable account? For me the answer is easy. I only have two choices at my stage of life. I either invest in a taxable account, or I don't invest at all. I choose to invest in a taxable account.

TheLaughingCow
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Re: What’s the point of a taxable account?

Post by TheLaughingCow » Sun Oct 13, 2019 6:00 pm

stoptothink wrote:
Sun Oct 13, 2019 3:03 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?
Wow this board has a really distorted view of "high earner". You max 2 401ks (19,000x2), 2 roths (6000x2), an HSA (7,000), 2 529s (15,000x2) with 25k extra, for a total of 112k per year just added to savings? That's not including living expenses for a family of at least 4 (based on the 2 529s). For reference the median family income in the USA was $59k and even in San Fransisco it was $97k.

Charon
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Re: What’s the point of a taxable account?

Post by Charon » Sun Oct 13, 2019 6:14 pm

KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.
Know thyself, OP. If you contribute everything in January, and that's the highest the market gets for the next six months and then it goes down again and you'd have made more money by contributing every week/month (like in 2018), will you kick yourself?

If you're investing to maximize expected returns long term and you are utterly emotionless in investing, obviously KlangFool is correct. We expect markets to go up over time, on average. However, if regret might motivate you to make poor investing decisions... as it does most people, then KlangFool is potentially wrong. Invest in such a way as to minimize your regret and the poor buying/selling it can motivate. I contribute to my IRA monthly because the long-term expected cost of this is only $100-200/year and I know that for me personally this is optimal for avoiding investment regret.

If you have no emotions and want to maximize your long-term return, you'd also be 100% in stocks. Owning bonds lowers your returns a lot more than dollar cost averaging your IRA contributions. Klang, are you 100% in stocks?

Afty
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Re: What’s the point of a taxable account?

Post by Afty » Sun Oct 13, 2019 6:17 pm

In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.

Charon
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Re: What’s the point of a taxable account?

Post by Charon » Sun Oct 13, 2019 6:17 pm

UpperNwGuy wrote:
Sun Oct 13, 2019 5:51 pm
What's the point of a taxable account? For me the answer is easy. I only have two choices at my stage of life. I either invest in a taxable account, or I don't invest at all. I choose to invest in a taxable account.
So... you have no earned income, and make more off your investments than you need to live on, is what you're saying?

I don't think this is relevant for the (working, 29-year-old) OP.

Charon
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Re: What’s the point of a taxable account?

Post by Charon » Sun Oct 13, 2019 6:18 pm

Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
+1

OP, if you're saving for a new car, wedding, house down payment, etc., taxable is the way to go of course. Otherwise you should start contributing to that 401(k), even with no match.

KlangFool
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 6:21 pm

Charon wrote:
Sun Oct 13, 2019 6:14 pm
KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.
Know thyself, OP. If you contribute everything in January, and that's the highest the market gets for the next six months and then it goes down again and you'd have made more money by contributing every week/month (like in 2018), will you kick yourself?

If you're investing to maximize expected returns long term and you are utterly emotionless in investing, obviously KlangFool is correct. We expect markets to go up over time, on average. However, if regret might motivate you to make poor investing decisions... as it does most people, then KlangFool is potentially wrong. Invest in such a way as to minimize your regret and the poor buying/selling it can motivate. I contribute to my IRA monthly because the long-term expected cost of this is only $100-200/year and I know that for me personally this is optimal for avoiding investment regret.

If you have no emotions and want to maximize your long-term return, you'd also be 100% in stocks. Owning bonds lowers your returns a lot more than dollar cost averaging your IRA contributions. Klang, are you 100% in stocks?
Charon,

You made one assumption. Which may or may not be correct.

You are assuming that OP's AA is 100% stock. Why should it be true? If OP's AA is 60/40 and he invests that 6K based on his AA of 60/40, why does he need to care how the market is doing?

That is one of the problems of 100/0.

<<Klang, are you 100% in stocks?>>

I am 60/40. My Roth IRA is 100% Wellington fund. It is a 65/35 fund. I do not need to care about how the market is doing. I put the money into my Roth IRA's Wellington Fund and adjust my holding in other accounts to keep my AA at 60/40.

KlangFool

KlangFool
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 6:25 pm

Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
Afty,

They are not retirement accounts. They are tax-advantaged accounts. The money is not locked up until retirement. Please do not spread wrong information.

https://www.madfientist.com/how-to-acce ... nds-early/

I deferred my contribution to 401K at 20+%. In the worst case, if I was unemployed in a recession with zero income and I need the money, I could withdraw my 401K contribution and pay a 10% tax penalty. I still save 10+% of taxes in the process.

KlangFool

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David Jay
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Re: What’s the point of a taxable account?

Post by David Jay » Sun Oct 13, 2019 6:26 pm

jb1 wrote:
Sun Oct 13, 2019 3:47 pm
I do have a 401k at work however it is not matched, so I do not contribute to it.
Does the 401K have a reasonable selection of low cost index funds? Then you should invest there before you invest in a taxable account. You get a tax deduction now and four or five decades (you don’t use all your retirement portfolio the day you retire) of tax-deferred compounding.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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GerryL
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Re: What’s the point of a taxable account?

Post by GerryL » Sun Oct 13, 2019 6:28 pm

jb1 wrote:
Sun Oct 13, 2019 3:47 pm


Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.
A good reason NOT to contribute to a 401k is that it has only expensive and not-great investment options. A match is gravy.

I say this as someone who NEVER had a match and ALWAYS maxed out my 401k contributions. Retired. No regrets.

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sergeant
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Re: What’s the point of a taxable account?

Post by sergeant » Sun Oct 13, 2019 6:32 pm

The point of my taxable account was to be an emergency fund. The account ended up paying for my two children to attend college, paying off our home 10 years early, paying taxes on Roth conversions, and is a vehicle to fund a second home when we find one.

Most importantly it was FU money when ordered to commit an unlawful order when I was still working and my job was threatened.
Lincoln 3 EOW! AA 40/60.

miamivice
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Re: What’s the point of a taxable account?

Post by miamivice » Sun Oct 13, 2019 6:42 pm

The point of a taxable account is to set aside money for a future purchase that is large in size.

One example is a vehicle. Rather than taking out a car loan, and paying interest, one can dip into their taxable account and pay for the car cash.

Other examples include other big expenses. Vacations, RVs, vacation homes, etc.

Some people pay for their kids college education from taxable. There are more tax efficient ways of doing so, but some like the flexibility.

We personally have a taxable account that we are saving to build our dream house and pay cash for it.

miamivice
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Re: What’s the point of a taxable account?

Post by miamivice » Sun Oct 13, 2019 6:48 pm

KlangFool wrote:
Sun Oct 13, 2019 6:25 pm
Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
Afty,

They are not retirement accounts. They are tax-advantaged accounts. The money is not locked up until retirement. Please do not spread wrong information.

https://www.madfientist.com/how-to-acce ... nds-early/

I deferred my contribution to 401K at 20+%. In the worst case, if I was unemployed in a recession with zero income and I need the money, I could withdraw my 401K contribution and pay a 10% tax penalty. I still save 10+% of taxes in the process.

KlangFool
KlangFool,

Exactly how much can you withdraw in 1 year at 0% taxes, assuming you have no income?

Is that money enough to feed your family?

Topic Author
jb1
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Re: What’s the point of a taxable account?

Post by jb1 » Sun Oct 13, 2019 6:57 pm

KlangFool wrote:
Sun Oct 13, 2019 3:54 pm
jb1 wrote:
Sun Oct 13, 2019 3:47 pm
KlangFool wrote:
Sun Oct 13, 2019 3:13 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
jb1,

<<Every week deposit into my Roth IRA account, while also buying into my taxable account. >>

Why? How does this make any sense? If you have sufficient money to fully fund the Roth IRA for the whole year at the beginning of every year, why would you want to do this? You get tax-free growth for the whole year by fully funding the Roth IRA at the beginning of the year.

KlangFool
Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.

In regards to klang, can you elaborate? I just have vanguard automatically take out funds weekly for the Ira. Would you say there is an advantage to just funding it at one shot?
jb1,

You have a choice of

A) Contribute $6,000 to 2020 Roth IRA on 1/2/2020 or the beginning of the year and enjoy tax-free growth of one whole year.

B) Contribute $500 per month to 2020 Roth IRA and enjoy tax-free growth of $500 of less than 1-year every month. And, pay taxes for your money in your taxable account.

Which one gives you more money?

<<I do have a 401k at work however it is not matched, so I do not contribute to it.>>

Why? If you save a lot of taxes and you can get free money from your refundable tax credit, why won't you do it?

KlangFool
Thank you for the educated response. I will say my biggest weakness, is understanding taxes.

Thank you everyone else for the responses.

Some more background. My Roth is 90/10 stocks to bonds (target retirement 2060).

My taxable is approximately 70% VTSAX, 10% VTIAX, 20% stocks I am interested such as Visa, Apple, Square, Paypal.

My long term goal, as much as it is frowned upon, is to buy a duplex by the end of next year. I currently have a house now that I live in and rent out.

Emergency fund for me is 19k right now in a high yield account.

Ideally, I could use the taxable money in 10 years to pay off any mortgage debt etc. I am not that concerned with retirement as I know my discipline especially at my age is second to none, just trying to figure out what my intentions are with my taxable account!

KlangFool
Posts: 14595
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 7:06 pm

miamivice wrote:
Sun Oct 13, 2019 6:48 pm
KlangFool wrote:
Sun Oct 13, 2019 6:25 pm
Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
Afty,

They are not retirement accounts. They are tax-advantaged accounts. The money is not locked up until retirement. Please do not spread wrong information.

https://www.madfientist.com/how-to-acce ... nds-early/

I deferred my contribution to 401K at 20+%. In the worst case, if I was unemployed in a recession with zero income and I need the money, I could withdraw my 401K contribution and pay a 10% tax penalty. I still save 10+% of taxes in the process.

KlangFool
KlangFool,

Exactly how much can you withdraw in 1 year at 0% taxes, assuming you have no income?

Is that money enough to feed your family?
miamivice,

My annual expense is about 60K. My emergency fund is about 90K. My Roth IRA's contribution is about 200K across 2 accounts. So, I have about 290K/60K ~ 5 years of expense that I can withdraw that generate no taxable income.

On top of that, I could generate 24K of taxable income (standard deduction) at an income tax rate of 0% and long-term capital gain 0% taxes of another 78K.

KlangFool

KlangFool
Posts: 14595
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Re: What’s the point of a taxable account?

Post by KlangFool » Sun Oct 13, 2019 7:11 pm

jb1 wrote:
Sun Oct 13, 2019 6:57 pm

I am not that concerned with retirement as I know my discipline especially at my age is second to none, just trying to figure out what my intentions are with my taxable account!
jb1,

1) You still don't get it. Money is fungible. They are not retirement accounts. They are tax-advantaged accounts.

2) The issue has nothing to do with retirement. It has to do with tax management. You are paying 20+% taxes for that 5K that you choose not to put into your 403B. That is $1,000 of tax savings that you could put into your pocket and spend it.

3) Would you like to spend your own money or pay more taxes?

4) Don't you like to have $1,000 more per year that you can spend?

KlangFool

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FiveK
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Re: What’s the point of a taxable account?

Post by FiveK » Sun Oct 13, 2019 7:21 pm

jb1 wrote:
Sun Oct 13, 2019 3:47 pm
Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.
See Prioritizing investments and Investment Order - while there can be exceptions to those suggestions, the greater likelihood is that one does better to follow them than to do something else.

Trader Joe
Posts: 1440
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Re: What’s the point of a taxable account?

Post by Trader Joe » Sun Oct 13, 2019 7:25 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
The point of my taxable account is to invest my income that is in excess of that which could be applied to my retirement accounts.

FI4LIFE
Posts: 315
Joined: Sun Apr 28, 2019 9:27 am

Re: What’s the point of a taxable account?

Post by FI4LIFE » Sun Oct 13, 2019 7:33 pm

TheLaughingCow wrote:
Sun Oct 13, 2019 6:00 pm
stoptothink wrote:
Sun Oct 13, 2019 3:03 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?
Wow this board has a really distorted view of "high earner". You max 2 401ks (19,000x2), 2 roths (6000x2), an HSA (7,000), 2 529s (15,000x2) with 25k extra, for a total of 112k per year just added to savings? That's not including living expenses for a family of at least 4 (based on the 2 529s). For reference the median family income in the USA was $59k and even in San Fransisco it was $97k.
I was thinking the same exact thing.

ladycat
Posts: 231
Joined: Fri Sep 28, 2018 5:02 pm

Re: What’s the point of a taxable account?

Post by ladycat » Sun Oct 13, 2019 7:37 pm

GerryL wrote:
Sun Oct 13, 2019 6:28 pm
jb1 wrote:
Sun Oct 13, 2019 3:47 pm


Thank you all for the responses. I do have a 401k at work however it is not matched, so I do not contribute to it.
A good reason NOT to contribute to a 401k is that it has only expensive and not-great investment options. A match is gravy.

I say this as someone who NEVER had a match and ALWAYS maxed out my 401k contributions. Retired. No regrets.
+1. I never had a match either and maxed 401 and/or 457 every year I could. Expect to retire soon (mid-50s). Never had a taxable account until I inherited from my parents.

miamivice
Posts: 2197
Joined: Tue Jun 11, 2013 11:46 am

Re: What’s the point of a taxable account?

Post by miamivice » Sun Oct 13, 2019 7:42 pm

KlangFool wrote:
Sun Oct 13, 2019 7:06 pm
miamivice wrote:
Sun Oct 13, 2019 6:48 pm
KlangFool wrote:
Sun Oct 13, 2019 6:25 pm
Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
Afty,

They are not retirement accounts. They are tax-advantaged accounts. The money is not locked up until retirement. Please do not spread wrong information.

https://www.madfientist.com/how-to-acce ... nds-early/

I deferred my contribution to 401K at 20+%. In the worst case, if I was unemployed in a recession with zero income and I need the money, I could withdraw my 401K contribution and pay a 10% tax penalty. I still save 10+% of taxes in the process.

KlangFool
KlangFool,

Exactly how much can you withdraw in 1 year at 0% taxes, assuming you have no income?

Is that money enough to feed your family?
miamivice,

My annual expense is about 60K. My emergency fund is about 90K. My Roth IRA's contribution is about 200K across 2 accounts. So, I have about 290K/60K ~ 5 years of expense that I can withdraw that generate no taxable income.

On top of that, I could generate 24K of taxable income (standard deduction) at an income tax rate of 0% and long-term capital gain 0% taxes of another 78K.

KlangFool
So I take it the answer is "no". You couldn't feed the family on 0% withdrawals from your 401k without tapping into other sources of money.

(The OP doesn't have the wide variety of accounts that you do, so let's not project your situation on to the OP.)

stoptothink
Posts: 6791
Joined: Fri Dec 31, 2010 9:53 am

Re: What’s the point of a taxable account?

Post by stoptothink » Sun Oct 13, 2019 7:48 pm

TheLaughingCow wrote:
Sun Oct 13, 2019 6:00 pm
stoptothink wrote:
Sun Oct 13, 2019 3:03 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?
Wow this board has a really distorted view of "high earner". You max 2 401ks (19,000x2), 2 roths (6000x2), an HSA (7,000), 2 529s (15,000x2) with 25k extra, for a total of 112k per year just added to savings? That's not including living expenses for a family of at least 4 (based on the 2 529s). For reference the median family income in the USA was $59k and even in San Fransisco it was $97k.
This board absolutely has an extremely distorted view of "high earner" (BTW, I said "super high earner"). Go to any tech thread and you are going to hear from dozens of other posters who are individual contributors (I am in upper management in a ~4,500 employee company) who easily make twice what my wife and I make combined. I've been accused of lying about how low my income is based on my job title at least a handful of times on this board; I'd say that alone disqualifies us from "super high earner" status here.

FWIW, we save well over 50% of our gross income, so you can probably get a good estimation of what this two professional household makes.

JustBill
Posts: 52
Joined: Tue Jan 10, 2012 9:56 pm

Re: What’s the point of a taxable account?

Post by JustBill » Sun Oct 13, 2019 8:01 pm

Another reason to consider contributing to your 401k is the likely ERISA protection found there as opposed to taxable account investing. Check with the plan administrator to confirm.

bhsince87
Posts: 2637
Joined: Thu Oct 03, 2013 1:08 pm

Re: What’s the point of a taxable account?

Post by bhsince87 » Sun Oct 13, 2019 8:39 pm

TheLaughingCow wrote:
Sun Oct 13, 2019 6:00 pm
stoptothink wrote:
Sun Oct 13, 2019 3:03 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?
Wow this board has a really distorted view of "high earner". You max 2 401ks (19,000x2), 2 roths (6000x2), an HSA (7,000), 2 529s (15,000x2) with 25k extra, for a total of 112k per year just added to savings? That's not including living expenses for a family of at least 4 (based on the 2 529s). For reference the median family income in the USA was $59k and even in San Fransisco it was $97k.

You are making a lot of assumptions yourself.

Do you know if the OP has a spouse? Do you know if they have children?

In 33 years of working, I never had access to an HSA. I only had the ability to do a backdoor Roth the last 2 years I worked. I never had the need for a 529.

I didn't even have access to a 401k until I was about age 30.

Taxable was the best option.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams

HEDGEFUNDIE
Posts: 3973
Joined: Sun Oct 22, 2017 2:06 pm

Re: What’s the point of a taxable account?

Post by HEDGEFUNDIE » Sun Oct 13, 2019 9:09 pm

The point of my taxable account is for liquidity and tax management, through:

1. Tax loss harvesting, and
2. Donor advised funds

My goals for capital appreciation are riding on my tax advantaged accounts and my Excellent Adventure (all in IRA).

bltn
Posts: 602
Joined: Mon Feb 20, 2017 9:32 pm

Re: What’s the point of a taxable account?

Post by bltn » Sun Oct 13, 2019 9:13 pm

Afty wrote:
Sun Oct 13, 2019 6:17 pm
In addition to the “nowhere else to put it” reason, it’s also useful to have some money that is not locked up until retirement.
Surprised this simple concept hasn t been mentioned before this..
Despite fully funding a 401k for years, and having a steadily growing IRA from my 20 s, the majority of our accumulation is in our taxable accounts. I m glad it is as we have much more flexibility this way.

NewMoneyMustBeSmart
Posts: 144
Joined: Sat Jun 01, 2019 10:28 pm

Re: What’s the point of a taxable account?

Post by NewMoneyMustBeSmart » Sun Oct 13, 2019 9:16 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
When you make over $600k and have expenses of $2500/mo; it makes sense to put the cash you're left with in a taxable account once you've maxed all the tax qualified and tax deferred accounts.

Or if you make some amount less than $600k and have expenses somewhere north of $2500/mo, it will make sense as well.

Or you could just spend it all on new cars and koi ponds.

bltn
Posts: 602
Joined: Mon Feb 20, 2017 9:32 pm

Re: What’s the point of a taxable account?

Post by bltn » Sun Oct 13, 2019 9:20 pm

stoptothink wrote:
Sun Oct 13, 2019 7:48 pm
TheLaughingCow wrote:
Sun Oct 13, 2019 6:00 pm
stoptothink wrote:
Sun Oct 13, 2019 3:03 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
With a decent income, it is pretty easy to run out of tax-deferred space (or have limited tax-deferred space available). We're not super high-earners (especially for this board), but even after maxing pair of 401ks, Roth IRA's, family HSA, pair of 529s (up to state tax credit limit), we still have $25k+/yr extra. Right now that is going to paying extra on mortgage, but when that is done (next 1-2yrs) where else would the excess go?
Wow this board has a really distorted view of "high earner". You max 2 401ks (19,000x2), 2 roths (6000x2), an HSA (7,000), 2 529s (15,000x2) with 25k extra, for a total of 112k per year just added to savings? That's not including living expenses for a family of at least 4 (based on the 2 529s). For reference the median family income in the USA was $59k and even in San Fransisco it was $97k.
This board absolutely has an extremely distorted view of "high earner" (BTW, I said "super high earner"). Go to any tech thread and you are going to hear from dozens of other posters who are individual contributors (I am in upper management in a ~4,500 employee company) who easily make twice what my wife and I make combined. I've been accused of lying about how low my income is based on my job title at least a handful of times on this board; I'd say that alone disqualifies us from "super high earner" status here.

FWIW, we save well over 50% of our gross income, so you can probably get a good estimation of what this two professional household makes.
Saving over 50% of your gross income and knocking out your mortgage with prepayments in the next two years is very impressive.
Congratulations. Your future financial status is enviable. Good luck.

22twain
Posts: 2176
Joined: Thu May 10, 2012 5:42 pm

Re: What’s the point of a taxable account?

Post by 22twain » Sun Oct 13, 2019 10:28 pm

Wiggums wrote:
Sun Oct 13, 2019 4:34 pm
Should You Contribute to a 401k Without an Employer Match?

[...]

Lower taxable income

Contributions to a Traditional 401(k) plan lower your taxable income because the contributions are invested with money that has not yet been taxed.
This gives you an immediate benefit because your employer should recompute your tax withholding to correspond to the lower taxable income. Less tax will be withheld from your paycheck. You can spend the "extra" money or put it in an IRA or bump your 401(k) contribution up a bit further. Just make sure your 401(k) + IRA contributions don't exceed your gross compensation.
My investing princiPLEs do not include absolutely preserving princiPAL.

Prettyfrtnt
Posts: 141
Joined: Fri Aug 23, 2019 6:28 pm

Re: What’s the point of a taxable account?

Post by Prettyfrtnt » Sun Oct 13, 2019 10:41 pm

NewMoneyMustBeSmart wrote:
Sun Oct 13, 2019 9:16 pm
jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
When you make over $600k and have expenses of $2500/mo; it makes sense to put the cash you're left with in a taxable account once you've maxed all the tax qualified and tax deferred accounts.

Or if you make some amount less than $600k and have expenses somewhere north of $2500/mo, it will make sense as well.

Or you could just spend it all on new cars and koi ponds.
Your retirement is probably going to have a ton of new cars and koi ponds tbh!!! Or you can travel and golf. Kudos well put. Are you married and spending only $2500 a month. If so write a book about that pls.

Silence Dogood
Posts: 1230
Joined: Tue Feb 01, 2011 9:22 pm

Re: What’s the point of a taxable account?

Post by Silence Dogood » Sun Oct 13, 2019 11:19 pm

jb1 wrote:
Sun Oct 13, 2019 3:00 pm
Hey all,

The more I read the forum, the more I see people bring up questions regarding taxable accounts. At age 29, I will be honest that 75% of my total portfolio is in a taxable account (vtsax), the remaining 25% in a Roth IRA.

Every week deposit into my Roth IRA account, while also buying into my taxable account.

I guess my question is, what’s the point of a taxable? I’m in a fairly low tax bracket, but do most of you have a taxable account?
OP:

I'm not exactly sure what you mean.

In general, people invest in taxable accounts when the amount of their savings is greater than the amount of their available tax advantaged space.

For what it's worth, I'm around the same age as you, and (essentially) all of my investments are in tax advantaged accounts.

If I am fortunate enough to retire early, I will make good use of my Roth basis.

Remember, Roth contributions can be withdrawn, at any time, tax and penalty free. In addition, Roth conversions can be withdrawn, after 5 years, tax and penalty free.

mcraepat9
Posts: 1496
Joined: Thu Jul 16, 2015 11:46 am

Re: What’s the point of a taxable account?

Post by mcraepat9 » Mon Oct 14, 2019 12:41 am

jb1 wrote:
Sun Oct 13, 2019 6:57 pm

Thank you for the educated response. I will say my biggest weakness, is understanding taxes.

Thank you everyone else for the responses.

Some more background. My Roth is 90/10 stocks to bonds (target retirement 2060).

My taxable is approximately 70% VTSAX, 10% VTIAX, 20% stocks I am interested such as Visa, Apple, Square, Paypal.

My long term goal, as much as it is frowned upon, is to buy a duplex by the end of next year. I currently have a house now that I live in and rent out.

Emergency fund for me is 19k right now in a high yield account.

Ideally, I could use the taxable money in 10 years to pay off any mortgage debt etc. I am not that concerned with retirement as I know my discipline especially at my age is second to none, just trying to figure out what my intentions are with my taxable account!
What do you mean by “as I know my discipline especially at my age is second to none”? What does that have to do with being concerned about retirement?

You are giving up a significant tax advantage by not using your tax-deferred workplace plan. It is hard to fathom how this decision will cause you to end up with more money by the time you retire. You are flushing money down the toilet by bypassing your 401k (even unmatched) to invest in taxable.
Amateur investors are not cool-headed logicians.

DonIce
Posts: 740
Joined: Thu Feb 21, 2019 6:44 pm

Re: What’s the point of a taxable account?

Post by DonIce » Mon Oct 14, 2019 1:10 am

Not everyone has access to 401k's. Unfortunately, the US tax system offers special treatment to individuals that work for some employers but not others. For those that happen to work at an employer that doesn't offer one, you can only contribute $6k per year to an IRA, which is very little. All the rest has to go to taxable.

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