Best use of brokerage after 401k and Roth

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Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Best use of brokerage after 401k and Roth

Post by trix4jit » Sat Nov 16, 2019 10:10 pm

Hi everyone,
I'm a frequent visitor of the forum and greatly appreciate the insight I've gained. I've followed the 3-fund model for the past few years and, after maxing both 401k and Roth, I decided to focus more on a brokerage account per helpful advice I received here.

From a fund selection/tax perspective, am I making appropriate use of my brokerage account? Is there something I should be considering?

I'd like to save for a downpayment for home. Is my use of a money market fund reasonable for this goal?

Here's my current situation:

Profile
Emergency funds: ~12% of pre-tax income (I'm focused on building this up)
Tax Filing Status: Single
Tax Rate: 24% Federal, 6% State (Virginia)
Debt: Car loan - 0.9%
Age: late 20s

Current contributions
19k to 401k per year (+ 3% match)
6,000 to Roth per year

Total Investments - 100%
  • Vanguard Brokerage
    • Federal Money Market (VMFXX) - 26%
    • Total Stock Market Index Fund Admiral Shares (VTSAX) - 7.5%
    • Total International Stock Index Fund Admiral Shares (VTIAX) - 7%
  • Vanguard Roth IRA
    • Total Bond Mkt Index Adm (VBTLX) - 5%
    • Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds
  • Vanguard 401k
    • Vanguard Total Bond Market Index Adm (VBTLX) - 8%
    • Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
    • Vanguard Small Cap Index Adm (VSMAX) - 5%
    • Vanguard Total Intl Stock Index Adm (VTIAX) - 15%
  • HSA - $3500
Current Asset Allocation (sans money market)
  • Domestic Stocks: 52%
  • International Stocks: 30%
  • Bonds: 18 %

Thanks for the help!
Last edited by trix4jit on Sat Nov 16, 2019 10:55 pm, edited 1 time in total.

HomeStretch
Posts: 2919
Joined: Thu Dec 27, 2018 3:06 pm

Re: Best use of brokerage after 401k and Roth

Post by HomeStretch » Sat Nov 16, 2019 10:18 pm

Consider holding 100% equity in your Roth IRA for highest expected growth, tax free. Hold your bond allocation in your 401k.

A high-yield savings account, money market fund (like VMFXX), CD or U.S. treasuries is appropriate for short/medium-term savings (such as for a house).

aristotelian
Posts: 6466
Joined: Wed Jan 11, 2017 8:05 pm

Re: Best use of brokerage after 401k and Roth

Post by aristotelian » Sat Nov 16, 2019 10:22 pm

Are you counting the money market as part of your emergency fund or is the emergency fund separate?

Personally, I think you should have more bonds in your 401k and less cash in your taxable account. Roth should be close to 100% stocks.

What is your marginal tax bracket? There is no such thing as 28%.

anon_investor
Posts: 588
Joined: Mon Jun 03, 2019 1:43 pm

Re: Best use of brokerage after 401k and Roth

Post by anon_investor » Sat Nov 16, 2019 10:31 pm

I assume you are in the 24% tax bracket, since the 28% bracket tax bracket was eliminated in 2018 under the new tax law. Did you mean 24% + 3.8% NII tax?

In the 24% tax bracket, saving for your home down payment with VMFXX is fine. If you were in a higher tax bracket, a municipal money market fund might have better after tax interest.

However, since you are subject to state income tax, if you have $50k already saved up then the Vanguard Treasury Money Market Fund (VUSXX) may be a better choice since it usually has slightly better interest than VMFXX and is 100% exempt from state income tax (VMFXX is only partially exempt from state income tax, and the % exempted has varied; around 77% in 2019, around 58% in 2017, and around 40% in 2016).
https://investor.vanguard.com/mutual-fu ... file/VUSXX

Those are probably your easiest options, not requiring you to do much work (no need to open new accounts, etc.).

You do not want to invest this money, keep the principal safe.

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sat Nov 16, 2019 10:58 pm

HomeStretch wrote:
Sat Nov 16, 2019 10:18 pm
Consider holding 100% equity in your Roth IRA for highest expected growth, tax free. Hold your bond allocation in your 401k.

A high-yield savings account, money market fund (like VMFXX), CD or U.S. treasuries is appropriate for short/medium-term savings (such as for a house).
Thanks, HomeStretch. I made the mistake early on to put bonds into my Roth trying to get my 3-fund allocation set-up. I'm now focusing on stocks for the Roth e.g. with this year's $6000 Roth contribution.

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sat Nov 16, 2019 11:03 pm

aristotelian wrote:
Sat Nov 16, 2019 10:22 pm
Are you counting the money market as part of your emergency fund or is the emergency fund separate?

Personally, I think you should have more bonds in your 401k and less cash in your taxable account. Roth should be close to 100% stocks.

What is your marginal tax bracket? There is no such thing as 28%.
Hey, aristotelian. Yep, you're right. I corrected to 24%. Yeah, that makes sense re: more bonds in 401k.

With respect to "less cash in your taxable account," is that referring to my money market or something else?

Also, my money market is separate from my emergency fund. I'd like my emergency to be a higher percentage of my pre-tax income so focusing on that a bit through the end of the year. Thanks for the help! :)

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sat Nov 16, 2019 11:12 pm

anon_investor wrote:
Sat Nov 16, 2019 10:31 pm
I assume you are in the 24% tax bracket, since the 28% bracket tax bracket was eliminated in 2018 under the new tax law. Did you mean 24% + 3.8% NII tax?

In the 24% tax bracket, saving for your home down payment with VMFXX is fine. If you were in a higher tax bracket, a municipal money market fund might have better after tax interest.

However, since you are subject to state income tax, if you have $50k already saved up then the Vanguard Treasury Money Market Fund (VUSXX) may be a better choice since it usually has slightly better interest than VMFXX and is 100% exempt from state income tax (VMFXX is only partially exempt from state income tax, and the % exempted has varied; around 77% in 2019, around 58% in 2017, and around 40% in 2016).
https://investor.vanguard.com/mutual-fu ... file/VUSXX

Those are probably your easiest options, not requiring you to do much work (no need to open new accounts, etc.).

You do not want to invest this money, keep the principal safe.
Thanks for the reply and flag, anon_investor. I meant 24% (corrected in initial post). That's helpful info re: funds to use for money market. Thanks for the tip! I'll be moving to VUSXX.

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Best use of brokerage after 401k and Roth

Post by lakpr » Sun Nov 17, 2019 7:36 am

Since you are in Virginia, please consider opening a 529 plan with yourself as owner and beneficiary, and contribute $4000 yearly. You get state tax benefit on it, so essentially a "return" of 6%. When you have kids, it is an easy paperwork for changing beneficiary to your kid.

I am of course, assuming that there is marriage and kids in your future.

sycamore
Posts: 39
Joined: Tue May 08, 2018 12:06 pm

Re: Best use of brokerage after 401k and Roth

Post by sycamore » Sun Nov 17, 2019 8:23 am

trix4jit wrote:
Sat Nov 16, 2019 10:58 pm
HomeStretch wrote:
Sat Nov 16, 2019 10:18 pm
Consider holding 100% equity in your Roth IRA for highest expected growth, tax free. Hold your bond allocation in your 401k.

A high-yield savings account, money market fund (like VMFXX), CD or U.S. treasuries is appropriate for short/medium-term savings (such as for a house).
Thanks, HomeStretch. I made the mistake early on to put bonds into my Roth trying to get my 3-fund allocation set-up. I'm now focusing on stocks for the Roth e.g. with this year's $6000 Roth contribution.
trix4jit, if you want to have only stocks in Roth, how about this: in your Roth IRA, exchange the 5% in Total Bond to Total Stock, and in your 401k make a corresponding swap of 5% of the 500 Fund to Total Bond. This assumes your 401k lets you do such swaps (most do). It achieves the goal of having highest expected return funds (stocks) in your Roth, and it's a bit simpler by having one less holding in the Roth.

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sun Nov 17, 2019 3:10 pm

lakpr wrote:
Sun Nov 17, 2019 7:36 am
Since you are in Virginia, please consider opening a 529 plan with yourself as owner and beneficiary, and contribute $4000 yearly. You get state tax benefit on it, so essentially a "return" of 6%. When you have kids, it is an easy paperwork for changing beneficiary to your kid.

I am of course, assuming that there is marriage and kids in your future.
Thanks for the advice, lakpr. I'll check those plans out. Appreciate the help! :happy

retired@50
Posts: 651
Joined: Tue Oct 01, 2019 2:36 pm

Re: Best use of brokerage after 401k and Roth

Post by retired@50 » Sun Nov 17, 2019 3:16 pm

sycamore wrote:
Sun Nov 17, 2019 8:23 am
trix4jit wrote:
Sat Nov 16, 2019 10:58 pm
HomeStretch wrote:
Sat Nov 16, 2019 10:18 pm
Consider holding 100% equity in your Roth IRA for highest expected growth, tax free. Hold your bond allocation in your 401k.

A high-yield savings account, money market fund (like VMFXX), CD or U.S. treasuries is appropriate for short/medium-term savings (such as for a house).
Thanks, HomeStretch. I made the mistake early on to put bonds into my Roth trying to get my 3-fund allocation set-up. I'm now focusing on stocks for the Roth e.g. with this year's $6000 Roth contribution.
trix4jit, if you want to have only stocks in Roth, how about this: in your Roth IRA, exchange the 5% in Total Bond to Total Stock, and in your 401k make a corresponding swap of 5% of the 500 Fund to Total Bond. This assumes your 401k lets you do such swaps (most do). It achieves the goal of having highest expected return funds (stocks) in your Roth, and it's a bit simpler by having one less holding in the Roth.
+1
Typically, any transaction in a Roth IRA or a 401k account is immune from any tax consequences... So, make the switch ASAP.
Regards,

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sun Nov 17, 2019 3:23 pm

retired@50 wrote:
Sun Nov 17, 2019 3:16 pm
sycamore wrote:
Sun Nov 17, 2019 8:23 am
trix4jit wrote:
Sat Nov 16, 2019 10:58 pm
HomeStretch wrote:
Sat Nov 16, 2019 10:18 pm
Consider holding 100% equity in your Roth IRA for highest expected growth, tax free. Hold your bond allocation in your 401k.

A high-yield savings account, money market fund (like VMFXX), CD or U.S. treasuries is appropriate for short/medium-term savings (such as for a house).
Thanks, HomeStretch. I made the mistake early on to put bonds into my Roth trying to get my 3-fund allocation set-up. I'm now focusing on stocks for the Roth e.g. with this year's $6000 Roth contribution.
trix4jit, if you want to have only stocks in Roth, how about this: in your Roth IRA, exchange the 5% in Total Bond to Total Stock, and in your 401k make a corresponding swap of 5% of the 500 Fund to Total Bond. This assumes your 401k lets you do such swaps (most do). It achieves the goal of having highest expected return funds (stocks) in your Roth, and it's a bit simpler by having one less holding in the Roth.
+1
Typically, any transaction in a Roth IRA or a 401k account is immune from any tax consequences... So, make the switch ASAP.
Regards,
Whoa, sycamore and retired@50. Thanks for that tip. My company's 401k is with Vanguard as, of course, is my Roth so I'll see if they'll let me.

I'm glad you responded before I submitted my post because my exact question was "what advice do you have for how to transfer money between funds and accounts (401k vs Roth vs Brokerage) while avoiding tax implications?" :D

Thanks, again.

retired@50
Posts: 651
Joined: Tue Oct 01, 2019 2:36 pm

Re: Best use of brokerage after 401k and Roth

Post by retired@50 » Sun Nov 17, 2019 3:33 pm

trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Hi everyone,

  • Vanguard Roth IRA
    • Total Bond Mkt Index Adm (VBTLX) - 5%
    ^^Use "Exchange" function at Vanguard.com to off load VBTLX and use proceeds to buy VTSAX
    • Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds
  • Vanguard 401k
    • Vanguard Total Bond Market Index Adm (VBTLX) - 8%
    • Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
    ^^Use "Exchange" function at Vanguard.com to off load VFIAX and use proceeds to buy VBTLX
    • Vanguard Small Cap Index Adm (VSMAX) - 5%
    • Vanguard Total Intl Stock Index Adm (VTIAX) - 15%
Thanks for the help!
By exchanging similar dollar amounts in each independent transaction, it will be "as if" you moved the money from one account to the other without having to do so.

Regards,

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Sun Nov 17, 2019 6:55 pm

retired@50 wrote:
Sun Nov 17, 2019 3:33 pm
trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Hi everyone,

  • Vanguard Roth IRA
    • Total Bond Mkt Index Adm (VBTLX) - 5%
    ^^Use "Exchange" function at Vanguard.com to off load VBTLX and use proceeds to buy VTSAX
    • Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds
  • Vanguard 401k
    • Vanguard Total Bond Market Index Adm (VBTLX) - 8%
    • Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
    ^^Use "Exchange" function at Vanguard.com to off load VFIAX and use proceeds to buy VBTLX
    • Vanguard Small Cap Index Adm (VSMAX) - 5%
    • Vanguard Total Intl Stock Index Adm (VTIAX) - 15%
Thanks for the help!
By exchanging similar dollar amounts in each independent transaction, it will be "as if" you moved the money from one account to the other without having to do so.

Regards,
Awesome and done; swapped in 401k and Roth. Waiting for the trade freeze to clear on VTSAX before wrapping up 2019 Roth max.
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?

lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Best use of brokerage after 401k and Roth

Post by lakpr » Sun Nov 17, 2019 7:20 pm

trix4jit wrote:
Sun Nov 17, 2019 6:55 pm
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?
Assuming that you are maxing out both your 401k and Roth IRA, simply follow these calculations:

Bonds first - 20% of the investable assets = 0.2 * (19k + 6k) = $5k, all of it into 401k
International allocation next - 30% of your portfolio = 0.3 * 25k = $7.5k, all of it into your 401k
Rest is all domestic Total Stock Market Index,
- Within 401k, $19k - $5k - $7.5k = $6.5k to VTSAX
- To Roth IRA: $6k VTSAX

Your 401k contributions per paycheck should be in the ratio of $5k : $7.5k : $6.5k = 10:15:13
26% of your paycheck to Bond fund ( = 10/38)
39% of your paycheck to International Equities fund ( = 15/38)
35% of your paycheck to S&P 500 index fund ( = 13/38)


You may need to redo the calculations with updated limits next year and whenever they get adjusted in the future.
Occasionally also, rebalance.

retired@50
Posts: 651
Joined: Tue Oct 01, 2019 2:36 pm

Re: Best use of brokerage after 401k and Roth

Post by retired@50 » Sun Nov 17, 2019 8:26 pm

lakpr wrote:
Sun Nov 17, 2019 7:20 pm
trix4jit wrote:
Sun Nov 17, 2019 6:55 pm
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?
Assuming that you are maxing out both your 401k and Roth IRA, simply follow these calculations:

Bonds first - 20% of the investable assets = 0.2 * (19k + 6k) = $5k, all of it into 401k
International allocation next - 30% of your portfolio = 0.3 * 25k = $7.5k, all of it into your 401k
Rest is all domestic Total Stock Market Index,
- Within 401k, $19k - $5k - $7.5k = $6.5k to VTSAX
- To Roth IRA: $6k VTSAX

Your 401k contributions per paycheck should be in the ratio of $5k : $7.5k : $6.5k = 10:15:13
26% of your paycheck to Bond fund ( = 10/38)
39% of your paycheck to International Equities fund ( = 15/38)
35% of your paycheck to S&P 500 index fund ( = 13/38)


You may need to redo the calculations with updated limits next year and whenever they get adjusted in the future.
Occasionally also, rebalance.
+1
I agree with this math. Set your future contributions to the desired percentages and tweak as needed over the years, OR occasionally, sell what you have too much of, and buy what you have too little of. A re-balance once per year is fine.

Edit: Since you're using both the S&P 500 and Small Cap fund to approximate your U.S. Stock position in the 401k, you *may* want to use 28% to S&P 500 and 7% to the Small Cap fund within your 401k account to re-configure the 35% mentioned above.

Regards,

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Tue Nov 19, 2019 7:36 pm

retired@50 wrote:
Sun Nov 17, 2019 8:26 pm
lakpr wrote:
Sun Nov 17, 2019 7:20 pm
trix4jit wrote:
Sun Nov 17, 2019 6:55 pm
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?
Assuming that you are maxing out both your 401k and Roth IRA, simply follow these calculations:

Bonds first - 20% of the investable assets = 0.2 * (19k + 6k) = $5k, all of it into 401k
International allocation next - 30% of your portfolio = 0.3 * 25k = $7.5k, all of it into your 401k
Rest is all domestic Total Stock Market Index,
- Within 401k, $19k - $5k - $7.5k = $6.5k to VTSAX
- To Roth IRA: $6k VTSAX

Your 401k contributions per paycheck should be in the ratio of $5k : $7.5k : $6.5k = 10:15:13
26% of your paycheck to Bond fund ( = 10/38)
39% of your paycheck to International Equities fund ( = 15/38)
35% of your paycheck to S&P 500 index fund ( = 13/38)


You may need to redo the calculations with updated limits next year and whenever they get adjusted in the future.
Occasionally also, rebalance.
+1
I agree with this math. Set your future contributions to the desired percentages and tweak as needed over the years, OR occasionally, sell what you have too much of, and buy what you have too little of. A re-balance once per year is fine.

Edit: Since you're using both the S&P 500 and Small Cap fund to approximate your U.S. Stock position in the 401k, you *may* want to use 28% to S&P 500 and 7% to the Small Cap fund within your 401k account to re-configure the 35% mentioned above.

Regards,
Thanks so much, lakpr and retired@50. Changes are in progress. The only follow-up question I have is figuring out how to distribute any remaining savings after maxing Roth and 401k. I guess it boils down to appropriately investing brokerage funds considering it may be used for a down payment.

retired@50
Posts: 651
Joined: Tue Oct 01, 2019 2:36 pm

Re: Best use of brokerage after 401k and Roth

Post by retired@50 » Tue Nov 19, 2019 7:45 pm

trix4jit wrote:
Tue Nov 19, 2019 7:36 pm
retired@50 wrote:
Sun Nov 17, 2019 8:26 pm
lakpr wrote:
Sun Nov 17, 2019 7:20 pm
trix4jit wrote:
Sun Nov 17, 2019 6:55 pm
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?
Assuming that you are maxing out both your 401k and Roth IRA, simply follow these calculations:

Bonds first - 20% of the investable assets = 0.2 * (19k + 6k) = $5k, all of it into 401k
International allocation next - 30% of your portfolio = 0.3 * 25k = $7.5k, all of it into your 401k
Rest is all domestic Total Stock Market Index,
- Within 401k, $19k - $5k - $7.5k = $6.5k to VTSAX
- To Roth IRA: $6k VTSAX

Your 401k contributions per paycheck should be in the ratio of $5k : $7.5k : $6.5k = 10:15:13
26% of your paycheck to Bond fund ( = 10/38)
39% of your paycheck to International Equities fund ( = 15/38)
35% of your paycheck to S&P 500 index fund ( = 13/38)


You may need to redo the calculations with updated limits next year and whenever they get adjusted in the future.
Occasionally also, rebalance.
+1
I agree with this math. Set your future contributions to the desired percentages and tweak as needed over the years, OR occasionally, sell what you have too much of, and buy what you have too little of. A re-balance once per year is fine.

Edit: Since you're using both the S&P 500 and Small Cap fund to approximate your U.S. Stock position in the 401k, you *may* want to use 28% to S&P 500 and 7% to the Small Cap fund within your 401k account to re-configure the 35% mentioned above.

Regards,
Thanks so much, lakpr and retired@50. Changes are in progress. The only follow-up question I have is figuring out how to distribute any remaining savings after maxing Roth and 401k. I guess it boils down to appropriately investing brokerage funds considering it may be used for a down payment.
The holdings you currently have in your taxable brokerage account are fine with regard to them being tax-efficient. However, if you want to use the money soon for a house down payment, you may want to add more to the Federal Money Market fund, (basically no-risk) or you could include an ultra short term bond fund (VUBFX) for a mild amount of risk. Most folks aren't crazy about the idea of risking money that they intend to use for a house. This will be up to you.
Regards,

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celia
Posts: 9836
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Best use of brokerage after 401k and Roth

Post by celia » Tue Nov 19, 2019 9:45 pm

trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
From a fund selection/tax perspective, am I making appropriate use of my brokerage account? Is there something I should be considering?
I think you are mis-using the term "brokerage" account. A brokerage account is an account that can hold individual stocks, bonds, and ETFs (as well as mutual funds). The account can be titled as a "taxable account" using your name, a tax-deferred account (401K, tIRA), or a Roth account. All of these are able to hold the same assets, but are just titled differently.

Instead of talking about Brokerage account, 401K, and Roth account, you probably mean a Taxable account, 401K, and Roth account. :sharebeer

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Tue Nov 19, 2019 11:54 pm

retired@50 wrote:
Tue Nov 19, 2019 7:45 pm
trix4jit wrote:
Tue Nov 19, 2019 7:36 pm
retired@50 wrote:
Sun Nov 17, 2019 8:26 pm
lakpr wrote:
Sun Nov 17, 2019 7:20 pm
trix4jit wrote:
Sun Nov 17, 2019 6:55 pm
I'm curious -- considering I'm not going to put bond into Roth anymore, how, if at all, should my future 401k contributions be changed?
I suppose as long as I maintain my desired allocation (~50|30|20) it shouldn't matter?
Assuming that you are maxing out both your 401k and Roth IRA, simply follow these calculations:

Bonds first - 20% of the investable assets = 0.2 * (19k + 6k) = $5k, all of it into 401k
International allocation next - 30% of your portfolio = 0.3 * 25k = $7.5k, all of it into your 401k
Rest is all domestic Total Stock Market Index,
- Within 401k, $19k - $5k - $7.5k = $6.5k to VTSAX
- To Roth IRA: $6k VTSAX

Your 401k contributions per paycheck should be in the ratio of $5k : $7.5k : $6.5k = 10:15:13
26% of your paycheck to Bond fund ( = 10/38)
39% of your paycheck to International Equities fund ( = 15/38)
35% of your paycheck to S&P 500 index fund ( = 13/38)


You may need to redo the calculations with updated limits next year and whenever they get adjusted in the future.
Occasionally also, rebalance.
+1
I agree with this math. Set your future contributions to the desired percentages and tweak as needed over the years, OR occasionally, sell what you have too much of, and buy what you have too little of. A re-balance once per year is fine.

Edit: Since you're using both the S&P 500 and Small Cap fund to approximate your U.S. Stock position in the 401k, you *may* want to use 28% to S&P 500 and 7% to the Small Cap fund within your 401k account to re-configure the 35% mentioned above.

Regards,
Thanks so much, lakpr and retired@50. Changes are in progress. The only follow-up question I have is figuring out how to distribute any remaining savings after maxing Roth and 401k. I guess it boils down to appropriately investing brokerage funds considering it may be used for a down payment.
The holdings you currently have in your taxable brokerage account are fine with regard to them being tax-efficient. However, if you want to use the money soon for a house down payment, you may want to add more to the Federal Money Market fund, (basically no-risk) or you could include an ultra short term bond fund (VUBFX) for a mild amount of risk. Most folks aren't crazy about the idea of risking money that they intend to use for a house. This will be up to you.
Regards,
Got it; my taxable brokerage account contains tax-efficient holdings--proven by the allocation math--but if the goal is to save for a down payment deferring to the lower risk fund e.g. VUSXX is a better bet. Thanks for the help!

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Tue Nov 19, 2019 11:56 pm

celia wrote:
Tue Nov 19, 2019 9:45 pm
trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
From a fund selection/tax perspective, am I making appropriate use of my brokerage account? Is there something I should be considering?
I think you are mis-using the term "brokerage" account. A brokerage account is an account that can hold individual stocks, bonds, and ETFs (as well as mutual funds). The account can be titled as a "taxable account" using your name, a tax-deferred account (401K, tIRA), or a Roth account. All of these are able to hold the same assets, but are just titled differently.

Instead of talking about Brokerage account, 401K, and Roth account, you probably mean a Taxable account, 401K, and Roth account. :sharebeer
Ah, ok. Thanks, celia. Appreciate the tweak. :)

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ruralavalon
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Location: Illinois

Re: Best use of brokerage after 401k and Roth

Post by ruralavalon » Wed Nov 20, 2019 1:46 pm

trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
From a fund selection/tax perspective, am I making appropriate use of my brokerage account? Is there something I should be considering?

I'd like to save for a downpayment for home. Is my use of a money market fund reasonable for this goal?

. . . . .

Tax Filing Status: Single
Tax Rate: 24% Federal, 6% State (Virginia)

. . . . .

Total Investments - 100%
Vanguard Brokerage
Federal Money Market (VMFXX) - 26%
Total Stock Market Index Fund Admiral Shares (VTSAX) - 7.5%
Total International Stock Index Fund Admiral Shares (VTIAX) - 7%
Both Vanguard Total Stock Market Index Fund (VTSAX) and Vanguard Total International Stock Index Fund (VTIAX) are very tax-efficient, and are appropriate for use in your brokerage account.

A money market fund like Vanguard Federal Money Market Fund (VMFXX) is appropriate for your savings for a home downpayment.

For the savings for a home down payment you could consider a very short-term bond fund like Vanguard Ultra Short-term Bond Fund (VUBFX) current SEC Yield = 2.04% or iShares Ultra Short-Term Bond ETF (ICSH) current SEC Yield = 2.12%.



trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Vanguard Roth IRA
Total Bond Mkt Index Adm (VBTLX) - 5%
Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds

Vanguard 401k
Vanguard Total Bond Market Index Adm (VBTLX) - 8%
Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
Vanguard Small Cap Index Adm (VSMAX) - 5%
Vanguard Total Intl Stock Index Adm (VTIAX) - 15
Because a very good bond fund, Vanguard Total Bond Market Index Fund (VBTLX), is offered in your employer's plan I suggest dropping the bond fund in your Roth IRA and instead putting your bond allocation in your 401k account.
Last edited by ruralavalon on Wed Nov 20, 2019 1:57 pm, edited 5 times in total.
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lakpr
Posts: 3065
Joined: Fri Mar 18, 2011 9:59 am

Re: Best use of brokerage after 401k and Roth

Post by lakpr » Wed Nov 20, 2019 1:50 pm

ruralavalon wrote:
Wed Nov 20, 2019 1:46 pm
trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Vanguard Roth IRA
Total Bond Mkt Index Adm (VBTLX) - 5%
Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds

Vanguard 401k
Vanguard Total Bond Market Index Adm (VBTLX) - 8%
Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
Vanguard Small Cap Index Adm (VSMAX) - 5%
Vanguard Total Intl Stock Index Adm (VTIAX) - 15
What bond funds are offered in your 401k plan? Please give fund names, tickers and expense ratios.

If a good bond fund is offered in your employer's w plan, then I suggest dropping the bond fund and in your Roth IRA and place I stead putting your bond allocation in your 401k account.
Perhaps you missed it, @ruralavalon, but the portion you quoted clearly shows that VBTLX is available in the 401k plan. And I think he already did exchange the bond funds in Roth IRA to equities, and a corresponding balance out exchanging equities to bonds in the 401k plan.

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ruralavalon
Posts: 16698
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Best use of brokerage after 401k and Roth

Post by ruralavalon » Wed Nov 20, 2019 1:55 pm

lakpr wrote:
Wed Nov 20, 2019 1:50 pm
ruralavalon wrote:
Wed Nov 20, 2019 1:46 pm
trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Vanguard Roth IRA
Total Bond Mkt Index Adm (VBTLX) - 5%
Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds

Vanguard 401k
Vanguard Total Bond Market Index Adm (VBTLX) - 8%
Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
Vanguard Small Cap Index Adm (VSMAX) - 5%
Vanguard Total Intl Stock Index Adm (VTIAX) - 15
What bond funds are offered in your 401k plan? Please give fund names, tickers and expense ratios.

If a good bond fund is offered in your employer's w plan, then I suggest dropping the bond fund and in your Roth IRA and place I stead putting your bond allocation in your 401k account.
Perhaps you missed it, @ruralavalon, but the portion you quoted clearly shows that VBTLX is available in the 401k plan. And I think he already did exchange the bond funds in Roth IRA to equities, and a corresponding balance out exchanging equities to bonds in the 401k plan.
You are correct, I missed that Vanguard Total Bond Market Index Fund is available in the 401k plan.

I will edit my post.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Topic Author
trix4jit
Posts: 18
Joined: Mon Nov 27, 2017 10:24 pm

Re: Best use of brokerage after 401k and Roth

Post by trix4jit » Wed Nov 20, 2019 2:04 pm

ruralavalon wrote:
Wed Nov 20, 2019 1:55 pm
lakpr wrote:
Wed Nov 20, 2019 1:50 pm
ruralavalon wrote:
Wed Nov 20, 2019 1:46 pm
trix4jit wrote:
Sat Nov 16, 2019 10:10 pm
Vanguard Roth IRA
Total Bond Mkt Index Adm (VBTLX) - 5%
Vanguard Total Stock Market Index Admiral (VTSAX) - 2.5% building this up rather than bonds

Vanguard 401k
Vanguard Total Bond Market Index Adm (VBTLX) - 8%
Vanguard 500 Index Fund Admiral Shares (VFIAX) - 24%
Vanguard Small Cap Index Adm (VSMAX) - 5%
Vanguard Total Intl Stock Index Adm (VTIAX) - 15
What bond funds are offered in your 401k plan? Please give fund names, tickers and expense ratios.

If a good bond fund is offered in your employer's w plan, then I suggest dropping the bond fund and in your Roth IRA and place I stead putting your bond allocation in your 401k account.
Perhaps you missed it, @ruralavalon, but the portion you quoted clearly shows that VBTLX is available in the 401k plan. And I think he already did exchange the bond funds in Roth IRA to equities, and a corresponding balance out exchanging equities to bonds in the 401k plan.
You are correct, I missed that Vanguard Total Bond Market Index Fund is available in the 401k plan.

I will edit my post.
Thanks, ruralavalon and lakpr! Yep; already completed the consolidation. That tip was helpful re: making accounts more tax-efficient via an exchange of funds in Vanguard.

I also settled on VUSXX as the fund to hold my down payment in my taxable account. I got some good feedback from @anon_investor on that front earlier in this topic.

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