Taxable account for a retirement

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Mario2222
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Taxable account for a retirement

Post by Mario2222 »

I'm thinking to use one of my taxable accounts as a second retirement account. I will use them as one account. For example: I own a small cap value fund in my taxable account instead of adding it into my Roth IRA account. Any thoughts?
livesoft
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Re: Taxable account for a retirement

Post by livesoft »

Many people who contribute that maximum legal amounts to tax-advantaged accounts for retirement need to use a taxable account in order to contribute more to retirement, so your idea is an old and often-used idea.

But I would recommend trying to use the most tax-efficient equity funds possible in your taxable account, so that would not necessarily be a small-cap value index fund though some people do that. I would suggest Total US Stock Market index fund first, then Total Int'l Stock Market index fund next. If you need to have a SCV fund, then put it in your tax-advantaged accounts.
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geerhardusvos
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Re: Taxable account for a retirement

Post by geerhardusvos »

livesoft wrote: Fri Aug 21, 2020 6:16 pm Many people who contribute that maximum legal amounts to tax-advantaged accounts for retirement need to use a taxable account in order to contribute more to retirement, so your idea is an old and often-used idea.

But I would recommend trying to use the most tax-efficient equity funds possible in your taxable account, so that would not necessarily be a small-cap value index fund though some people do that. I would suggest Total US Stock Market index fund first, then Total Int'l Stock Market index fund next. If you need to have a SCV fund, then put it in your tax-advantaged accounts.
+1

Go with VOO/VTI in the taxable account or their mutual fund equivalent. Taxable accounts are excellent investment vehicles, and be sure to check out tax loss/gain harvesting if applicable as you get started.
VTSAX and chill
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FiveK
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Re: Taxable account for a retirement

Post by FiveK »

Mario2222 wrote: Fri Aug 21, 2020 6:12 pm I'm thinking to use one of my taxable accounts as a second retirement account. I will use them as one account. For example: I own a small cap value fund in my taxable account instead of adding it into my Roth IRA account. Any thoughts?
Depends on what is meant by "instead of adding it...."

If this is a Tax-efficient fund placement question, see that link and livesoft's reply.

If this is about reducing Roth contributions and instead using taxable investments, that's probably not optimal.
nix4me
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Re: Taxable account for a retirement

Post by nix4me »

Large Cap Growth funds - such as VUG - are more tax efficient than total stock or s&p 500.
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dratkinson
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Re: Taxable account for a retirement

Post by dratkinson »

Retirees. Some retirees report keeping 5yrs of livings expenses in cash equivalents (bonds,...) in taxable to avoid the sequence of returns risk (SoRR)---the need to sell equities in a down market to pay for living expenses in retirement. This assumes most markets recover within 4yrs.


Workers. Putting some bonds in taxable would be a good use of that account. These bonds can perform multiple duties for a young worker: extended EF tier, home projects, new car, dry powder, and retirement bonds. And since you have some bonds in taxable, you can skew your TA (tax-advantaged) accounts toward equities for more tax-free growth. And if you can use a municipal bond fund, then its dividends may be triple TE (tax-exempt: fed, state, city), don't add to your taxable income, so may help to keep you in a lower tax bracket, which benefits QDI (qualified dividend income, taxed like LTCGs) and LTCGs.

Adding TSM (total stock market index fund) and TISM (total international stock market index fund) to taxable are also good choices once you have a few years of living expenses in bonds. TSM's benefit is >90% QDI, and TISM's benefit is >70% QDI and >10% FTC (foreign tax credit).


Can start small with bonds in taxable and slowly create a large extended tier EF. You'll be surprised how a large extended tier EF makes financial emergencies shrink to become financial annoyances.

Why start with bonds? You need some bonds. They are safer than equities, so their NAVs fluctuate less, meaning lower CGs tax if you need to withdraw money. So taxable is a good place to hold some.


Your choice. Follow your AA. Do whatever allows you to pass the SWAN (sleep well at night) test. Update your IPS with your new plans.
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grabiner
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Re: Taxable account for a retirement

Post by grabiner »

nix4me wrote: Fri Aug 21, 2020 7:45 pm Large Cap Growth funds - such as VUG - are more tax efficient than total stock or s&p 500.
However, unless you want a growth bias, you have to balance this out with a value fund in your IRA, and rebalance to keep your target allocation. Also, there isn't an all-cap growth or value index, so if you want to match the total market, you have to hold 43% Growth Index, 7% Small-Cap Growth Index, 43% Value Index, 7% Small-Cap Value Index.

(I do the same thing with a value overweight; I hold Total Stock Market in my taxable account, and value indexes in my IRA.)
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Mario2222
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Re: Taxable account for a retirement

Post by Mario2222 »

Can someone help me understand on how I can put vanguard total stock market & total international in a taxable account and the bonds inside my Roth IRA? This is my portfolio. VTSAX 70%, VTIAX 20%, VTBLX %10%. How I can rebalance my portfolio? Is my contribution unlimited in a taxable account?
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FiveK
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Re: Taxable account for a retirement

Post by FiveK »

Mario2222 wrote: Thu Sep 10, 2020 12:12 am Is my contribution unlimited in a taxable account?
It's limited only by the amount of money you have and can borrow.
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dratkinson
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Re: Taxable account for a retirement

Post by dratkinson »

Mario2222 wrote: Thu Sep 10, 2020 12:12 am Can someone help me understand on how I can put vanguard total stock market & total international in a taxable account and the bonds inside my Roth IRA? This is my portfolio. VTSAX 70%, VTIAX 20%, VTBLX %10%. How I can rebalance my portfolio? Is my contribution unlimited in a taxable account?
It is sub-optimal to put bonds in your Roth. Why?


Data points.

--Tax-deferred accounts. Withdrawals (principal+growth) are taxed as ordinary income---QDI and LTCG tax benefits are lost.

--Taxable accounts. Withdrawals get tax benefits for QDI, LTCGs, tax-exempt dividends, and principal has already been taxed.

--Tax-free accounts. Withdrawals are... tax-free.

--Equities are expected to grow more than bonds.

--Taxable bonds withdrawn from a tax-deferred account are treated no worse than when withdrawn from a taxable account.


Which gives this hierarchy of goodness among the accounts:

(less good) tax-deferred...taxable...tax-free (more good)


And results in these recommendations:

--Shew tax-deferred toward bonds. You need bonds. This should minimize growth and taxes on withdrawals and conversions.

--Skew taxable toward tax-efficient equities and bonds.

--Skew tax-free toward equities and tax-inefficient funds.


You waste the goodness of your Roth if you skew it toward bonds.


Disclosure. I skew my small orphaned Roth to play equities, and have a 3-fund portfolio in taxable. l use muni bond funds.

All of my rebalancing is done in taxable with new money---excess of pension, SS, redirected distributions,....

Since ~2008, almost alI new money has gone into munis in an attempt to stay balanced.



Request your forum review.

You have the option to ask the forum to review all of your investing.

Just follow the format in the sticky "Asking Portfolio Questions".
--Save sticky to your PC.
--Edit it offline.
--Post/paste it into the bottom of your OP (original post, original poster) when finished.
--Create a new reply telling us you've updated your OP with your complete information and are requesting a forum review. (The system will send out a "New reply received" notification, which calls us back to work for you.)

It's better if you paste all of your information into the bottom of your OP. Why? That's where we expect to find it... makes it easier for us, and your new followers to help you.


Example. Notice the amount of stuff you need to understand to demonstrate "...bonds in a Roth is a sub-optimal solution."

With your complete information and questions, we can target suggestions that fit your situation. That way you only need to learn, for now, the things that apply to you... so you can act more quickly.

You can wait for later to refine your knowledge and learn the stuff that applies to others... so you can stick around and help them.

Your choice.



Edit. Grammar, clarity.
Last edited by dratkinson on Thu Sep 10, 2020 8:00 pm, edited 1 time in total.
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grabiner
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Re: Taxable account for a retirement

Post by grabiner »

Mario2222 wrote: Thu Sep 10, 2020 12:12 am Can someone help me understand on how I can put vanguard total stock market & total international in a taxable account and the bonds inside my Roth IRA? This is my portfolio. VTSAX 70%, VTIAX 20%, VTBLX %10%. How I can rebalance my portfolio? Is my contribution unlimited in a taxable account?
Asset location (what goes in which account) is a matter of preference; asset allocation (what you hold) should be done first. You fill your tax-favored accounts with the investments that have the highest tax cost in a taxable account, and once they are full, everything else goes in taxable. Thus, if your tax situation makes bonds best in a tax-favored account, and you want 10% of your portfolio in bonds, your tax-favored account will contain some stocks if it is more than 10% of your portfolio, or your taxable account will contain some bonds if it is more than 90% of your portfolio. Either way, you rebalance within the account in which it is possible to rebalance. If your tax-favored accounts are all bonds and your taxable account has too much stock, you use dividends and new money to buy bonds there, and sell stock if necessary.
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