Do you invest in a taxable account?

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Do you invest in a taxable account?

Yes
306
84%
No
58
16%
 
Total votes: 364

dkturner
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Re: Do you invest in a taxable account?

Post by dkturner » Mon Jan 06, 2014 9:51 am

I have had savings or investments dating back prior to the beginning of IRAs. Over the years I have added to my taxable accounts, to the extent that I couldn't contribute to a tax deferred account. Now that I'm retired I add excess retirement income to taxable accounts. Except for a small reserve, taxable accounts have always been invested in equities. - mostly indexed. I keep fixed income, and do my bobbing and weaving, in my rollover IRA.

SGM
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Re: Do you invest in a taxable account?

Post by SGM » Mon Jan 06, 2014 10:34 am

sscritic wrote:
SGM wrote:I started investing before there were IRAs. So I have always had taxable investments.
This. Also, my daughter was two when I opened a UGMA and bought some stocks and funds for her. Most two year olds don't work, so a taxable account was the only choice. What did you do with your allowance when you were five or six, put it in a Roth IRA?
I was long done with my paper route and allowance by 1974 when IRAs were available. By then I had launched my first real career. Allowance was quite low and was more of an incentive to mow lawns, shovel snow and get a route. I waited six years before starting my first IRA in 1980. I was too busy sowing my wild oats and investing in furthering my education to open up an IRA earlier.

I funded my first UGMA which I started as soon as I got a SSN for my first child before age 1. Their Roths started with some help from me when they had their first jobs. 529s were not available when the kids were real young or I may have started those sooner as well. I am not convinced of the wisdom of UGMAs or giving kids much money, but I did it anyway. Now the children have access to some money. Let's see how well they manage it.
"Let us endeavor, so to live, that when we die, even the undertaker will be sorry." Mark Twain

dublin
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Re: Do you invest in a taxable account?

Post by dublin » Mon Jan 06, 2014 10:58 am

Another 'no' here - still have a long way to go on the tax-advantaged accounts and other priorities before taxable investing makes sense

placeholder
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Re: Do you invest in a taxable account?

Post by placeholder » Mon Jan 06, 2014 11:18 am

Approx 40% of portfolio is in taxable and each year 401k + Roth is filled and what extra can be put into 401k aftertax is also rolled out to Roth with remainder adding to taxable (no idea how much that is).

buckstar
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Re: Do you invest in a taxable account?

Post by buckstar » Mon Jan 06, 2014 11:41 am

Yes -

Reason#1: we max out our tax-advantaged space and have some money left over.

Reason#2: to further diversify our retirement accounts, because you never really know.... (that's my libertarian side, although I haven't resorted to buying gold bullion yet)

Dario33
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Re: Do you invest in a taxable account?

Post by Dario33 » Mon Jan 06, 2014 11:45 am

Not yet, but I'm likely going to this year. 401k and Roth are maxed out. Previously, I was paying down mortgage w/remaining money, but thinking I should invest some of it in taxable to increase International exposure, hedge my bets and take advantage of the TISM tax credit.

travellight
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Re: Do you invest in a taxable account?

Post by travellight » Mon Jan 06, 2014 12:07 pm

by Dario33 » Mon Jan 06, 2014 7:45 am

Not yet, but I'm likely going to this year. 401k and Roth are maxed out. Previously, I was paying down mortgage w/remaining money, but thinking I should invest some of it in taxable to increase International exposure, hedge my bets and take advantage of the TISM tax credit.
+1

Bacchus01
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Re: Do you invest in a taxable account?

Post by Bacchus01 » Mon Jan 06, 2014 12:43 pm

Do you have money sitting in a savings account?

Then you are invested in a taxable account.

nordlead
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Re: Do you invest in a taxable account?

Post by nordlead » Mon Jan 06, 2014 1:01 pm

Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.

As for the poll, I answered no. For starters I don't max out my tax advantaged space (and not likely to for the next 20 years). Secondly, I don't want to risk what I have in my savings account even though I could invest it and just do without a new (used) car if the market tanked.

MnD
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Re: Do you invest in a taxable account?

Post by MnD » Mon Jan 06, 2014 1:10 pm

Yes, although with kids in college we haven't added to it in quite some time.
It has mostly fill-in international stock funds (emerging markets, small cap international) that compliment major index funds elsewhere along with some individual stocks.
It, in combination with stable value and bonds in tax sheltered accounts are our emergency fund. Were we to have a major financial emergency we would sell stock fund shares in taxable and buy stock fund shares in tax-sheltered using fixed-income to maintain AA and free up cash. That way our lowest yield is over 2% - we have no pile of money sitting around losing money relative to inflation. I've also used it recently to gift a small amount ($2K of gain per child per year) of highly appreciated shares to help pay for college while avoiding the kiddy tax.

surfstar
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Re: Do you invest in a taxable account?

Post by surfstar » Mon Jan 06, 2014 1:26 pm

Another no, here.

I have maxed my Roth the last three tax years and am on the path to max'ing my 457 this year. My budget is tight, but doable (while single at least!), but this savings rate will really help me towards an early retirement. A pension would also likely preclude me from saving any extra monies in a taxable account as salary increases - at that point I would simply increase my budget a little. A pension + fully max'd tax advantaged accounts will easily fund my early retirement in ~20 years.

feh
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Re: Do you invest in a taxable account?

Post by feh » Mon Jan 06, 2014 1:36 pm

abuss368 wrote:I am curious of Bogleheads who have investments in a taxable account.

Can you provide some information in terms of how the taxable account fits into your overall investment strategy and allocations?
We first began investing in taxable accounts because we had savings that exceeded limits on 401K and IRAs. We are now investing almost all savings in taxable to beef up the balance as it will be our source of money in early retirement.

Bacchus01
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Re: Do you invest in a taxable account?

Post by Bacchus01 » Mon Jan 06, 2014 1:41 pm

nordlead wrote:
Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.

As for the poll, I answered no. For starters I don't max out my tax advantaged space (and not likely to for the next 20 years). Secondly, I don't want to risk what I have in my savings account even though I could invest it and just do without a new (used) car if the market tanked.
Whether you consider it or not does not change the fact that it is.

sscritic
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Re: Do you invest in a taxable account?

Post by sscritic » Mon Jan 06, 2014 1:42 pm

nordlead wrote:
Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.
Why not? It is money. You are saving it. What is your retirement account other than savings? Or are you distinguishing saving from savings (the final s makes all the difference)? Or is it Savings vs savings (the capital S making the difference)? I am not good at spitting hairs when it comes to money. It's fungible; I use it to buy stuff. It's all invested some place or another. [Splitting hairs in reading is a different matter.]

lckamp
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Taxaxble accounts

Post by lckamp » Mon Jan 06, 2014 2:25 pm

Hi:
I have a taxable account approximately 3X as large as my tax deferred. I started investing before the days if IRA's etc., although I used them extensively when they became available. The portfolio is managed as a single entity and the taxable is mostly equity funds and etf's, but, does include bonds and bond funds which are used for income. I do watch taxes, but it is not a major factor in decision making.

I've been retired for 23+ years and in that time my total portfolio value has more than doubled.
Enjoy | Al Seekamp

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abuss368
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Re: Do you invest in a taxable account?

Post by abuss368 » Mon Jan 06, 2014 4:12 pm

sscritic wrote:
nordlead wrote:
Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.
Why not? It is money. You are saving it. What is your retirement account other than savings? Or are you distinguishing saving from savings (the final s makes all the difference)? Or is it Savings vs savings (the capital S making the difference)? I am not good at spitting hairs when it comes to money. It's fungible; I use it to buy stuff. It's all invested some place or another. [Splitting hairs in reading is a different matter.]
I consider part of our savings account as allocated for retirement. This portion is never used and only added two every other week. The other part of the savings account is to pay annual expenses (i.e. taxes, etc.). We run a simple spreadsheet to allocate the balance per bank.

I would imagine it is how the investor views the intent of the balance or accounts in terms of the overall puzzle that counts.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

columbia
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Re: Do you invest in a taxable account?

Post by columbia » Mon Jan 06, 2014 8:46 pm

Is it preferred to invest in international - before US - in taxable (and a corresponding reallocation in tax deferred) because of the foreign tax credit?

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FrugalInvestor
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Re: Do you invest in a taxable account?

Post by FrugalInvestor » Mon Jan 06, 2014 8:49 pm

Yes but I maxed out tax deferred space first.

We're now living off the taxable accounts in early retirement and god willing and the creek don't rise shouldn't need to tap the tax-deferred or social security until required to.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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ofcmetz
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Re: Do you invest in a taxable account?

Post by ofcmetz » Tue Jan 07, 2014 12:29 am

sscritic wrote:
nordlead wrote:
Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.
Why not? It is money. You are saving it. What is your retirement account other than savings? Or are you distinguishing saving from savings (the final s makes all the difference)? Or is it Savings vs savings (the capital S making the difference)? I am not good at spitting hairs when it comes to money. It's fungible; I use it to buy stuff. It's all invested some place or another. [Splitting hairs in reading is a different matter.]
So I guess this pole is meaningless as we all invest in taxable through our savings accounts. It was a trick question all along. :oops:
Never underestimate the power of the force of low cost index funds.

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max12377
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Re: Do you invest in a taxable account?

Post by max12377 » Tue Jan 07, 2014 5:51 am

Yes. I max out 403b and Roth first and as early in the year as I can. I am split about even between VTSAX and VTIAX in my taxable account. Psychologically, I find it easier to invest In a taxable account in a frothy market because of the tax loss harvesting opportunities.

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Steadfast
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Re: Do you invest in a taxable account?

Post by Steadfast » Tue Jan 07, 2014 2:56 pm

Yes, after maxing out 401k contributions (already bought a home) and occasionally suring up the 6+ month emergency/spontaneous vacation fund. My income is higher making me ineligible for a Roth. So excess savings, after tax-advantaged contributions, goes into a taxable account, managed for tax efficiency and allocated consistent with my global asset allocation strategy.
We don't see things as they are, we see things as we are.

longinvest
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Re: Do you invest in a taxable account?

Post by longinvest » Tue Jan 07, 2014 5:32 pm

I voted yes.

I have no choice. My tax defferred space (RRSP, Canada) is limited due to a workplace pension. I use a "equal location" startegy to simplify rebalancing and hedge future tax changes.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic / international) stocks / domestic (nominal / inflation-indexed) long-term bonds | VCN/VXC/VLB/ZRR

Grasshopper
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Re: Do you invest in a taxable account?

Post by Grasshopper » Tue Jan 07, 2014 8:01 pm

Splitting my investments 50/50 taxable to tax free or deferred let me retire at 54.

MnD
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Re: Do you invest in a taxable account?

Post by MnD » Tue Jan 07, 2014 8:59 pm

columbia wrote:Is it preferred to invest in international - before US - in taxable (and a corresponding reallocation in tax deferred) because of the foreign tax credit?
That was the theory but dividends are 50% higher now in international and a lower percentage are qualified.
So presently I don't think it makes much difference.
I just avoid putting value funds, bonds and active funds in taxable.

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yukonjack
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Re: Do you invest in a taxable account?

Post by yukonjack » Tue Jan 07, 2014 9:30 pm

Another yes because tax advantage accounts are full. Taxable investing is where I've benefited the most from boglehead advice. It seems to me that you can make more mistakes in taxable investing. I keep it simple with Total Int, Total Market and Large Cap.

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Taylor Larimore
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Re: Do you invest in a taxable account?

Post by Taylor Larimore » Tue Jan 07, 2014 9:49 pm

Abuss:

There were no IRAs or 401K plans before 1974. For this reason, many older employees hold profitable securities in taxable accounts that they can't sell without triggering a large-capital gain tax. This is one reason it is very important for younger investors with taxable accounts (because tax-advantaged accounts are full) to use only low-cost, tax-efficient funds that can be held forever.

Tax-efficient Total International and Total Stock Market are funds of choice for taxable accounts.

Best wishes.
Taylor
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bhsince87
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Re: Do you invest in a taxable account?

Post by bhsince87 » Tue Jan 07, 2014 11:17 pm

Heck yeah! I fall into the group who started to invest before IRA and 401K became available, but still, liquidity and flexibility of taxable accounts offer many benefits.

If you invest in funds or stocks that minimize dividends and focus on unrealized capital gains (and you don’t trade excessively), they are mostly tax free anyway.

And they’re also currently tax free when you redeem if you’re married total income is around $90k or so.
Retirement: When you reach a point where you have enough. Or when you've had enough.

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wwhan
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Re: Do you invest in a taxable account?

Post by wwhan » Wed Jan 08, 2014 1:07 am

Yes, In addition to maxing out 401K & non-deductable IRA, taxable in CDs, Bonds, Total index market

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slow n steady
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Re: Do you invest in a taxable account?

Post by slow n steady » Wed Jan 08, 2014 9:05 am

surfstar wrote:Another no, here.

I have maxed my Roth the last three tax years and am on the path to max'ing my 457 this year. My budget is tight, but doable (while single at least!), but this savings rate will really help me towards an early retirement. A pension would also likely preclude me from saving any extra monies in a taxable account as salary increases - at that point I would simply increase my budget a little. A pension + fully max'd tax advantaged accounts will easily fund my early retirement in ~20 years.
+1.
Here's to hoping that the pension + 457b will look quite nice around age 50. :sharebeer

poker27
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Re: Do you invest in a taxable account?

Post by poker27 » Wed Jan 08, 2014 9:48 am

I finally have a EF which I am comfortable with, maxed out my 401k for the first time last year (hope to again), and own a home with a mortgage, so I have been investing for the past 9 months in taxable. I started investing in not so great taxable funds w/ vanguard before reading this site daily. But since then I have been splitting up contributions between total US and total International. I will more then likely add a bond fund to my taxable for some stability, just not sure which one to go with.

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abuss368
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Re: Do you invest in a taxable account?

Post by abuss368 » Wed Jan 08, 2014 10:42 am

poker27 wrote:I finally have a EF which I am comfortable with, maxed out my 401k for the first time last year (hope to again), and own a home with a mortgage, so I have been investing for the past 9 months in taxable. I started investing in not so great taxable funds w/ vanguard before reading this site daily. But since then I have been splitting up contributions between total US and total International. I will more then likely add a bond fund to my taxable for some stability, just not sure which one to go with.
Consider Intermediate Term Tax Exempt for a taxable bond fund. Some others may also recommend the TIPS fund because there is no state and local tax.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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bottomfisher
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Re: Do you invest in a taxable account?

Post by bottomfisher » Wed Jan 08, 2014 11:41 am

Had taxable account that was actively contributing to. Used to save for down payment in case found new home. If not was to be utilized for retirement (long way away) or emergency-emergency fund. Balance was invested in TSM since no time frame for use of funds. Did not consider it part of asset allocation for retirment planning however. Happened to find home. Cashed out balance and utilized funds for to purchase and update home. Have some of the funds left over so recently reopened in Vg Tax Managed Balanced fund. Still considering it more of an emergency-emergency fund or special allocation as needed. Likely not going to actively contribute for now since much more work needs to be done on home but that will come from current cash flow.

sscritic
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Re: Do you invest in a taxable account?

Post by sscritic » Wed Jan 08, 2014 11:50 am

bottomfisher wrote:Had taxable account that was actively contributing to. Used to save for down payment in case found new home. If not was to be utilized for retirement (long way away) or emergency-emergency fund. Balance was invested in TSM since no time frame for use of funds. Did not consider it part of asset allocation for retirment planning however.
Did you hear about the boglehead who died of starvation after his retirement? His friends later discovered that he had $100,000 in his checking account at the time of his death, and they couldn't figure out why he hadn't used the money to buy food. Finally, one friend remembered a discussion they had had when the deceased explained that he had learned on bogleheads.org that checking accounts weren't for retirement.

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abuss368
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Re: Do you invest in a taxable account?

Post by abuss368 » Wed Jan 08, 2014 11:53 am

sscritic wrote:
bottomfisher wrote:Had taxable account that was actively contributing to. Used to save for down payment in case found new home. If not was to be utilized for retirement (long way away) or emergency-emergency fund. Balance was invested in TSM since no time frame for use of funds. Did not consider it part of asset allocation for retirment planning however.
Did you hear about the boglehead who died of starvation after his retirement? His friends later discovered that he had $100,000 in his checking account at the time of his death, and they couldn't figure out why he hadn't used the money to buy food. Finally, one friend remembered a discussion they had had when the deceased explained that he had learned on bogleheads.org that checking accounts weren't for retirement.
What?
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

sscritic
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Re: Do you invest in a taxable account?

Post by sscritic » Wed Jan 08, 2014 11:54 am

P.S. I am retired. I spend money. All the money I spend comes from my checking account. I pay off my credit cards from my checking account. I get cash from my checking account. I buy food using credit cards or cash, but the money comes from my checking account. I would be that dead-from-starvation retiree if not for using my checking account for retirement.

Checking accounts are definitely retirement accounts. Money is still fungible, even if you are a fungibility denier.

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abuss368
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Re: Do you invest in a taxable account?

Post by abuss368 » Wed Jan 08, 2014 12:02 pm

sscritic wrote:P.S. I am retired. I spend money. All the money I spend comes from my checking account. I pay off my credit cards from my checking account. I get cash from my checking account. I buy food using credit cards or cash, but the money comes from my checking account. I would be that dead-from-starvation retiree if not for using my checking account for retirement.

Checking accounts are definitely retirement accounts. Money is still fungible, even if you are a fungibility denier.
Agreed. This is why I always mention cash flow is more important than balances.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Kevin21
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Re: Do you invest in a taxable account?

Post by Kevin21 » Wed Jan 08, 2014 12:07 pm

I voted yes. I am only 26 years old, and have maxed out retirement accounts for the last 3 years, alongside wife doing the same.

There may come a time, (40 years old?) where it is nice to have some flexible investments before retirement age, so I am now focusing on building a taxable account in addition to tax advantaged.

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bottomfisher
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Re: Do you invest in a taxable account?

Post by bottomfisher » Wed Jan 08, 2014 12:25 pm

sscritic wrote:
bottomfisher wrote:Had taxable account that was actively contributing to. Used to save for down payment in case found new home. If not was to be utilized for retirement (long way away) or emergency-emergency fund. Balance was invested in TSM since no time frame for use of funds. Did not consider it part of asset allocation for retirment planning however.
Did you hear about the boglehead who died of starvation after his retirement? His friends later discovered that he had $100,000 in his checking account at the time of his death, and they couldn't figure out why he hadn't used the money to buy food. Finally, one friend remembered a discussion they had had when the deceased explained that he had learned on bogleheads.org that checking accounts weren't for retirement.
sscritic wrote:P.S. I am retired. I spend money. All the money I spend comes from my checking account. I pay off my credit cards from my checking account. I get cash from my checking account. I buy food using credit cards or cash, but the money comes from my checking account. I would be that dead-from-starvation retiree if not for using my checking account for retirement.

Checking accounts are definitely retirement accounts. Money is still fungible, even if you are a fungibility denier.
I'm still confused? How did checking account figure into commentary. We have checking accounts that we utilize for the same purposes as yourself. I was simply referring to OP questions re: taxable account. Which is "yes I have a taxable investment account" and as per the OP's question it currently provides me flexibility to use for back up emergency fund, update home, special allocation (i.e. travel, new car) or for retirement if not used for later purposes.

cherijoh
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Re: Do you invest in a taxable account?

Post by cherijoh » Wed Jan 08, 2014 12:52 pm

Yes, but my taxable account isn't getting a whole lot of new contributions since I am eligible for catch-up contributions and am maxing out my 401K. This is definitely earmarked for retirement. It contains most of my international (VEU) and some total stock market. (I also have an emergency fund that is in a taxable MM, but that is probably not what you meant).

I started the taxable account back when 401K limit was ~ 10K. It got a boost from an inheritance 8 years ago and currently represents ~14% of my total portfolio.

MapleHermit
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Re: Do you invest in a taxable account?

Post by MapleHermit » Wed Jan 08, 2014 2:15 pm

ofcmetz wrote:
sscritic wrote:
nordlead wrote:
Bacchus01 wrote:Do you have money sitting in a savings account?

Then you are invested in a taxable account.
Not many people will consider a savings account an investment in a taxable account. I know I don't.
Why not? It is money. You are saving it. What is your retirement account other than savings? Or are you distinguishing saving from savings (the final s makes all the difference)? Or is it Savings vs savings (the capital S making the difference)? I am not good at spitting hairs when it comes to money. It's fungible; I use it to buy stuff. It's all invested some place or another. [Splitting hairs in reading is a different matter.]
So I guess this pole is meaningless as we all invest in taxable through our savings accounts. It was a trick question all along. :oops:
I never thought this forum could be so humorous.

On topic, maxing tax-advantaged accounts is a must but there's not a lot of incentive to invest in a taxable account, at least for me.

simpleton
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Re: Do you invest in a taxable account?

Post by simpleton » Wed Jan 08, 2014 3:40 pm

Geist wrote:I feel that it's only prudent for me to invest in a taxable account. I'm only 27, so money that I put away toward retirement is effectively inaccessible to me for the next 30 years (yes, yes, "Roth IRA contributions can be withdrawn!" .... whatever.) I do max my Roth IRA every year, but don't come close to maxing my TSP. In fact, my goal at this point is simply to half-max my TSP (which I haven't yet managed to do). Sure, I could max it out, but I prefer to manage my savings by allocating them toward short-/mid-/long-term goals. Retirement = long-term ... buying houses & paying for education = mid-term ... vacations & replacement cars = short term. Maxing my TSP would throw those plans out the window entirely, and sacrifice my ability to meet my short- & mid-term goals. I aim to save at least 15% of my gross income toward retirement, 10% for mid-term goals, 5% for short-term goals --- at least 30% of my gross income (often more, but this is my minimum). Making "only" $80k/yr, maxing my Roth IRA & TSP alone would consume 28% of that savings goal. Soooo.... about that car that needs to be replaced next year....?? This is why my taxable accounts (investments, cash savings, etc) make up about 40% of my total (non-home) assets.
It seems that you've organized things mentally as:
Mid-Term = Taxable
Long-Term = TSP + Entire Roth IRA

You could save a fair amount in capital gains and dividend taxes if you instead looked at it as:
Mid-Term = Taxable + Roth IRA Contributions
Long-Term = TSP + Roth IRA Earnings


The Roth IRA is a WONDERFUL vehicle for mid-term savings. The key is to mentally account for your Roth IRA contributions as part of your mid-term allocation and your Roth IRA earnings as part of your long term allocation.

Imagine you are going to invest $1,000 in a stock fund for 10 year and that the fund will experience 6% price appreciation with a 2% dividend yield (8.12% combined growth). Further assume that the combined state/local tax rate for capital gains and qualified dividends is 20%.

After 10 years the balance in a Roth IRA would grow to $2,183 and if you withdrew your $1,000 contribution to pay for your mid-term goal you would still have a $1,183 balance left in the Roth IRA account.

In a taxable account, the yearly growth would be slightly lower (from paying taxes on the dividends) as the final value would be $2,099 (with $835 of that being capital gains). If you withdrew $1,086 you would have a $86 capital gains tax bill, netting you $1,000 in proceeds and leaving a $1,012 balance left in the taxable account (with $402 of capital gains liability).

sscritic
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Re: Do you invest in a taxable account?

Post by sscritic » Wed Jan 08, 2014 4:24 pm

bottomfisher wrote:
bottomfisher wrote:Had taxable account that was actively contributing to. Used to save for down payment in case found new home. If not was to be utilized for retirement (long way away) or emergency-emergency fund. Balance was invested in TSM since no time frame for use of funds. Did not consider it part of asset allocation for retirment planning however.
sscritic wrote: Checking accounts are definitely retirement accounts. Money is still fungible, even if you are a fungibility denier.
I'm still confused? How did checking account figure into commentary. We have checking accounts that we utilize for the same purposes as yourself. I was simply referring to OP questions re: taxable account. Which is "yes I have a taxable investment account" and as per the OP's question it currently provides me flexibility to use for back up emergency fund, update home, special allocation (i.e. travel, new car) or for retirement if not used for later purposes.
I am sorry if it looked like I was addressing this specifically to you. I was really responding to others who think that retirement money and taxable money and emergency funds and checking accounts hold different types of money: green in one, yellow in another, red in the third, and purple in the last. You just happened to be the most recent post that tried to isolate one kind of money from another at the time, although you seem to do is less than many others.

For those others who think that money comes in different colors, I would remind them that there are posters who keep their emergency funds in a Roth and others who use a 529 for retirement savings. Rarely are you stopped from using one color money for any purpose you choose. Now there are different storage facilities for your money, and some come with early withdrawal penalties, but you can still use the money however you want.

I just don't understand the reasoning that says if I buy a house two years before retirement I am not using retirement money, but if I buy it two years after retirement I am using retirement money. Similarly, if I have $5000 in a checking account, it is not retirement money, but if I write a check and send it to my IRA at Vanguard it is retirement money. I can't decide if this transformation is alchemy, base metal to gold, or a miracle, water to wine. I admit to being stumped. For me, it's all just money, and it's all one color.

placeholder
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Re: Do you invest in a taxable account?

Post by placeholder » Wed Jan 08, 2014 4:37 pm

sscritic wrote:Did you hear about the boglehead who died of starvation after his retirement? His friends later discovered that he had $100,000 in his checking account at the time of his death, and they couldn't figure out why he hadn't used the money to buy food. Finally, one friend remembered a discussion they had had when the deceased explained that he had learned on bogleheads.org that checking accounts weren't for retirement.
In my case I designate a portion of cash as emergency fund (which would include buying food while starving) and any cash over that amount as officially part of the asset allocation in the fixed income category.

selftalk
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Re: Do you invest in a taxable account?

Post by selftalk » Wed Jan 08, 2014 4:40 pm

Look at Vanguard`s tax managed funds.

Dave C.
Posts: 286
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Re: Do you invest in a taxable account?

Post by Dave C. » Thu Jan 09, 2014 12:07 am

Yes...and ditto, ditto, ditto.

I'll retire in two months, and I've got at least 8 years of taxable investments to draw from....keeps my protected money growing like a baby. 8-)
Easy does it/Live & Let Live/One day at a time. Thanks Bill.

denovo
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Re: Do you invest in a taxable account?

Post by denovo » Thu Jan 09, 2014 5:08 am

My parents do because they were late to using tax-advantaged accounts.

Obviously these accounts are not tax-advantaged, but I think the costs of so-called taxable accounts are not too high for the average middle class family.

If you are in a married household that makes less than 459k annually , i.e. the 39.6 percent bracket, qualified dividends and long-term capital gains are taxed at 15 percent and there is the foreign tax credit and the volatility of the market has provided opportunities for tax-loss harvesting.

They have about 400k in stocks in taxable accounts which spitted out about $12,000 in dividends, which will only produce $1,800 in income taxes, assuming qualified dividend status.
Last edited by denovo on Thu Jan 09, 2014 11:19 am, edited 1 time in total.
"Don't trust everything you read on the Internet"- Abraham Lincoln

bobbun
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Re: Do you invest in a taxable account?

Post by bobbun » Thu Jan 09, 2014 9:40 am

Yes. I'm pretty frugal by nature, and after maxing tax deferred options (excluding ibonds--I'm still not convinced the low return on those is a good choice for me at this point in my life), I still have quite a bit left over with nowhere else to put it. So into taxable it goes!

minesweep
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Location: PA

Re: Do you invest in a taxable account?

Post by minesweep » Thu Jan 09, 2014 10:00 am

Taxable - 68.6%
Traditional IRA - 28.6%
Roth IRA 2.8%

I retired on 01/2001. A 401K plan wasn't available through my company until around 1986. And, employees were not allowed to invest in stock mutual funds until 1991. I invested 100% in stocks (at the maximum dollar amount allowed for a 401K) throughout the Stock Market's Roaring Nineties.

Mike

Dave C.
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Location: Mesa, AZ

Re: Do you invest in a taxable account?

Post by Dave C. » Thu Jan 09, 2014 10:43 am

Just for grins....I figured out my tax deferred % vs. my taxable %.

I retire in two months (at 62 years) and I am at 79% in tax deferred accounts....and 21% in taxable accounts. My total is just shy of $1.5M.

I didn't save these amounts on purpose in deferred/taxable, like everybody else I stashed cash in taxable because the deferred acocunt were maxed.

Now I am happy I did. The money I need to make my monthly nut ($6,000) in retirement, after SS and pension, will come from my taxable accounts for as long as they last. That will lower the tax burden to Cap. Gains while allowing my tax deferred accounts to grow.....tax deferred.

I am far from a wiz on tax implacations....but the above distribution timetable makes sense to me. If anyone sees a huge mistake in my thinking, please feel free to post your response. (I am very slow to hire advisors since I started spending time on this site).

Thanks for any imput. :shock:
Easy does it/Live & Let Live/One day at a time. Thanks Bill.

Geist
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Location: Alaska

Re: Do you invest in a taxable account?

Post by Geist » Thu Jan 09, 2014 10:46 am

simpleton wrote:
Geist wrote:I feel that it's only prudent for me to invest in a taxable account. I'm only 27, so money that I put away toward retirement is effectively inaccessible to me for the next 30 years (yes, yes, "Roth IRA contributions can be withdrawn!" .... whatever.) I do max my Roth IRA every year, but don't come close to maxing my TSP. In fact, my goal at this point is simply to half-max my TSP (which I haven't yet managed to do). Sure, I could max it out, but I prefer to manage my savings by allocating them toward short-/mid-/long-term goals. Retirement = long-term ... buying houses & paying for education = mid-term ... vacations & replacement cars = short term. Maxing my TSP would throw those plans out the window entirely, and sacrifice my ability to meet my short- & mid-term goals. I aim to save at least 15% of my gross income toward retirement, 10% for mid-term goals, 5% for short-term goals --- at least 30% of my gross income (often more, but this is my minimum). Making "only" $80k/yr, maxing my Roth IRA & TSP alone would consume 28% of that savings goal. Soooo.... about that car that needs to be replaced next year....?? This is why my taxable accounts (investments, cash savings, etc) make up about 40% of my total (non-home) assets.
It seems that you've organized things mentally as:
Mid-Term = Taxable
Long-Term = TSP + Entire Roth IRA

You could save a fair amount in capital gains and dividend taxes if you instead looked at it as:
Mid-Term = Taxable + Roth IRA Contributions
Long-Term = TSP + Roth IRA Earnings

The Roth IRA is a WONDERFUL vehicle for mid-term savings. The key is to mentally account for your Roth IRA contributions as part of your mid-term allocation and your Roth IRA earnings as part of your long term allocation.
I see your (very valid) point, but I just haven't gotten to the point yet where I'm comfortable thinking about a retirement account (my Roth IRA) as a tappable resource for stuff like buying a house or paying for an advanced degree. The difference for me is fairly minimal right now anyway, because (1) I don't pay state income tax; and (2) I'm sitting just inside the 15% income tax bracket, so my LTCG tax rate is 0% (in fact, last month I did some major LTCG harvesting & reset my cost basis up to current values with a minimal net tax impact). Perhaps at some point in the future I'll be more willing to go in that direction, but right now, I've only got ~$105k in retirement (vs. $50k in taxable + $30k in cash/I-Bonds ), a level to which I've worked very hard to reach... I just don't like the idea of drawing that down when I can instead invest in--and later withdraw from--my taxable account, which in my mind suits the purpose of both types of accounts -- IRA's are for retirement, non-retirement accounts are for non-retirement uses.

Call me crazy... I know. It's not the most tax-efficient strategy. But I'm young, dumb, & naïve (knowing is half the battle, right? lol). I'm sure as I spend more time around here, my attitudes will shift over time... But until then, they can have my taxable account when they pry it from my cold, poverty-stricken fingers. :wink:

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