What Specifically is a Taxable Account?

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bjs2025
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What Specifically is a Taxable Account?

Post by bjs2025 » Sat Jun 01, 2019 10:18 am

Hi all

Recently joined the forum and have been taking in all things Bogle for about the last month. I have a question about when you max out your 401(k) and Roth IRA. I have seen people mention a solution is to open a “taxable account”. What specifically is that on Vanguard? I don’t think they are talking about a traditional IRA because you would still have already maxed out your contributions in your Roth IRA.

If I were to set up a standard taxable account on Vanguard what exactly would I set up?

Sorry for my ignorance and thanks for any help.

Brian

decapod10
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Re: What Specifically is a Taxable Account?

Post by decapod10 » Sat Jun 01, 2019 10:46 am

I think on Vanguard’s website you would go to “Open an account” then it looks like you would choose “General Savings” as account type. The other options are “Retirement” would be things like IRAs, “Education” would be 529s.

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goodenyou
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Re: What Specifically is a Taxable Account?

Post by goodenyou » Sat Jun 01, 2019 10:46 am

A "taxable account" is an account that is funded by money that has previously been run through the tax system. That is, income after all federal, state and local taxes have been deducted. It is referred as "taxable" because it continues to generate taxable income that is paid "today", regarded as qualified (capital gains rates) and non-qualified (marginal rates) income. Taxable is differentiated from tax-deferred or tax-privileged because the latter pays taxes at a later time (often 59-70.5 years of age).
Last edited by goodenyou on Sat Jun 01, 2019 10:48 am, edited 1 time in total.
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Phineas J. Whoopee
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Re: What Specifically is a Taxable Account?

Post by Phineas J. Whoopee » Sat Jun 01, 2019 10:48 am

You would set up an ordinary brokerage account.

The term taxable account refers to anything that isn't specifically tax-advantaged. There are many types of those, often only available to people in certain occupations with certain employers.

To open a tax-advantaged account with Vanguard (or anybody else) you would have to specify that's what you're doing. Otherwise it's taxable.

The difference is in a taxable account income tax on dividends and interest is due every year. In a tax-advantaged account it can be delayed, at least, or even completely avoided.

The math is simple but many people, in my personal experience, have an emotional relationship with the words that stops them from using the grade-school arithmetic that shows the differences, and lack of differences, between them.

PJW
Last edited by Phineas J. Whoopee on Sat Jun 01, 2019 11:17 am, edited 1 time in total.

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Phineas J. Whoopee
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Re: What Specifically is a Taxable Account?

Post by Phineas J. Whoopee » Sat Jun 01, 2019 10:52 am

goodenyou wrote:
Sat Jun 01, 2019 10:46 am
A "taxable account" is an account that is funded by money that has previously been run through the tax system. That is, income after all federal, state and local taxes have been deducted. It is referred as "taxable" because it continues to generate taxable income that is paid "today", regarded as qualified (capital gains rates) and non-qualified (marginal rates) income. Taxable is differentiated from tax-deferred or tax-privileged because the latter pays taxes at a later time (often 59-70.5 years of age).
I'm afraid the underlined part is not completely correct. It would apply to any Roth account, which clearly are tax advantaged.

To take the polite opportunity, because nobody so far in this thread wrote the common mistake ROTH, the late Delaware Senator William Roth's surname was not an acronym.

PJW

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goodenyou
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Re: What Specifically is a Taxable Account?

Post by goodenyou » Sat Jun 01, 2019 11:00 am

Phineas J. Whoopee wrote:
Sat Jun 01, 2019 10:52 am
goodenyou wrote:
Sat Jun 01, 2019 10:46 am
A "taxable account" is an account that is funded by money that has previously been run through the tax system. That is, income after all federal, state and local taxes have been deducted. It is referred as "taxable" because it continues to generate taxable income that is paid "today", regarded as qualified (capital gains rates) and non-qualified (marginal rates) income. Taxable is differentiated from tax-deferred or tax-privileged because the latter pays taxes at a later time (often 59-70.5 years of age).
I'm afraid the underlined part is not completely correct. It would apply to any Roth account, which clearly are tax advantaged.

To take the polite opportunity, because nobody so far in this thread wrote the common mistake ROTH, the late Delaware Senator William Roth's surname was not an acronym.

PJW
You are right. There are holes in my explanation. It was the general idea.
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bjs2025
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Re: What Specifically is a Taxable Account?

Post by bjs2025 » Sat Jun 01, 2019 11:05 am

Thanks all. I had a pretty good idea of what a taxable account meant and what it did but just literally didn’t know specifically how to set one up. It sounds like just a plain brokerage account on Vanguard is what I would need. And indicating I want it to be taxable. Are there no contribution limits on this?

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Spinola
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Re: What Specifically is a Taxable Account?

Post by Spinola » Sat Jun 01, 2019 11:08 am

It is any non-tax-advantaged account.. Tax-advantaged accounts include 401k, 403b, 457, 529, HSA, Roth IRA, SEP IRA,etc are all tax-advantaged accounts ..
A taxable account is savings, checking, brokerage, Money market account, CD, etc.. but generally it is used to refer to a brokerage account used for investment purposes.
Last edited by Spinola on Sat Jun 01, 2019 11:10 am, edited 1 time in total.

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bjs2025
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Re: What Specifically is a Taxable Account?

Post by bjs2025 » Sat Jun 01, 2019 11:10 am

Spinola wrote:
Sat Jun 01, 2019 11:08 am
It is any non-tax-advantaged account.. Tax-advantaged accounts include 401k, 403b, 457, 529, HSA, Roth IRA, SEP IRA,etc are all tax-advantaged accounts ..

A taxable account is Savings, checking, brokerage, Money market account, CD, etc..
Perfect, thank you.

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Re: What Specifically is a Taxable Account?

Post by cherijoh » Sat Jun 01, 2019 11:17 am

bjs2025 wrote:
Sat Jun 01, 2019 11:05 am
Thanks all. I had a pretty good idea of what a taxable account meant and what it did but just literally didn’t know specifically how to set one up. It sounds like just a plain brokerage account on Vanguard is what I would need. And indicating I want it to be taxable. Are there no contribution limits on this?
Nope. You can invest as much as you want. After I maxed out my workplace retirement plan, I set up a regular withdrawal from my checking account each payday to purchase a small amount of a stock mutual fund. (This was after deductible contributions to traditional IRAs were limited if you had a workplace plan BUT before Roth IRA's even existed). I initially funded it up to the minimum purchase amount then started dollar cost averaging into it with each paycheck.

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Phineas J. Whoopee
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Re: What Specifically is a Taxable Account?

Post by Phineas J. Whoopee » Sat Jun 01, 2019 11:32 am

bjs2025 wrote:
Sat Jun 01, 2019 11:05 am
... Are there no contribution limits on this?
To paraphrase an aphorism, if you have to ask there probably aren't.

A mutual fund manager, and people running other things too, can set a policy of no more than a certain number of dollars coming in from any individual at one time. I'd not be surprised if Vanguard as a whole would balk at, for example, a ten billion dollar investment all at once, at least without talking about it first.

Since you need to ask, the answer is effectively no.

PJW

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Re: What Specifically is a Taxable Account?

Post by 22twain » Sat Jun 01, 2019 12:42 pm

I've only seen the term "taxable account" used here on this forum. Do people use it on other investing forums, too? The only other one I've used is Morningstar, but it's been years since I hung out there regularly, so I don't remember anything on this point.

It's not a term used by banks, brokerages, the IRS, etc., as far as I know. When I first used it when talking to DW, I had to explain what I meant by it.
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fyre4ce
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Re: What Specifically is a Taxable Account?

Post by fyre4ce » Sat Jun 01, 2019 12:52 pm

Check out the wiki post a few other bh’s and I wrote recently: https://www.bogleheads.org/wiki/Taxable_account

Jags4186
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Re: What Specifically is a Taxable Account?

Post by Jags4186 » Sat Jun 01, 2019 12:55 pm

Anything that’s not a tax advantaged account is a taxable account.

Lee_WSP
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Re: What Specifically is a Taxable Account?

Post by Lee_WSP » Sat Jun 01, 2019 3:37 pm

Vanguard calls it a "brokerage account". At least that's what mine is titled each time I login to check it.

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Duckie
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Re: What Specifically is a Taxable Account?

Post by Duckie » Sat Jun 01, 2019 5:02 pm

bjs2025 wrote:If I were to set up a standard taxable account on Vanguard what exactly would I set up?
When you start the process to open an account online at Vanguard, after a couple of pages it asks you "Why are you investing?". Choose "General savings", then for "Select your account type" you would probably choose "Individual" or "Joint".

On my statements it says "Individual brokerage account".

MotoTrojan
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Re: What Specifically is a Taxable Account?

Post by MotoTrojan » Sat Jun 01, 2019 5:06 pm

Make sure you understand capital gains taxation and don't go buying/selling things at a whim. Also read the wiki on tax-efficient fund placement; dividends that are A-okay in a tIRA or 401k can be very costly in taxable. You will primarily want to use Total US and/or Total International funds, or other tax-efficient products.

UpperNwGuy
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Re: What Specifically is a Taxable Account?

Post by UpperNwGuy » Sat Jun 01, 2019 6:09 pm

Some brokerages use the term "non-retirement account" to refer to what we are calling a taxable account.

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